Overheard: Word of the Day

Feb 12 2007   12:31AM GMT

Overheard: Vilfredo Pareto’s 80/20 rule

Margaret Rouse Margaret Rouse Profile: Margaret Rouse

vilfredo_pareto.jpg 80% of the effects comes from 20% of the causes.

Vilfredo Pareto

Vilfredo Pareto was an economist who is widely credited for coming up with the Pareto Principle, more commonly known as the 80/20 rule. The rule serves as a reminder for entrepreneurs to focus their attention on the relatively small number of tasks that provide the largest return on investment.

In 1906, Pareto, who was living in Italy, noted that 20 percent of the population owned 80 percent of the property. He proposed that the ratio could be found many places in the physical world and theorized it might be a natural law. The theory was advanced by Dr. Joseph Juran, an American who is widely credited with being the father of quality control. It was Dr. Juran who decided to call the ratio the “The Pareto Principle: The vital few (20%) and the useful many (80%).”

According to a popular SixSigma tutorial:

Dr. J. M. Juran started applying this principal to defect analysis – separating the “vital few” from the “trivial many”, and called it the “Pareto Chart”. In fact, many (most) defect distributions follow a similar pattern, with a relatively small number of issues accounting for an overwhelming share of the defects. The Pareto Chart shows the relative frequency of defects in rank-order, and thus provides a prioritization tool so that process improvement activities can be organized to “get the most bang for the buck”, or “pick the low-hanging fruit”.

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