Vilfredo Pareto (1848-1923) was an Italian economist who proposed that 80 percent of an economy’s wealth is held by 20 percent of its population. Since Pareto proposed his famous principle, it has been confirmed that this 80-20 rule of thumb also applies to many other phenomena, including the distribution of product/process quality. For example, it has been found that 80 percent of the observed defects on a product or in a process can be attributed to 20 percent of the possible causes.

The Pareto Principle is a principle because, by definition, it holds true across a broad range of situations and applications. The Pareto Principle describes the behavior of much more than just the usual distribution of product or manufacturing defects. Here are some other areas—from both business and life—where I’ve found the Pareto Principle provides the key to understanding and improvement:

• 80 percent of improvement projects are successfully completed using only 20 percent of possible Six Sigma tools. Implication: training is often overdone. Most improvements can be achieved by mastering a much smaller core of most-often-used tools.
• 80 percent of calls into a customer support center will fall into 20 percent of possible topics. Implication: make sure all customer support staff know how to address those 20 percent, high-volume topics. And then set aside a handful of specialists to receive training to handle the less frequent topics.
• 20 percent of apartment tenants will cause 80 percent of the problems. Implication: property managers know how to spot these people a mile away!

If you look around, instances of the Pareto Principle can be found everywhere. What instances of the Pareto Principle have you discovered in your work?

This entry was posted on Wednesday, July 16th, 2008 at 5:02 pm and is filed under Life Improvement, Tools & Methods. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.