The Pareto Principle holds that 80 percent of consequences can come from 20 percent of causes. Named after the Italian economist Vilfredo Pareto (1848-1923), t is also called factor sparsity, the 80/20 rule, or the Rule of the Vital Few.
Writing in Cours d’économie politique (1896-97), Pareto observed the uneven distribution of resources in Italy. About 80 percent of the country’s land in the 19th century was owned by only 20 percent of its population. But these landowners had an outsize influence on the country’s overall economy. Further research found this pattern repeated in other societies throughout history.
In the 1950s, Joseph M. Juran extended Pareto’s ideas into management strategy when he asserted the concept of exerting minimal effort for a maximal effect in quality control.
How is the Pareto Principle applied?
In modern-day settings, the Pareto Principle is a commonly used tool by business management to determine how to allocate limited resources (money, workforce, time) to address seemingly unlimited needs.
While the Pareto Principle is an observation rather than a rule or law, it can be an effective management tool. The principle helps you identify the high-priority problems, assign the right people, and allocate an adequate amount of resources to address a given issue.
For example, if a company finds the input of 20 percent of its employees contributes 80 percent of the output, then the management would logically reward these employees and invest in their long-term satisfaction with their jobs.
In managing a tech project, the Pareto Principle suggests that you optimize the output of key personnel on the most significant aspects of the project. Out of 20 coders, it would be better to look for the best 3 or 4 who can create maximum impact. Let them work on the toughest parts of the code that take 80 percent of the time.
If an application under development keeps on crashing, identify the top 20% of critical bugs that cause 80 percent of crashes and focus development efforts on them.