The 80 – 20 Rule

I hear this phrase used to explain all sorts of things at work 80% of revenue will come from 20% of the clients, 80% of errors will come from 20% of the writers, 80% of the time spent in any project will be on 20%.

It feels intuitively true, but is it really? and where did it come from?

It comes from an Italian economist Vilfredo Pareto, and it’s sometimes known as the Pareto Principle in his name. He came to the conclusion after analysing the distribution of wealth in Italy, and finding that 20% of the population held 80% of the wealth. When he looked further he found that the same ratio held for wealth distribution in other countries.

Further analysis by others led to the 80-20 Rule being applied to a wide range of very different subjects and the development of the Pareto Chart as an analysis tool.

The rule points to a disparity between input and outcome, but in fact it doesn’t have to be 80-20; years ago in another job I used it to analyse the product portfolio of my clients and point out where they were at risk 80 % of revenue from 20% of products was already risky, the strongest companies were closer to 65% from their top 20% products. And there you see that  it doesn’t have to add up to 100, just that as decimal creatures a 100 total is the most satisfying.

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