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Applying the Pareto Principle

Most Insight teams will be aware of the Pareto Principle – which suggests that in most situations, some 80% of the results are generated by 20% of the total effort. The principle was established by business strategist Dr Joseph Juran, who named it after the Italian economist, Vilfredo Pareto. In 1906, Pareto observed that 20% of the people in his native Italy owned 80% of the country’s wealth.

This 80/20 principle is now widely used throughout business. For example: 
  • It is generally accepted that roughly 80% of sales tend to come from 20% of a company’s clients.
  • Similarly, 80% of a company’s costs tend to come from 20% of the items it uses.
  • In insight (as a very approximate rule of thumb) 80% of the most valuable results come from 20% of the work carried out.
One of the basic ideas that comes from this is that if you can focus more on the 20%
of really important projects, you will achieve relatively greater results for the amount of effort you expend. In a nutshell, it’s all about increasing your efficiency, effectiveness and productivity.
 
Prioritise
The Pareto Principle can be applied widely across a range of different insight situations, and we will be taking a look at some of these in future issues. The challenges are endless. For instance, in insight, demand always seems to exceed the amount of resources available. So life ends up as one big compromise. To look at it more positively, this means you need to prioritise your resources so that you can optimise your impact (to make sure you get home at night!).
 
Our first example comes from vacuuming the carpet. At one extreme (if you have both the time and the inclination!), you can do a thorough job, moving all the furniture and cleaning the whole surface of the carpet as well as around the edges. At the other end of the scale, if you’re really pushed for time, you can get away with just vacuuming the most visible and used areas. This will probably take just a few minutes (say 20% of the time), but the results will look similar to the more thorough approach (and only you will know the difference!)
 
Practise
So, back in the office, how can you apply this principle to your day job? It’s all about understanding impact and value. In general, the first 20% of your effort, if targeted wisely, will deliver 80% of the desired outcome. From that point onwards, your efforts will have diminishing returns.
 
In today’s environment, people seldom have time to do a thorough 100% job on all of the varied tasks they face. So if you can prioritise your work based on its potential impact and value, you will be in a much better position to determine where your cut-off point should be.
 
Over the next few editions of 5MI, we’ll look at how this broad principle can be applied to time management, stakeholder management, supplier management, project work etc.
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