This expanded rule states that about 64 percent of the results come from about 4 percent of the causes:Īpplying the 80-20 Rule (Pareto Principle) Business The 80/20 Rule can also be extrapolated into the 64/4 Rule or the Double Pareto Principle. This shows that the rule is observed and is not strictly that of an 80/20 split of outputs to inputs. Note that the principle is not a hard-and-fast rule and can be adjusted to fit a given scenario roughly in the range of 60/40 to 90/10. The 80-20 Rule or Pareto Principle will show us what resources to put toward 20% of factors or habits that provide most or 80% of the results. Additionally, we only have a limited amount of personal resources (skills, time, energy, attention, and money) to allocate to our lives and businesses. With most things in life, there is a multitude of factors that can affect the outcome of an event. The 80-20 Rule or Pareto Principle provides a framework to focus your efforts as a company or an individual. Why Use the 80-20 Rule (Pareto Principle)? The top 20 percent, or “vital few,” owned about 80 percent of the land, while the bottom 80 percent or “trivial many,” owned about 20 percent of the land. He expanded the principle to economics to find that land ownership by people in Italy seemed to be divided naturally into two groups. He noticed that 20 percent of the pea pods contained about 80 percent of the peas. Pareto originally thought of the idea of the 80-20 Rule during gardening. In 1896, the Italian economist, Vilfredo Pareto wrote about the relationship he observed between the distribution of wealth (land ownership) in a population. Origins of the 80-20 Rule (Pareto Principle) Photo by MustangJoe Note that this is not a hard-and-fast mathematical rule but empirically follows from the power-law distribution (or Pareto distribution) for a certain set of factors. This principle shows that there is an unequal and unbalanced relationship between the inputs and outputs for a system. When examining systems or businesses, there are a minority of elements or people that generate much more impact than a majority of elements or people.

The 80/20 Rule or Pareto Principle states that about 80% of the results (outputs) come from about 20% of the causes (inputs). What is the 80/20 Rule (Pareto Principle)?

Pareto principle economics