Pareto Principle ( The 80-20 Rule )

Pareto Principle - The 80-20 Rule - Complete Information

What is the Pareto Principle ?

The misnamed Pareto principle (also known as the 20-80 rule, the law of the vital few and the principle of factor sparsity) states that for many phenomena 80% of consequences stem from 20% of the causes. The idea has rule-of-thumb application in many places, but it's also commonly and unthinkingly misused.

It is important to note that many people misconstrue the principle (because of the coincidence that 20+80=100): it could just as well read that 80% of the consequences stem from 10% of the causes. Many people would reject such an "80-10" rule, but it is mathematically meaningful nevertheless.The principle was suggested by management thinker Joseph M. Juran. It was named after the Italian economist Vilfredo Pareto, who observed that 80% of property in Italy was owned by 20% of the Italian population. Since J. M. Juran adopted the idea, it might better be called "Juran's assumption". That assumption is that most of the results in any situation are determined by a small number of causes. That idea is often applied to data such as sales figures: "20% of clients are responsible for 80% of sales volume." This is testable, it's likely to be roughly right, and it is helpful in your future decision making.

Some hold that the principle is recursive, and may be applied to the top 20% of causes; thus there would be a "64-4" rule, and a "51.8-0.8" rule, and so on.

This is a special case of the wider phenomenon of Pareto distributions.

The Pareto principle is unrelated to Pareto efficiency, which really was introduced by Vilfredo Pareto.

Who was Vilfredo Pareto?
Vilfredo Pareto (born July 15, 1848 in France - died August 19, 1923 in Lausanne, Switzerland) made several important contributions to economics, sociology and moral philosophy, especially in the study of income distribution and in the analysis of individuals' choices. He introduced the concept of Pareto efficiency and helped develop the field of microeconomics with ideas such as indifference curves.
In 1906, he made the well-known observation that 20% of the population owned 80% of the property in Italy, later generalised (by Joseph M. Juran and others) into the so-called Pareto principle (for many phenomena 80% of consequences stem from 20% of the causes)


Who was Joseph M. Juran, the real "father" of the Pareto Principle?

Joeseph M. Juran (born December 1904 in Romania) has been called the "father" of quality. Joseph M. Juran's major contribution to the world has been in the field of quality management. Perhaps most important, he is recognized as the person who added the human dimension to quality—broadening it from its statistical origins.

In 1937, Dr. Juran conceptualized the Pareto principle, which millions of managers rely on to help separate the "vital few" from the "useful many" in their activities. This is commonly referred to as the 20-80 principle. In 2003, the American Society for Quality is proposing renaming the Pareto Principle the "Juran Principle." Its universal application makes it one of the most useful concepts and tools of modern-day management.

source, read more ...: http://www.gassner.co.il/pareto/