The Pareto Principle
The Pareto principle is a rule of thumb that tells us that in any given problem, the majority (80%) of a problem is caused by the minority (20%) of reasons. First observed by Wilfredo Pareto in 1896, he noticed that 80% of the land in Italy was owned by 20% of the population, and this observation has been translated to many different applications.
Example applications
There are many different applications in process engineering, economics, business, science, and the social sciences.
Steps
In order to investigate the Pareto principle, you need to gather data about the problem. For example, if you were investigating complaints about a company’s product, you would need to know the number of complaints and the number of customers in order to establish a Pareto relationship.
Key concepts
- the background of the Pareto principle
- example applications of the Pareto principle
- a worked example using real data, including constructing a Pareto chart
- how a company would priorities its efforts, given an understanding of the Pareto principle
- some considerations about the flexibility of the 80-20 rule (e.g. it is not a strict 80-20)
Core resources
- Leavengood, S., and Reeb, J., 2002, Pareto Analysis and Check Sheets
- The Wikipedia page provides a nice overview: https://en.wikipedia.org/wiki/Pareto_principle
Similar concepts…
There are many similar tools that describe the relationship between the minority and majority. We are the 99% was the slogan of the Occupy movement.