The 80/20 Rule in Business 

 January 23, 2016

By  Dave Litten

The 80/20 Rule In Business

The 80/20 rule in business states that a minority of either causes, inputs, or effort usually leads to a majority of either the results, outputs, or rewards.

As an example this means that 80% of what you achieve in your job comes from just 20% of the time spent and therefore a massive 4/5 of your effort is largely irrelevant.  This is counter intuitive.

The 80/20 rule in business shows clearly that there is an inbuilt imbalance between causes and results, inputs and outputs, and effort and reward.  This leads to of the following:

  • 80% of outputs result from 20 per cent of inputs
  • 80% of consequences flow from 20% of causes
  • 80% of results come from 20 per cent of effort

How does the 80/20 rule in business relate to YOU?

Put simply, the 80/20 rule in business would give the following:

  • 20% of products usually account for about 80 per cent of dollar sales value
  • 20% of customers account for about 80 per cent of dollar sales value
  • 20% of products or customer’s account for about 80% of an organization’s profits

You can find examples of the 80/20 rule in society as well:

  • 20% of criminals account for 80% of the value of all crime
  • 20 per cent of motorists cause at per cent of accidents
  • 20% of those who marry comprise 80% of the divorce statistics
  • 20% of children attain 80% of educational qualifications available

The 80/20 rule in business also relates to IT

IBM discovered that 80% of a computer’s time is spent executing about 20 per cent of the operating code.  This caused to them to redesign its operating software to make the most used to 20% very accessible and user friendly.

The 80/20 Rule In Business

The 80/20 principle applies to your life, both your social world and your place of work.  Therefore your daily life can be greatly improved by using the 80/20 principle.

It is therefore true that you can achieve much more with much less effort, time, and resources, simply by concentrating on the all-important 20%.

The pattern of predictable imbalance underlying the 80/20 principle opens our eyes to the wider principle works through a wide range of examples in business, commerce, and virtually every aspect of our lives.

By identifying and focusing on the 20% of our efforts that result in the huge bulk of our success week and leverage our efforts to vastly increase how effective we are.  By concentrating on the things that we do we can transform how effective we are in our jobs, our careers, our businesses, and our lives.

The 80/20 rule in business applies to project management

Here are some examples of where you can apply it:

Project Estimating

20% of your workforce produced 80% of the results.  Use these individuals to provide plans estimates and to carry out the work.

Project Risk

20% of your risks contain 80% of the impact.  Therefore, put most effort into managing, controlling, and minimizing the impact of those risks.

Project Plans

You will have heard of the planning horizon, where it makes sense only to plan in detail for the near future, and not to waste time attempting to forecast in detail what will happen as the project nears completion.

Business Case

20% of the operational products will create 80% of the business benefits.  So focus on delivering the 20% of products first, in order to achieve early benefits and hence an improvement to your projects return on investment.

Customer Requirements

Customers usually pad out their requirements to cover everything that or they can think of.  Because it is counter intuitive, your customers will not think through which 20% of the requirements and functionality will bring them 80% of their business benefits.

So it makes sense to prioritize both the scope of the project and the sequence of delivery, to ensure that the customer gets their most valuable 20%.

Product Quality

There is a temptation to over engineer the quality or functionality of products.  Also the same temptation is to test everything in fine detail.

However, applying the 80/20 principle means that the focus regards quality, is on the 20% of functionality and testing that brings the most important 80% of quality.

This is something that Agile brings to traditional projects – applying the 80/20 rule and common sense!

Dave Litten

David spent 25 years as a senior project manager for USA multinationals, and has deep experience in project management. He now develops a wide range of Project Management Masterclasses, under the Projex Academy brand name. In addition, David runs project management training seminars across the world, and is a prolific writer on the many topics of project management.

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