Pareto’s Law

Pareto’s Law claims that 80% of the outputs come from 20% of the inputs. Also known as the Pareto Principle, the “80/20 Rule”, the “Law of the Vital Few” or the “Principle of Factor Sparsity”. The idea encapsulated in Pareto’s Law is that in many situations around 20% of the effort contributes around 80% of the results, and the last 80% of inputs only achieves the last 20% of outputs, meaning that:

  • It may be inefficient to expend more effort once 80% of the desired results are achieved.
  • It may not be the best use of sparse resources to pursue a 100% resolution of any task.
  • This concept is also expressed as the idea of first targeting that which is easily achieved, commonly described as the “low-hanging-fruit”.
  • This is similar to the concept of Diminishing Returns, where each extra unit of input achieves ever smaller units of output.
  • The idea again surfaces in the economic concept of Marginal Utility.

Although the generalisation is that around 20% of input achieves around 80% of the outputs, the actual percentages may well differ but it is the principle that is of relevance. Only a small part of the inputs contribute most of the outputs.

Pareto’s Law is found to apply in many areas:

  • In 1989 the richest 20% of the world population accounted for 82.7% of wealth.
  • A small minority of patients consume the majority of health care resources.
  • The majority of crimes are committed by a small minority of criminals.
  • 80% of a company’s profits come from 20% of their customers.

In many cases it is not realistically possible to achieve full completion. It is certainly not sensible to try to achieve a 100% result when 80% can be achieved by expending only 20% of the effort.

Do the easy stuff first and then keep under review whether any additional effort is justified by the likely results.

For more information:

http://en.wikipedia.org/wiki/Pareto_principle
http://en.wikipedia.org/wiki/Diminishing_returns
http://en.wikipedia.org/wiki/Marginal_utility

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