Pareto Principle

For many scenarios, 80% of the effects stem from 20% of the causes. This is often referred to as the 80/20 rule.

Description

In 1896, economist Vilfredo Pareto found that 20% or the population in Italy owned 80% of the land. This ratio is commonly cited in wealth distribution (the richest 20% owns the majority of the world's income) and in business management (80% of sales come from 20% of clients). Another application is managing workload--by prioritizing the 20% most important work, we can (at times) gain 80% of the value. Note that while the Pareto principle can be a useful construct in many situations, it's not applicable everywhere. See also: Power Law.

Examples

  • Microsoft once noted that fixing the top 20% of reported bugs would solve 80% of issues and crashes in a system.
  • Many companies find that majority of revenue comes from a small portion of the product. For example, video rental shops in 1988 found that 80% of revenue came from 20% of the titles.