Pareto Principle

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What is the ‘Pareto Principle’


The Pareto principle is a principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The principle states that, for many phenomena, 20% of invested input is responsible for 80% of the results obtained. Put another way, 80% of consequences stem from 20% of the causes. Also referred to as the “Pareto rule” or the “80/20 rule”.

BREAKING DOWN ‘Pareto Principle’

This principle serves as a general reminder that the relationship between inputs and outputs is not balanced. For instance, the efforts of 20% of a corporation’s staff could drive 80% of the firm’s profits. In terms of personal time management, 80% of your work-related output could come from only 20% of your time at work.

The Pareto Principle can be applied in a wide range of areas such as manufacturing, management and human resources. In Pareto’s case, he used the rule to explain how 80% of property in Italy was owned by 20% of the country’s population.

http://www.investopedia.com/terms/p/paretoprinciple.asp

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