Browse Definitions :
Definition

Pareto principle

The Pareto principle, also known as the 80/20 rule, is a theory maintaining that 80 percent of the output from a given situation or system is determined by 20 percent of the input.

The principle doesn’t stipulate that all situations will demonstrate that precise ratio – it refers to a typical distribution. More generally, the principle can be interpreted to say that a minority of inputs results in the majority of outputs.

Here are a few examples of the Pareto principle in action:

  • 20 percent of employees produce 80 percent of a company’s results.
  • 20 percent of a given employee’s time yields 80 percent of their output.
  • 20 percent of software bugs cause 80 percent of the software’s failures.
  • 20 percent of a company’s investments produce 80 percent of its investment profits.

The principle is named for Vilfredo Pareto, an Italian economist. In 1906, Pareto noted that 20 percent of the population in Italy owned 80 percent of the property. He proposed that this ratio could be found many places in the physical world and theorized it might indicate a natural law. 

In the 1940s, Pareto’s theory was advanced by Dr. Joseph Juran, an American electrical engineer who is widely credited with being the father of quality control. It was Dr. Juran who decided to call the 80/20 ratio the "The Pareto Principle." Applying the Pareto Principle to business metrics helps to separate the "vital few" (the 20 percent that has the most impact) from the "useful many" (the other 80 percent).

Applications of the Pareto principle:

A Pareto chart illustrates the Pareto principle by mapping frequency, with the assumption that the more frequently something happens, the more impact it has on outcome.  

Pareto efficiency is a balance of resource distribution such that one individual’s lot cannot be improved without impairing the lot of another individual.

A Pareto improvement is assistance that benefits one individual without causing impairment to another.

Another application of the Pareto principle is the 96-minute rule, which maintains that knowledge workers should devote themselves to their most important tasks for that time period each day to improve productivity.

 

Learn more:
Understanding the Pareto Principle (The 80/20 Rule)

 

This was last updated in August 2013

Continue Reading About Pareto principle

Join the conversation

2 comments

Send me notifications when other members comment.

Please create a username to comment.

Pareto principle equation or formula or distribution inequality
Cancel
How can I use this for production improvements?
Cancel

SearchCompliance

  • risk assessment

    Risk assessment is the identification of hazards that could negatively impact an organization's ability to conduct business.

  • PCI DSS (Payment Card Industry Data Security Standard)

    The Payment Card Industry Data Security Standard (PCI DSS) is a widely accepted set of policies and procedures intended to ...

  • risk management

    Risk management is the process of identifying, assessing and controlling threats to an organization's capital and earnings.

SearchSecurity

SearchHealthIT

SearchDisasterRecovery

  • call tree

    A call tree is a layered hierarchical communication model that is used to notify specific individuals of an event and coordinate ...

  • Disaster Recovery as a Service (DRaaS)

    Disaster recovery as a service (DRaaS) is the replication and hosting of physical or virtual servers by a third party to provide ...

  • cloud disaster recovery (cloud DR)

    Cloud disaster recovery (cloud DR) is a combination of strategies and services intended to back up data, applications and other ...

SearchStorage

Close