The 80/20 Rule


The 80/20 Rule:

In 1906, Italian economist Vilfredo Pareto created a mathematical formula to describe the unequal distribution of wealth in Italy. Pareto observed that twenty percent of the people owned eighty percent of the wealth. In the late 1940s, one of the fathers of Quality Management, Dr. Joseph M. Juran, attributed the 80/20 Rule to Pareto, calling it Pareto's Principle. Pareto's Principle or Pareto's Law is a useful tool to help one prioritize and manage the work in one's life.

The 80/20 Rule means that in any situation, 20 percent of the inputs or activities are responsible for 80 percent of the outcomes or results. Unnecessary many should be filtered from the Necessary few.


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The applicability of the 80/20 Rule:

  • Consider Japan – the country had been producing low-cost, low-quality goods long back. The 80/20 Rule led to quality revolution in Japan and the subsequent, Japan’s rise as a global economic power.
  • Sir Isaac Pitman, the inventor of shorthand, discovered that just 700 words make up two-thirds of our language.
  • Then, consider Warren Buffett’s philosophy, as quoted by Mary Buffett and David Clark in The Tao of Warren Buffett. You only have to do a few things right in your life, so long as you don’t do too many things wrong. Warren Buffett decided early in his career it would be impossible for him to make hundreds of right investment decisions, so he decided that he would invest only in the business that he was absolutely sure of, and then bet heavily on them. He owes 90% of his wealth to just ten investments.
  • Nathan Myhrvold, the former Chief Technology Officer for Microsoft, has said that the top software developers were more productive than average software developers not by a factor of 10x or 100x or even 1,000x, but by 10,000x. This again proves that the efforts and the results don't share a linear relation. It is essential to filter the unnecessary - the 80/20 rule.
  • You probably make most of your phone calls to a very small number of the people you have numbers for. You are likely spend a large chunk of your money on few things. There is a good chance that you spend most of your time with only a few people from the entire pool of people you know.

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The practice of the 80/20 Rule:

  1. List the top six priorities for tomorrow.
  2. Disregard the bottom five.
  3. Write down the top priority on a To-Do note.
  4. Schedule a 90-minute window to work on the top priority. This should be the first thing of the day.
  5. Repeat.
  6. Witness the paradigm shift.

We live in a world where almost everything doesn't help in achievements and value addition. There are only a very few things that are exceptionally valuable. This is a counter-intuitive idea, but is the only idea.

It is time to disregard the cliche that 50% of results come from 50% effort. Once we unlearn this 50/50 logic, a whole set of behaviors become instinctive. One starts scanning one's environment for what is really essential.

GK in Depth Blogs for Bank Exams 
Read 481 times Last modified on Saturday, 03 March 2018 17:30
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