80-20 Rule is a principle where 80% or majority of the outcomes or results are due to the 20% (minor) factors. It is also known as Pareto’s law.
Pareto devised original observation about the world’s population and wealth as follows:
- Top 20% population holds 80% of the world’s wealth.
- Next 30% hold 15% of wealth.
- Last 50% population hold only 5% of the wealth.
Understanding in management:
• 80% of the companies’ revenue comes from the top 20% products marketed
• Best 20% efforts get converted to almost 80% of the results
• 80% of companies’ profit from 20% of their customers
Advantages as manager/company:
• Top preforming can be identified.
• Resources can be allocated more efficiently.
• Saves time
• Increase productivity per unit time