LinkedInwithBackgroundPortfolioConstructionAnAdvisor'sRoleasBehavioralCoachFinancialAdvisorPortfolioConstructionWhatIsthe80-20Rule?The80-20rule,alsoknownastheParetoPrinciple,isanaphorismwhichassertsthat80%ofoutcomes(oroutputs)resultfrom20%ofallcauses(orinputs)foranygivenevent.Inbusiness,agoalofthe80-20ruleistoidentifyinputsthatarepotentiallythemostproductiveandmakethemthepriority.Forinstance,oncemanagersidentifyfactorsthatarecriticaltotheircompany'ssuccess,theyshouldgivethosefactorsthemostfocus.Althoughthe80-20axiomisfrequentlyusedinbusinessandeconomics,youcanapplytheconcepttoanyfield—suchaswealthdistribution,personalfinance,spendinghabits,andeveninfidelityinpersonalrelationships.2:23TheParetoPrinciple(80-20Rule)KeyTakeawaysThe80-20rulemaintainsthat80%ofoutcomes(outputs)comefrom20%ofcauses(inputs).Inthe80-20rule,youprioritizethe20%offactorsthatwillproducethebestresults.Aprincipleofthe80-20ruleistoidentifyanentity'sbestassetsandusethemefficientlytocreatemaximumvalue.This"rule"isaprecept,notahard-and-fastmathematicallaw.Understandingthe80-20RuleYoumaythinkofthe80-20ruleassimplecauseandeffect:80%ofoutcomes(outputs)comefrom20%ofcauses(inputs).Theruleisoftenusedtopointoutthat80%ofacompany'srevenueisgeneratedby20%ofitscustomers.Viewedinthisway,thenitmightbeadvantageousforacompanytofocusonthe20%ofclientsthatareresponsiblefor80%ofrevenuesandmarketspecificallytothem—tohelpretainthoseclients,andacquirenewclientswithsimilarcharacteristics.CorePrincipleAtitscore,the80-20ruleisaboutidentifyinganentity'sbestassetsandusingthemefficientlytocreatemaximumvalue.Forexample,astudentshouldtrytoidentifywhichpartsofatextbookwillcreatethemostbenefitforanupcomingexamandfocusonthosefirst.Thisdoesnotimply,however,thatthestudentshouldignoretheotherpartsofthetextbook.OftenMisinterpretedThe80-20ruleisaprecept,notahard-and-fastmathematicallaw.Intherule,itisacoincidencethat80%and20%equal100%.Inputsandoutputssimplyrepresentdifferentunits,sothepercentageofinputsandoutputsdoesnotneedtoequal100%.The80-

The Pareto principle states that for many outcomes, roughly 80% of consequences come from 20% of the causes (the “vital few”). ... Other names for this principle ...ParetoprincipleFromWikipedia,thefreeencyclopediaJumptonavigationJumptosearchFortheoptimalallocationofresources,seeParetoefficiency.StatisticalprincipleaboutratioofeffectstocausesParetoprincipleappliedtoraisingfundsTheParetoprinciplestatesthatformanyoutcomes,roughly80%ofconsequencescomefrom20%ofthecauses(the“vitalfew”).[1]Othernamesforthisprinciplearethe80/20rule,thelawofthevitalfew,ortheprincipleoffactorsparsity.[2][3]ManagementconsultantJosephM.Jurandevelopedtheconceptinthecontextofqualitycontrol,andimprovement,namingitafterItalianeconomistVilfredoPareto,whonotedthe80/20connectionwhileattheUniversityofLausannein1896.[4]Inhisfirstwork,Coursd'économiepolitique,Paretoshowedthatapproximately80%ofthelandinItalywasownedby20%ofthepopulation.TheParetoprincipleisonlytangentiallyrelatedtoParetoefficiency.Mathematically,the80/20ruleisroughlydescribedbyapowerlawdistribution(alsoknownasaParetodistribution)foraparticularsetofparameters,andmanynaturalphenomenahavebeenshowntoexhibitsuchadistribution.[5]Itisanadageofbusinessmanagementthat"80%ofsalescomefrom20%ofclients".[6]Contents1Ineconomics2Incomputing3Insports4Occupationalhealthandsafety5Otherapplications6Mathematicalnotes7Equalitymeasures7.1GinicoefficientandHooverindex8Seealso9References10Furtherreading11ExternallinksIneconomics[edit]Pareto'sobservationwasinconnectionwithpopulationandwealth.Paretonoticedthatapproximately80%ofItaly'slandwasownedby20%ofthepopulation.[7]Hethencarriedoutsurveysonavarietyofothercountriesandfoundtohissurprisethatasimilardistributionapplied.Achartthatgavetheeffectaveryvisibleandcomprehensibleform,theso-called"champagneglass"effect,[8]wascontainedinthe1992UnitedNationsDevelopmentProgramReport,whichshowedthatdistributionofglobalincomeisveryuneven,withtherichest20%oftheworld'spopulationgenerating82.7%oftheworld'sincome.[9]Amongnations,theGi

The 80/20 rule is also known as the Pareto principle or the law of the vital few, which basically means that in many events 80% of the effects come ...AboutMePublishatPM101ProductTipsAgileProgramTipsDesignCodingNewsletterHowYouCanApplythe80/20RuleinYourLifeandWorkThaisaFernandesFollowMar30,2020·7minreadPhotobyLukasBlazekonUnsplashIhavealwaysbeenfascinatedbythe80/20rule.Atthesametime,Ididn’tknowhowtoapplyitinmylife.LastyearIreadthe80/20Principle,andthisbookopenedmyeyesalittlemoreandgavemeabettersenseofhowtoapplythe80/20ruleinmyprofessionallife.“Howto80/20yourwork:(1)Makealistofthe10thingsyouspendthemosttimeon.(2)Circlethetwothattrulydriveyourresults.Domoreofthose.(3)Lookattheothers.Eliminateruthlessly.Automateoroutsourcewhatyoucan.Presspauseontherest.(4)Repeat”—JamesClearTheParetoprincipleThe80/20ruleisalsoknownastheParetoprincipleorthelawofthevitalfew,whichbasicallymeansthatinmanyevents80%oftheeffectscomefrom20%ofthecauses.TheParetoprinciplenamecamefromtheItalianeconomistVilfredoParetowhodiscoveredtheprincipleafterrealizingthatapproximately80%ofthelandinItalywasownedby20%ofthepopulation,andhekeptobservingthesamepatterninotherdifferentsituations.VilfredoFedericoDamasoParetowasborninItalyin1848andbecameanimportantphilosopherandeconomist.Afterhisrealizationofthe80/20pattern,Paretostartedtothinkaboutunevendistributionsanddiscoveredthatdifferentindustriesalsofollowedthesamepatternwhenthegeneralizationbecameauniversaltruth.TheParetoprincipleor80/20ruleistheuniversaltruthabouttheimbalanceofinputsandoutputs.Youdon’tneedtocreatemathematicalformulas,dosomecomplexmath,orunderstandstatisticstoleveragethe80/20frameworkandstartusingitinyourdailywork.Let’salsokeepinmindthe80%and20%arejustindicators.It’samisconceptionthatthenumbersshouldalwaysbearound80and20.Theydonotnecessarilyneedto,thesenumbersarejustabaseline.Themainpointistofindthesmallthingsthatgiveyouthebiggestresults.The80/20ruleisaguidethatwillhelpusunderstandtypicaldistributionsnotmatterwhatthenumbersare.Thepointisn’tther