The Pareto Principle.

The Pareto Principle, also known as the 80/20 rule, is a concept that suggests a disproportionate relationship between inputs and outputs. Here’s an overview:

Key points:

1. Origin: Named after Italian economist Vilfredo Pareto
2. Basic concept: Roughly 80% of effects come from 20% of causes

Common applications:

1. Business: 80% of profits come from 20% of customers
2. Economics: 80% of wealth is owned by 20% of the population
3. Project management: 80% of results come from 20% of effort
4. Quality control: 80% of defects are caused by 20% of issues

Benefits of applying the Pareto Principle:

1. Prioritization: Helps focus on the most important factors
2. Efficiency: Identifies areas for maximum impact
3. Resource allocation: Guides where to invest time and resources

Limitations:

1. Not a hard and fast rule: The exact ratio can vary
2. Oversimplification: May overlook important minority factors
3. Misapplication: Can lead to neglecting the “long tail”