Criticism of Principle 20 80. Pareto Principle: Learning

Today, a lot of people know about the Pareto law or the 80/20 principle. The spread of information was due to the widespread description of the importance of the principle by many startup sites and social networks, the practical application of theory in business and other areas to increase efficiency. Now, not only students of economic and sociological specialties who studied the model at lectures and seminars, were tasked to write an essay on the Pareto curve or optimum, have an idea about the law and can use it.

At the same time, the increased interest from various resources leads to a “blurring” of the boundaries of the concept, and, at times, endowing and confirming the Pareto principle with not entirely accurate characteristics and examples. This can lead to a misunderstanding of the 80/20 law as just another nonsensical economic model. To show that this is not the case, the site has prepared this material, in which you will find criteria, methods and examples of this theory.

Wilfredo Pareto

Vilfredo Pareto (July 15, 1848 – August 19, 1923) was an Italian engineer, sociologist, economist, political scientist and philosopher. Born in Paris, in the family of a nobleman, an engineer by profession, who, for political reasons, was forced to immigrate from Liguria. Mother is French.

In 1858 the family returned to Italy, where V. Pareto was educated. Studied at the Polytechnic University of Turin. In 1869 he defended his doctoral thesis in the field of mechanical engineering on the topic "Fundamental principles of equilibrium in solids." His future interest to equilibrium in sociology and economics can be traced already on the example of this work.

After completing his studies, he worked as a civil engineer, first as a civil servant for an Italian railway company and then in private industry. Later he became the manager of the San Giovanni Valdarno metallurgical plant, which is part of the Iron Works group, and after a while the general manager of the entire Italian Iron Works.

Until the age of 40, V. Pareto had little interest in science, in particular its theoretical side. From 1886, he began teaching economics and management at the University of Florence, declaring himself as an ardent opponent of state intervention in the free market. From 1893 until the end of his life he worked at the University of Lausanne.

In 1906, he first outlined the 80/20 principle, which later received his name. In addition, along with G. Mosca, he developed the theory of elites, widely known in political science and sociology. The underlying concept is the circulation of elites. V. Pareto called political history a "graveyard of aristocrats", meaning that power is always in the hands of the elite, not the majority. When one elite declines, a new one emerges from among the non-elite. This is how the cycle happens. More about the theory of elites.

Concluding a brief bibliographical note, we note that V. Pareto was ahead of his time to some extent. Most of his writings on economics are more reminiscent of contemporary writings than studies of the early twentieth century. Biographers who studied the creative heritage speak of complex calculations, graphs, diagrams, statistics collected from all over the world, which the author carried out and placed on the pages of his works. Not surprisingly, some of his findings are still relevant today.

Pareto theory

Not many people know that the Pareto principle was not introduced into scientific circulation by V. Pareto himself. He was the first to discover the pattern, believing that 80% of all wealth in Italy belongs to 20% of the people. There is also a story that before making a global calculation, Pareto, working in the garden, noticed that 80% of the peas are in 20% of the pea pods. It is difficult to say whether this is true or not, but be that as it may, the fact interested him and in the process of further development and comparison of data, the economist came to the conclusion that a similar trend in the distribution of wealth persists in different historical epochs, regardless of the political system. Having collected evidence, the scientist did not offer theoretical basis for his discovery and for some time forgot about it.

In 1941, the American business consultant in the field of management, J. Juran, stumbled upon the distribution rule that interested him in Pareto's work. Comparing the data with his practice, he was convinced of the effectiveness of the principle and named it after the Italian scientist. The spread of the name "20/80" was due to the book by R. Koch "The 20/80 Principle: The Secrets to Getting More Results with Less Effort", which was first published in 1997 and later translated into 34 languages.

Let's move on to the theoretical essence Pareto principle: A small proportion of causes, inputs, or efforts are responsible for a large proportion of results, outputs, or rewards earned. In a more familiar sense for us, from the suggestion of the authors of Wikipedia, it sounds like this: “20% of efforts give 80% of the result, and the remaining 80% of efforts give only 20% of the result.” From this definition follows:

• There are few significant factors, and there are many trivial factors - only single actions lead to important results;
• Most of the effort does not give desired results;
• What we see is not always true - there are always hidden factors;
• What we expect to get as a result, as a rule, differs from what we get (latent forces are always at work);
• It's usually too difficult and tedious to figure out what's going on, and often it's not necessary - all you need to do is know if your idea works or not, and change it so that it works, and then maintain the situation until the idea stops work;
• Most successful events are due to the action of a small number of highly productive forces; most troubles are due to the action of a small number of destructive forces;
• Most activities, group or individual, are a waste of time. They do not give anything real to achieve the desired result.

The Pareto principle is a rule of thumb. In other words, its truth can be confirmed in practice.

It finds its application in many areas. But, bearing in mind that choosing the right 20% necessary action you can get 80% of the desired result, it is worth considering that subsequent efforts may not bring results at all. This idea is illustrated Pareto curve(image taken from the Esquire website).

It should be remembered that the distribution itself, like the numbers 80 and 20, cannot be considered unconditionally accurate, since they reflect the rule, and not a specific truth. It is used in economics, management, political science, for self-development.

Modern economics also important place gives definition Pareto optimum, with which the first and second welfare theorems are inextricably linked. At the optimum, the welfare of society reaches its maximum, and the distribution of resources becomes optimal if any change in this distribution worsens the welfare of at least one subject of the economic system. More details.

It should be noted that the 80/20 rule, also called Zipf's law or power distribution, does not always work. Armed with school knowledge on interest and Forbes magazine, you can see that the first three of the 100 richest people on the planet (B. Gates, K. Slim, and A. Ortega) together have as much money as the next 7 people from the first ten. Even with the adjustment for the fact that the Pareto principle does not always fit perfectly under the 80/20 framework, but tends to them, there is a discrepancy. If we take the top ten, then her income is also equal to the income of the next 40 people. In numerical terms, the following equality comes out: 20% \u003d 50%, 80% \u003d 50%. Another violation of the Pareto principle. The actual distribution of the contribution of a larger and smaller part of the factors in real life it can be anything, it is not necessarily equal to 80/20.

The 80/20 Law: Application and Examples

Why is the Pareto principle so important? We are accustomed to thinking that in any case it is not some factor that matters, but a complex. That in business you need to take care of every customer. That every call is equally meaningful. There can be many explanations for this - from knowledge instilled in school about the arithmetic mean and Newton's third law to attitudes acquired in the process of life. This does not make them unnecessary, just the scope of the Pareto principle is specific. He points out to us that when we analyze two sets of data relating to cause and effect, we will not necessarily get a balance in the end. As well as optionally, we get the distribution 80/20, as shown above. This is very valuable knowledge, but you need to understand when and where to apply it.

As in the case of peas in the garden of V. Pareto, the pattern he discovered manifests itself in different areas - from science to everyday life. Perhaps one of the most famous examples used to illustrate the Pareto principle is the 1960 US presidential campaign. Last months R. Nixon spent the pre-election race in constant traveling, as he made a reckless promise to travel around all the states, even such sparsely populated ones as Haiti. His rival, J. Kennedy, on the contrary, focused on performances in several of the most populous states. He later won.

The 80/20 law has been successfully implemented by IBM. In the early 1960s, its engineers identified the 20% of tasks that were used in 80% of the cases of working with computers. The algorithm was changed, and the most popular calculations began to be made much easier, more convenient, and most importantly, faster. This gave a result - IBM left its competitors far behind.

But let's leave the practice of large companies based on the application of the 80/20 law aside and consider how it can be useful to a particular person. Without exaggeration, the Pareto principle is useful in life to anyone who practices time management and asks questions about improving efficiency, both personal and business. Speaking about compiling, we wrote that it is best to allocate no more than 10 tasks per day, of which 2 are global, requiring the main attention. When recalculated as a percentage, it becomes clear that this condition is a variation of the 80/20 theory.

If you have more than one job or income other than passive income, focus on no more than two of them. These should be the ones that bring you the most profit. Try to increase your productivity in them by getting rid of other, ineffective activities. Such an attitude should be followed in your own business, paying attention to the main aspects, secondary tasks.

Development will help to increase efficiency and, in general, favorably affect life. Psychologists found that 20% stressful situations cause 80% of all anxiety and anxiety experienced. Learn to avoid them or at least to minimize the negative impact.

Unfortunately, the Pareto principle does not give a clue as to which 20% of the things we should focus on in order to achieve 80% of the result. It only indicates that they exist, but everyone must determine them for himself, based on many factors: the specifics of the profession, employment, interests. We wish you success in their definition!

Observant people bring great benefits to the world when they share the conclusions drawn from their observations. Universal laws that can be applied in all spheres of life help a person achieve best results in personal and public activities. One such law is the Pareto law.

The Pareto principle, or the 20/80 principle

The Pareto Rule is named after the Italian sociologist and economist Wilhelm Pareto. The scientist was engaged in research on the flows of financial distribution in society and the activities of industries. As a result, he deduced general patterns, which were then reflected in the Pareto law, which was formulated after the death of the scientist by the American quality specialist Joseph Jurano in 1941.

Wilhelm Pareto's Law is an effective 20/80 formula, where 20% is the effort expended in the chosen activity, giving 80% of the result. While 80% of efforts give only 20%. The Pareto equilibrium was formed on the basis of his work on the Theory of Elites and was expressed in the principles he set forth:

1. Distribution of financial resources in society: 80% of all capital is concentrated in the ruling elite (elite), the remaining 20% ​​are distributed in society.
2. Only 20% of enterprises receiving 80% of profits are successful and productive.

Pareto principle - time management

The success of a person depends on many factors, but the competent use of time is one of the key and important points. The Pareto law in planning time helps to achieve impressive results with less effort and take control of significant areas of life. Pareto optimality in will look like this:

1. Only 20% of all completed tasks will give 80% of the result;
2. In order to select these important tasks, which will bring 80% of the "exhaust", you need to make a list of cases and rank them in order of importance on a 10-point scale, where 10 will show the priority of the task, and 0-1 low degree of importance.
3. Equivalent tasks begin to perform with the one that requires less cost.

Pareto's law in life

There are a lot of routine actions in daily activities and only 20% of them really enrich the sphere of human feelings, give practical experience and bring results. A conscious look at your life: connections with people, the space that surrounds you, things and phenomena - will help you review and isolate the unnecessary or reduce to a minimum everything that takes energy and time. Pareto principle in life:

1. - most of the time to devote to the development of those skills that bring 80% benefit.
2. Income - 20% of customers bring a high stable income, so it is advisable to pay attention to them and satisfy their needs.
3. The space at home is the Pareto effect in that a person uses only 20% of the things in the house, the rest gather dust in the closet or every time a lot of unnecessary things are bought that clutter up the space. When planning purchases, people spend less time maintaining these things.
4. Finance - control helps to calculate on which 20% of things, products 80% of the funds are spent and determine where you can save.
5. Relationships - among relatives, acquaintances, colleagues there are those 20% of people with whom more intense things happen.

The Pareto principle in economics

Efficiency or Pareto Optimum in an economic system is one of the the most important concepts modern economy and contains the conclusion formulated by Pareto that the welfare of society is maximum in such an economy, when no one can improve his situation without worsening the welfare of others. Pareto - optimal equilibrium is achieved only if the necessary conditions are met:

1. Benefits are distributed among consumers according to the maximum satisfaction of their needs (within the framework of the solvency of citizens).
2. Resources are allocated between the production of goods in such a ratio in which they are used as efficiently as possible.
3. Products manufactured by enterprises should make full use of the resources provided.

Pareto principle in management

The Pareto distribution law also operates in the management sphere. In large companies with numerous employees, it is easier to create the appearance of activity than in small teams where everything is in sight. Those 20% among employees who value their work, strive to make a career - bring production 80% of the income. Human resources specialists have long adopted the Pareto principle and cut unnecessary employees, saving the company's costs, but often this forced measure also applies to high-value employees when the company experiences a production crisis.

The Pareto principle in sales

The Pareto rule in sales is one of the most fundamental. Any businessman, top sales manager is trying to identify the effective components of 20% of actions, conditions, partners, products that will allow you to make transactions, sales at the maximum level. Successful entrepreneurs have identified the following Pareto patterns:

• 20% of the time spent on business management - 80% of the results;
• 80% of sales are provided by only 20% of managers or salespeople;
• Of the entire product line, only 20% bring a stable 80% income;
• Regular customers or buyers are those 20% that bring 80% of the income to the company or production.

Pareto principle in logistics

The Pareto method in logistics has proven its effectiveness in various areas, but in general it can be postulated as: focusing on 10% - 20% of significant assortment positions, suppliers and customers gives 80% of success with minimal costs. Aspects of logistics in which the Pareto principle is applied:

• shipment-loading, transportation of goods;
• tracking the volume of shipment of the assortment range;
• production optimization;
• efficient placement of goods in trading floors or warehouses;
• clientele analysis.

What does a Pareto chart help determine?

The Pareto theory can be expressed in 2 types of charts, which as a tool are applicable in the economy, business, in production technologies:

1. Performance Pareto Chart - Helps identify major problems and undesirable performance outcomes
2. Pareto chart by causes - isolating the main reasons for which problems arose in the course of activity.

How to build a Pareto chart?

The Pareto chart is easy to use, but allows you to get an assessment of the activity and make decisions to eliminate inefficient actions. The construction of the chart is based on the rules:

1. The choice of the problem to be comprehensively investigated.
2. Preparing the data registration form
3. In descending order of importance, rank the obtained data on the problem under test.
4. Preparing the axis for plotting a chart. On the left axis of ordinates, the number of factors studied is plotted (for example, from 1-10), where the upper limit of the scale corresponds to the number of problems. On the right axis of ordinates, a scale from 10 - 100% is put down - an indicator of the percentage measure of problems or adverse signs. The abscissa axis is divided into intervals corresponding to the number of factors under study.
5. Building a diagram. The height of the columns on the left scale is equal to the frequency of manifestations of control problems, and the columns are constructed in descending order of the significance of the factors.
6. The Pareto curve is built on the basis of the diagram - this is a broken line connecting the total points that are placed above the corresponding column, focusing on its right side.
7. Labels are added to the diagram.
8. Analysis of the Pareto chart.

An example of a chart showing Pareto unevenness and showing which products are more profitable:

You knew that 20% of the workers in the team do 80% of the main work, and 80% of the fat in the body of 20% of the foods you eat form 80% of the fat in the body. This rule of thumb is often referred to as "Pareto's law" or "the 80/20 principle". Let's take a closer look at what it is. It all started with the fact that in 1897 the Italian economist Vilfredo Pareto calculated that 20% of English families own 80% of all money. After that, he began to test the rule "20-80" not only in finance, but also in other areas. For example, on green peas in your garden: 20% of the pods give 80% of the total crop. In honor of the discoverer, the rule was later called the "Pareto Principle". As it turned out later, this simple pattern works under any circumstances and in all cases.

The formulation and meaning of the Pareto principle

Here is what the most general formulation of the Pareto law looks like today:

20% of efforts give 80% of the result, and the remaining 80% of efforts - only 20% of the result

In other words, to put it more literally, the Pareto Principle reads as follows:

In any situation, there is always a minority, more important and useful than the rest of the many.

Here are some simple and understandable examples:

— On the site, 20% of the text is 80% of the total useful information. Everything else is water.

- In trading, 20% of customers bring in 80% of the revenue. They are the ones that require the most attention.

- 20% of the pages of the textbook contain 80% of all the necessary data. Focus on useful information.

How to use the Pareto rule in life

If we apply the 20/80 rule in our Everyday life, then at the everyday level the Pareto law can be interpreted as follows:

Not all of our daily tasks are equally important. If you do ten things a day, then, as a rule, only two of them are the most important, and the remaining 8 are less important.

The main task is to identify these 20% and concentrate on them, and spend a minimum of time on unimportant 80% of cases. The ability to prioritize, rather than grab everything at once, is one of the important qualities successful person. Of course, at first it will be quite difficult to correctly prioritize and accuracy will be “limping on both legs”, but over time, with regular training, the emphasis will gradually shift to right side. This will allow you to achieve results, and not scatter your strength over trifles.

The main and useful result of applying the 20/80 Pareto principle is to correctly prioritize 20% of the main tasks or goals, so that you can then spend 80% of your time and effort on them. That's the whole point and the whole point! Try to keep the main goal in mind and focus on the main result. It is important not only to make maximum efforts, but also to direct them right on target.

V. Pareto discovered the effect of concentrated tension. AT this case meaning that the concentration on vital important activities has the greatest impact on achieving the desired results. This is where the 20/80 rule comes in: focus 20% of the time on the most important issues can lead to 80% of the results. The remaining 80% of the time provides only the remaining 20% ​​of the results (Fig. 1).

Rice. 1. The ratio of time spent and results achieved

In 1897, the Italian economist V. Pareto invented a formula showing that all benefits are unevenly distributed. In most cases, the largest share of income or wealth belongs to a small number of people. M.S. Lorentz (an American economist) illustrated this theory with a diagram. Dr. D.M. Juran used a diagram to classify quality problems into a few essential ones and many non-essential ones, and called this method Pareto analysis. He pointed out that in most cases the vast majority of defects and associated losses are due to a relatively small number of causes.

Application of the Pareto Law in Marketing Analysis

Consider the application of the Pareto principle, also called the Pareto law, in the marketing analysis of buyers or suppliers.

The Italian sociologist and economics scholar Vilfredo Pareto (1848-1923) formulated in 1897 universal law, which was based on in large numbers statistical measurements carried out by the author in many areas of activity, including finance, sales, economics, sociology, and production. The main postulate of this law says: 20% of the applied efforts give 80% of the result, and the remaining 80% of the efforts add only 20% to the result. The same Pareto ratio applied to the time spent on certain work.

The main provisions of the Pareto law can be summarized as follows:

• In any process, there are a very large number of factors or causes influencing it, of which only a few have a determining effect. This rule "works" in many other areas. For example, it most often manifests itself in production processes when analyzing quality and identifying the causes of manufacturing defects. Does the Pareto rule apply in geopolitics? Rather, one can give a positive answer, since out of almost 200 countries of the world, only 20-30 are the most influential. And in sports? Of the 400 rated professional tennis players in the world, only the first few dozen basically share prize funds and compete in matches.
• Most of the efforts applied to the case are spent inefficiently, without the necessary return, and only a small part of them leads to a positive result.
• It is difficult to sort out a large number of individual events and accept the right decision based on their analysis, since these events can be very different in nature and essence.

In terms of marketing applications, this refers to the analysis of consumers and suppliers, of which some enterprises have hundreds and thousands.

AT practical application the Pareto rule, the ratio of 20:80 is definitely not maintained. This is a conditionally generalized ratio. In reality, the ratio can range from 5:95 to 30:70 depending on many factors.

A typical form of the distribution of the number of buyers, depending on the share of income generated, is shown in fig. 3.9.

Rice. 3.9. The ratio of volumes of purchases and profitability of buyers

On fig. 3.10 specified areas A-D, which distinguish groups of clients with different levels of profitability. Area A denotes a group of unprofitable customers, area B is a group of break-even customers that bring zero or almost zero profit, area C is a group of buyers that make a profit, but not high, and area D is a group of very profitable customers.

Rice. 3.10. Distribution of buyers by income

A significantly smaller part of buyers (about 20%) provides most of the purchases (about 80%), a limited part of the store's assortment retail(about 20%) brings the bulk of the income (about 80%). For example, ZAO Klinskiy Pivokombinat had three groups of wholesalers. In table. 3.18 sales volumes as a percentage of total income for these three groups are given.

Table 3.18. Distribution of income from buyers

Within this framework, the application of the Pareto rule can simplify the implementation of marketing analysis, to facilitate decision-making on the organization of work with suppliers and buyers, to help develop the principles of relationships with them.

Consider the procedure for constructing a Pareto chart and the principle of selecting customer groups. Suppose that according to the results of the enterprise, let's call it conditionally "Finishing", for a certain period of time services were provided in the amount and for the consumers indicated in Table. 3.19. Table form. 3.19 is quite common in practice, since it is a typical operational reporting table.

Table 3.19. Consolidated reporting on performance results

	Buyer name	Quantity, pcs.	Unit price. Rub.	Purchase amount, rub.	Share
	Enterprise "Ivanovets"
	OOO "Three Eagles"
	Kindergarten No. 7
	Plant "Hammer"
	Enterprise "Saratov"
	Enterprise "Orlovskoe"
	CJSC "Neft-
	Firm "Globus-
	Firm "Container-
	Enterprise "Kotel"
	Buyer name	Quantity, pcs.	Price per unit, rub.	Purchase amount, rub.
	Factory "Interior-
	Plant "Omich"
	Laundry No. 3
	School No. 17
	CJSC Columbus
	Firm "Shishka"
	Kindergarten No. 4
	Enterprise "Windows"
	Salon-hairdressing salon

In table. 3.19 reflects the consumers of the company's services, the number of purchased services, the unit cost of the purchased service and the amount of payment received. On fig. 3.11 distribution of shares of buyers in total volume of sales is shown.

Rice. 3.11. Distribution of consumption shares

However, it is not possible to identify trends and typical groups consumers that are needed for analysis. Therefore, the next step in constructing the Pareto distribution is to rank consumers, for example, according to the criterion of gross income received. In practice, the maximum profit, the number of one-time purchases, the frequency of purchases, etc. can be chosen as other criteria. 3.20 shows the distribution of consumers in descending order of the purchase amount.

Table 3.20. Ranking of hemline consumers in purchases

	Buyer name	Purchase amount, rub.	Share	Total share
	Laundry No. 3
	tech* LLC
	Factory "Interior-
	Enterprise "Orlovskoe"
	Enterprise "Kotel"
	Enterprise "Ivanovets"
	Firm "Container"
	CJSC "Neft-
	Kindergarten No. 7
	Firm "Globus"
	OOO "Three Eagles"
	Firm "Shishka"
	Hairdressing salon
	Enterprise "Saratov"
	Enterprise "Windows"
	Plant "Omich"
	CJSC Columbus
	Plant "Hammer"
	School No. 17
	Kindergarten No. 4

The corresponding distribution of ranked consumers is shown in fig. 3.12. This form of representation is very illustrative, since groups of consumers with relatively high and low shares are clearly manifested.

Let us carry out an additional construction, which will make it possible to obtain a cumulative (total) distribution of the shares of consumers in the total income. To do this, starting from the second, we will add the sum of the shares of all previous consumers to the current one (see the column "Total share" in Table 3.21). The cumulative distribution of consumers is built in fig. 3.13.

Rice. 3.12. Ranking consumers by share in income generated

Rice. 3.13. Cumulative distribution of consumers in total sales

All consumers together give 100% of the income. From the distribution, it is possible to obtain formal signs of assigning the consumer to one or another group: of primary or secondary importance, taking into account the ratio of 20: 80.

Let us analyze the distribution shown in fig. 3.14. We approximate it with the corresponding curve shape. The standard Pareto distribution is described by the density function (for a positive parameter c) by the following formula:

f(x) = c / x c +1

c is the parameter (shape) of the distribution; c > 0, x≥ 1.

Depending on the number of consumers (from 1 to infinity) and the volume of consumption of each of them (from equal shares to very different ones), the forms of the Pareto distribution can take the form shown in Fig. 3.14.

Rice. 3.14. Possible forms of the Pareto distribution

The ratio of 80:20 is considered to be a normal and fairly stable situation in the business of a particular enterprise. If the analysis shows that the ratio is, for example, 90:10, then this is a signal that the company is becoming financially dependent on a small part of its partners or buyers, who at some point in time can stop working with this company and disrupt its entire system. A situation where the ratio is, for example, 50:50 may mean that the company does not pay attention to the definition of its target segments and diffuses its efforts without a good return. The foregoing does not apply to cases where the enterprise is a subsidiary of a large firm and provides certain links in the functioning or is unitary.

The 80/20 Law (Pareto Rule) is one of the most well-known performance measurement methods. By using it, you can improve your productivity. Let's take a look at how the 80/20 rule works.

Pareto principle: general information

If you determine which resources will provide the maximum return, then with minimal costs you can achieve the greatest effect. The Pareto rule means a certain asset allocation scheme. It is believed that all factors have the same influence on what is happening. However, this misconception. The Pareto rule corresponds to the ratio of effort and result. Many people, making transactions, think that they carry approximately the same benefit. At the same time, they also believe that all employees work for the benefit of the company equally effectively. These people, moreover, work daily with the same diligence. Some of those who do not know the Pareto 20/80 rule, choosing a university, do not see the difference in utility educational programs. However, by carefully studying the causes and consequences of certain life circumstances, one can come to completely different conclusions. As mentioned above, the Pareto rule represents the relationship between efforts and results. A relatively small proportion of actions is decisive and affects the outcome. All the rest of the energy will be wasted. According to the Pareto rule, only 20% of the effort will give 80% of the result. While the remaining eighty percent of the energy will only lead to twenty. Using the Pareto rule, many investors and businessmen have been successful in business. Understanding and applying this provision allows you to transform the life of both the person himself and the people around him.

History of occurrence

The Pareto 20/80 rule was discovered at the end of the 19th century. It bears the name of an economist who at that time was engaged in the study of the distribution material wealth between different classes of people in England. In accordance with the operation of the Pareto rule, people receive wealth in different shares. As a result of the research, certain figures were established. Pareto found that only 20% of the population owns 80% of the wealth. After an in-depth analysis, an even greater imbalance was discovered. So, 10% of people accumulated up to 65% of goods in their hands, and 5% - only 50%. Subsequently, it turned out that these indicators are not accidental. A little later, Pareto studied the distribution of goods in other states in different historical epochs. The same pattern was found in all countries. However, the economist then could not substantiate the indicators, and his theory was forgotten for a long time.

New Research

In 1949, Harvard professor Zipf identified a similar relationship. He found that about 20-30% of the energy brings about 70-80% of the maximum possible outcomes. The revival of the theory to life made it possible to show the basics of self-organization of the resources available. At the same time, another scientist Yuran investigated the distribution statistics manufacturing defect. They found the same ratio. The scientist described his discovery in the book. Juran called for the use of his "Law of the Few" in enterprises involved in various industries. Thus, he intended to eliminate the production of defective products and improve their quality. Juran believed that unequal distribution takes place not only in the industrial sphere. He also believed that the rule also applies to the statistical description of accidents, offenses and other incidents and facts. In the US, however, entrepreneurs did not take Juran's theory seriously. The scientist turned to Japanese businessmen. In 1953, he visited the country and gave several lectures there. After that, Yuran entered into several contracts with large corporations and remained in Japan. In 1970, the country's enterprises became serious competitors in the market. Juran returned to the USA. The scientist led the industrial revolution in both countries using the Pareto rule.

Business development

How does the Pareto rule work in business? An example is IBM. This company is considered one of the IT leaders. She actively uses the Pareto rule in her work. The theory in question was introduced in 1963. Experts have found that computers spend 80% of the time processing 20% ​​of the data. In this regard, the company's management has set a new goal. It was necessary to identify 20% of those tasks that are solved more often than others. Further, it was necessary to refine the functionality and bring it in full compliance with the requirements of consumers. After that, a technique was created that was several times superior to similar machines of competitors. Analyzing the commercial environment, experts say that most of the company's resources are spent on promoting low-profit products and paying salaries to extra employees, sellers spend too much time on a client that brings little profit. It would be logical to assume that in this case it is necessary to focus on the most profitable areas of business in order to obtain maximum results.

Optimization

The Pareto rule involves the restructuring of the enterprise for the most productive specialists. These employees must sell the company's most profitable services and products. If we talk about customers, then, of course, the company does not want to miss any of them. But, as the Pareto rule says, only a small part of buyers brings the bulk of the income. The rest of the customers are wasting employees' time. To get the maximum result, efforts should be directed to work with those who are of the greatest interest to the company. The maintenance of the remaining 80%, which bring only 20% of the profit, can be unified, making it as economical and fast as possible for the company. So the management of the company can increase efficiency and optimize the work of the enterprise.

Important point

It should be noted that not in all cases it is worth striving for a 100% result. Sometimes the money, effort and time that are spent on restructuring a business completely excludes any possible profit. For most companies, it is enough to stop at the border of 80%. To achieve this result, a small amount of resources will be required. This method of doing business is compared by some experts with the work of famous artists. The master does not spend much time drawing all the details of the picture. Instead, he focuses his efforts only on certain elements - those that should attract maximum attention.

Analysis

The Japanese Union of Engineers and Scientists has included the Pareto chart as a quality control method. The purpose of drawing up a diagram is to identify problems that need to be addressed first. The curve allows you to display the complexity, to determine the main factors with which to start. The diagram shows how to distribute efforts in order to effectively solve problems. There are two types of curves:

Rules for constructing a Pareto chart

The action plan will be as follows:

1. Definition of the problem to be solved.
2. Accounting for all signs and factors that relate to the task.
3. Identification of the root causes that create the greatest difficulties, collecting data on them.
4. Building a diagram.
5. Analysis.

First of all, it is necessary to determine the purpose for which the curve will be built. It is necessary to study the causes of problems and the difficulties themselves, determine what information to collect and how to classify them. Next, you need to develop forms for fixing the initial data. For example, it could be a checklist. Then you should collect data, fill out forms and calculate the results for the studied indicators, features, factors separately. To display the curve, you need to prepare a table form. It should provide columns for the totals for each checked factor separately, the accumulated sum of the number of manifestations of the corresponding sign, percentage relative to overall result and accrued interest. Fill in the table with factors in descending order of their importance.

Progress

To build a curve, 2 vertical and 1 horizontal axes are drawn. On the left is a scale from 0 to overall indicator the number of identified factors, on the right - a scale with intervals from zero to one hundred. It will reflect the percentage of the factor. The x-axis is divided according to the number of features studied or relative frequency. Next, a bar chart is built. The height of the column (it is set aside on the left scale) will be equal to the number of manifestations of the factor. Columns should be arranged in descending order (decreasing the significance of the feature). In the latter, "other", insignificant factors are fixed. Its height may be greater than the neighboring ones. Next, draw a curve. The line should connect the points of the received sums (percentage or quantitative indicator of factors). Each mark is placed above the corresponding column of the chart, while focusing on the right side. Further, the necessary inscriptions and designations are applied to the curve.

Additionally

After analyzing the chart, you should not strive to improve performance in all areas at once. It is more expedient to achieve a result for a start on some of them. At the same time, you need to concentrate on those resources that can bring the greatest income. You should not improve the efficiency of all of them at once. For each area of ​​importance, it is necessary to determine which 20% of efforts can bring 80% of the result. You need to try to make the most of those moments when it is possible to achieve the greatest effect. Many cite lack of time. However, as practice shows, this is just a myth. In fact, a person has enough time. The truly effective people use only 20% of the day.

Pros and cons of the method

The advantages include simplicity and clarity. This allows the use of the Pareto chart by those who do not have special training. Comparison of the curves created before and after the implementation of measures to improve the described situation makes it possible to obtain a quantitative indicator of the gain. The disadvantages of the method include the fact that when constructing complex and not always structured diagrams, incorrect conclusions can be formulated.

Applications

The Pareto rule can be used in various areas, for example:

• Self-development. People can be most successful in the things they do best. Most of the skills that are acquired through hard work are completely unnecessary. Using the Pareto rule, you should focus on your own merits. For example, for sociable people most of all fit job associated with direct contact with customers. If communication skills are poorly developed, then you can do remote work.
• Financial condition. Evaluating it, it is necessary to establish which sources bring the greatest profit - 80%. These will form the basis of the budget and should be the focus of attention. Other ways to get money can be completely ignored as they will only take time and energy. Wherein this rule does not apply to receiving passive income from a bank deposit or investment.