May 6 2009

Make the Pareto Principle Work for You!

Vilfredo Pareto First Made the 80-20 Observation

Vilfredo Pareto First Made the 80-20 Observation

Unless you’ve got an MBA or a lot of well-educated friends, you might think to yourself, “What the Heck is the Pareto Principle!!??” Well, you may have heard of some of the other terms that the Pareto Principle is known by, the “80-20 Rule,” the “Law of the Vital Few“, and the “Principle of Factor Sparsity.” The principle’s basis is that “80 percent of the effects come from 20 percent of the causes.” It was originally suggested by business great, Joseph M. Juran who named it after the famous Italian economist, Vilfredo Pareto, who made the observation that in his home country over 80 percent of all land was only owned by 20 percent of the population. Through careful observation of you daily like at home and work, you can apply the Pareto principle to Work for You!

Application of the Pareto Principle in Business

Since Juran’s coining of the term, the Pareto principle has come to mean in business that 80% of one’s sales or conversions come from 20% of the population. Or more plainly, approximately 2% of leads turn into conversions, or 2 in 10 stock investments result in real profit. A common mistake in business and other applications of the 80-20 rule is getting caught up in the numbers and summation to 100% of the rule. Instead, take a step back and look at the Pareto principle at a higher level of granularity with the primary point being that most things do not follow an even distribution!

How to Apply the Pareto Principle in Your Life

The trick is in finding what aspects of your life or work that you are only spending a small amount of time on that if you focused a greater level of effort would result in a greater reward. That’s not to say that you should eliminate all things at work and at home that are not producing the positive effects desired, but rather identify the small amount of tasks, things, events, and so forth which provide the greatest return and invest more time in them! This could range from simply putting 30 more minutes a day into the tasks with the greater reward or benefit, to eliminating unhealthy aspects of your business or personal life. THERE IS NO COOKIE CUTTER SOLUTION for eveyone!

Self Examination Using Pareto

So, when I look at my last 12 hours of work activity, the following is a breakdown of the time I spent on major tasks:
- Wrote Freelance Articles – Three Hours
- Researched Freelance Articles – One Hour
- Web Developed – Three Hours
- Surfed blogs, web forums , and other websites – Three Hours

Monetarily the seven hours of freelance writing resulted in 99.9% of my income when compared to my web activities.

So, perhaps a better application of my tasks would be instead of only spending 40 percent of my time on writing would be to spend 60 to 80% of the time on writing and the remainder on web development and the general surfing and networking. Or possibly to replace two hours of work with free time to do as Steven Covey states in his 7 Habits of Highly Effective People , “Sharpen the Saw!”

You have to decide how to best apply Pareto to your daily life at work and at home. Just realize in this economy that those who focus on the 20% will likely be those who get ahead!

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