Robyn Pearce: 'Please explain the 80/20 rule'

The Pareto Principle. Photo / Thinkstock

Opinion

One of my blog readers recently asked:

"I'm just wondering what's meant by the 80/20 rule. It sounds quite interesting and good to keep in mind."

In 1906 Vilfredo Pareto, an Italian economist, observed that 20 per cent of the population in Italy owned 80 per cent of the property. His discovery was later popularised by Joseph Juran, one of the pioneers of modern quality management.

Basically, Juran and Pareto realised that:

20 per cent of our activities will generate 80 per cent of our results, while the remaining 80 per cent of our activities will only generate 20 per cent of our results.

Juran, looking at the idea from his quality improvement focus, also noted that 80 per cent of a company's problems are caused by 20 per cent of the possible causes. (He didn't, however, suggest that we ignore the remaining 80 per cent of the causes - he also talked about the 'vital few and the useful many'.)

Over time the concept became known as the Pareto Principle, or more commonly, the 80/20 rule.

A Few Examples:
1. For many businesses, typically 20 per cent of their clients will be the source of 80 per cent of their income. Conversely, 20 per cent of their income will be generated by 80 per cent of their clients.

2. Another angle - the clients who take 80 per cent of our time will commonly only generate no more than 20 per cent of our profit.

3. For many industries and companies, 80 per cent of their problems are caused by 20 per cent of the people they associate with - clients or even staff members. What would be the impact if those difficult people were no longer in your orbit?

Of course there are variations, and of course it doesn't hold true all the time. In some cases the ratios are more like 90/10 or 70/30. However, on many levels it's a really useful filter.

Case Study From An Accountancy Practice Manager:
'Our biggest client was also our most difficult. They caused all manner of problems - constantly late with their documentation; slow payers; difficult to please; cranky and unpleasant people - and those were just a few of the challenges.

'It reached the point that we were about to lose a couple of our top people, simply because they hated working with these clients so much. The management of the firm, rather anxiously, decided to invoke the 80/20 rule. Although these people were generating a significant amount of our income, they also created 80 per cent of the hassle factor. We decided to 'fire' the client.

'It was with some trepidation, hoping like heck that we were doing the right thing, that we told them we didn't now have the capacity to do their work.

'Within a matter of days the atmosphere in our firm did a complete about-face. Suddenly everyone was happy again and the looming departures of our good people didn't eventuate. The 'spare' capacity created by the removal of such a large client was rapidly filled up with better-quality clients who appreciated us, got their documentation in on time and paid promptly. And - surprise, surprise - the profitability of the firm also increased.

'It was the best thing we ever did.'

Can It Help With Our Time Choices on a Day-to-Day Level?
Absolutely. Imagine if you will, what the impact would be if you spent 20 per cent of your week (including those precious off-work hours) engaged in proactive actions - activities that would make a long-term difference to your life. Just think - over a year, what difference would that make to your results?

You may be reading this and thinking, 'That's all very well for the business owners and managers, but my work is to support others. I've got very little control over what comes at me during a day, nor discretion about when it's done.'

What about putting some of your personal time and money into learning new skills? If your present employer doesn't recognise them, another will. Chances are very good that you'll end up with higher pay. At the very least it makes you more marketable or better qualified to start your own business.

Many activities in our life can be impacted for the better by applying the 80/20 rule. (For more on the topic and especially how it can have a huge impact on our time choices, check out Chapter 5 in Getting A Grip On Time.)

Robyn Pearce (known as the Time Queen) is the MD of GettingAGrip.com, an international time management and productivity training company based in New Zealand. Get your free report 'How To Master Time In Only 90 Seconds' and ongoing time tips at www.gettingagrip.com