Pareto principle

Pareto Principle

The Pareto Principle, also known as the 80/20 rule, the law of the vital few, or the principle of factor sparsity states that, for many events, roughly 80% of the effects come from 20% of the causes. Named after Italian economist Vilfredo Pareto, it was first introduced in the context of distribution of income and wealth among the population.

History

The Pareto Principle was named after Vilfredo Pareto, who observed in 1906 that 80% of the land in Italy was owned by 20% of the population. Pareto developed the principle by observing that 20% of the pea pods in his garden contained 80% of the peas.

Application

The Pareto Principle is a concept in decision theory that is used to select a limited number of tasks that produce significant overall effect. It is used to prioritize tasks that produce the most benefit. The principle is used in business management, in software engineering, in economics, and in many other fields.

In business management, the Pareto Principle is used to identify the 20% of the products that generate 80% of the profits. It is also used to focus on the 20% of the customers who generate 80% of the sales.

In software engineering, the Pareto Principle is used to identify the 20% of the code that is causing 80% of the errors. It is also used to identify the 20% of the features that are used by 80% of the users.

In economics, the Pareto Principle is used to identify the 20% of the population that controls 80% of the wealth.

Criticism

While the Pareto Principle is a useful tool for prioritizing and focusing, it is not a hard and fast rule. The actual percentages may vary, and the principle should not be used to justify ignoring the remaining 80% of causes.

See also

• Pareto efficiency
• Pareto distribution
• Vilfredo Pareto