PARETO'S LAW: WE INCREASE WORK EFFICIENCY

Source: extension.umd.edu

The Pareto Law, or the 80/20 rule, is one of the most common ways to evaluate the effectiveness of any activity. Its essence lies in the fact that 20% of the efforts give 80% of the result, and the remaining 80% of the efforts realize only 20%. Thus, it can be understood that by choosing those optimal resources that give the greatest effect, it is possible to achieve high results at low cost. At the same time, subsequent efforts will be unnecessary and ineffective.

The Pareto principle has had a significant impact on the formation of many successful people: businessmen, inventors, Internet investors and others. In most cases, it was through the realization of this simple truth that these people managed to transform our world into what it is now.

Importance of the Pareto Law

The traditional world view erroneously assumes that all factors in our lives have approximately the same effect on changing the general situation. People for whom the Pareto rule is not a priority in decision-making believe that all customers bring approximately the same profit, that all hired workers perform their duties with the same efficiency. They think that all friends and acquaintances are equally important, and that all days of the week bear equal fruit. When choosing a university, such people believe that the acquired knowledge and skills are the same in each of them.

In fact, the Pareto 80/20 law says that with a detailed analysis of the cause-and-effect relationships of various events, one can come to the conclusion that a minority of actions had the greatest impact on the final result, and the rest of the activities were practically useless.

The emergence of the Pareto Law

The 80/20 percentage was discovered at the end of the 19th century by the economist Vilfredo Pareto while studying the distribution of wealth between different segments of the population in England at that time. The scientist came to a stunning discovery when he discovered the following imbalance: 20% of the population of England owned 80% of the entire wealth of the country. And the fact that a minority owns most of the resources was confirmed in deeper analysis. As it turned out, 10% of the population owns 65% of the wealth, 5% - 50% of material resources. What is most interesting, the figures obtained were not an accident. Investigating the distribution of wealth between the population of England and other countries in different historical periods, Pareto came to similar results.

This is how the 80/20 law was laid, which, unfortunately, the scientist himself could not explain correctly. Because of this, he was ignored until 1949, when a professor at Harvard University, George C. Zipf, drew attention to the following pattern. He came to the conclusion that about 20-30% of efforts give a performance of 70-80% of the maximum that can be obtained from them. Thus, Zipf rediscovered the Pareto principle, showing the basis of self-organization of all resources.

Around the same time, Joseph Yuran, while researching the statistics of the distribution of defects in the workplace, once again confirmed the 80/20 principle, and published a book in which he formed the law of "the few that are decisive." The scientist in his manuscript called for the mass introduction of this principle in various areas of production in order to eradicate marriage and improve the quality of manufactured goods.

Yuran argued that the principle of uneven distribution of Pareto can be extended not only to the sphere of production, but also as a statistical approach in the study of the distribution of crimes, accidents and other processes.

Unfortunately, US businessmen refused to accept Juran's ideas. Then the scientist found grateful listeners in Japan. As a result, in 1953, after giving a series of lectures in the Land of the Rising Sun, Iosif Yuran stayed there and began to cooperate with several large Japanese corporations. Only in the 1970s did he return to his homeland, when industrialists were “ripe” to implement his ideas, since Japanese production began to pose a serious competitive threat to the States. In both countries, Juran made a real industrial revolution, taking the Pareto principle as a basis.

Relation of the Pareto Law to trade and marketing

The well-known IT giant, IBM, was the first to actively apply the Pareto law in marketing. In 1963, IBM experts noticed that about 80% of the time their computers spend on 20% of the operations. Immediately, it was decided to find the 20% of tasks that are used the most and make them as convenient and functional as possible for the user. As a result of the changes made, the specialists managed to create machines that were faster than similar devices of competitors.

The Pareto principle in trading implies that incredibly huge business resources are spent on maintaining products that are inefficient in terms of profit and paying unnecessary employees. Too much attention is paid to customers who bring only a small percentage of income. Thus, a logical conclusion arises that if you concentrate on the most effective areas, you can increase the company's profits at times.

In order to optimize your business, it is enough to remake it for the efficient work of the most productive employees who will sell the most popular goods or services.

If we talk about clients, then I don’t want to lose a single one. The Pareto rule says that only 20% of customers give you 80% of the profits, while the rest often waste your staff's time, while not bringing much income. In order to do everything right, it is necessary to direct maximum efforts to work with high-potential clients, and unify contacts with the remaining 80%, shorten their time and make them not very costly for the company. This way you can optimize your business. This is the role of the leader in the management of the company.

At first, everything may seem rather complicated. Many managers and owners of large production facilities find it difficult to abandon 80% of activities in one day. However, the radical changes will lead to an incredible increase in profits and production efficiency.

In general, we can conclude that it does not always make sense to strive for a result of 100%. The forces and resources spent on achieving it outweigh the possible benefits. In most cases, it is enough to limit yourself to 80%, while spending little money to get the result.

One can draw a parallel with the method of painting paintings by famous artists, who, without drawing all the details of their masterpieces, focus on some elements that attract the most attention of the audience.

Pareto's Law: Life Tips

As you understand, the Pareto 80/20 rule applies to all areas of society, so it can be applied everywhere.

Time management: The Pareto principle in time management is quite simple. You analyze all the cases for the day, and choose from them those that led to the final result. Useless activities are simply crossed off your to-do list. The first working day planned according to this method will surprise you with its ease and productivity.

Self-development: Remember that you will be most successful in the area that is given to you best. Often you should not waste your time on mastering skills that are acquired "with a scratch." Focus on your strengths. If you have developed communication skills, continue to develop them and choose activities related to communication. If you are not attracted to contact with people, remote work will be a great alternative for you.

Finance: Decide from what sources you receive 80% of the money that comes into your pocket. Focus on them, as they play a key role in shaping your budget. Ignore the rest of the options, because they only take time and effort. An exception may be passive sources of income (deposits, passive investments), since the labor costs for their implementation tend to zero.

Productivity: Given that each person is tuned to their own biological rhythm, you will have to calculate your own. Determine what time you work most efficiently. This will be the period when you need to pay maximum attention to work. The rest of the time, all your efforts will be ineffective.

Reading books: The Pareto 80/20 principle also applies to the literature you choose. About 80% of the books you read did not bring you anything except wasted time and damaged eyesight. Choose those books that can enrich you spiritually. If there are works, acquaintance with which had a serious impact on you, then it makes sense to re-read them periodically. The Pareto rule means that you should not fill your free time with “light” uninteresting literature.

Unnecessary things: You have probably noticed that you have things in your apartment or car that you practically do not use. They get in the way and take up a lot of space. Feng Shui space exploration practice calls such things energy blockages. Getting rid of them, you will feel a surge of inspiration and freedom from unnecessary rubbish.

Relationships: As we meet more and more new people, we may not realize which of them really plays an important role in our lives. Analyze for yourself and make sure that only 20% of the people with whom you communicate emotionally fill you and bring something new to your consciousness. These are the people who need the most attention. Short communication with close friends is much more important than hour-long correspondence on social networks with virtual acquaintances.