The Pareto principle, also known as the 80/20 rule, is a theory maintaining that 80 percent of the output from a given situation or system is determined by 20 ...HomeTopicsDataCenterERPParetoprincipleSharethisitemwithyournetwork:ByTechTargetContributorTheParetoprinciple,alsoknownasthe80/20rule,isatheorymaintainingthat80percentoftheoutputfromagivensituationorsystemisdeterminedby20percentoftheinput.Theprincipledoesn’tstipulatethatallsituationswilldemonstratethatpreciseratio–itreferstoatypicaldistribution.Moregenerally,theprinciplecanbeinterpretedtosaythataminorityofinputsresultsinthemajorityofoutputs.HereareafewexamplesoftheParetoprincipleinaction:20percentofemployeesproduce80percentofacompany’sresults.20percentofagivenemployee’stimeyields80percentoftheiroutput.20percentofsoftwarebugscause80percentofthesoftware’sfailures.20percentofacompany’sinvestmentsproduce80percentofitsinvestmentprofits.TheprincipleisnamedforVilfredoPareto,anItalianeconomist.In1906,Paretonotedthat20percentofthepopulationinItalyowned80percentoftheproperty.Heproposedthatthisratiocouldbefoundmanyplacesinthephysicalworldandtheorizeditmightindicateanaturallaw. Inthe1940s,Pareto’stheorywasadvancedbyDr.JosephJuran,anAmericanelectricalengineerwhoiswidelycreditedwithbeingthefatherofqualitycontrol.ItwasDr.Juranwhodecidedtocallthe80/20ratiothe"TheParetoPrinciple."ApplyingtheParetoPrincipletobusinessmetricshelpstoseparatethe"vitalfew"(the20percentthathasthemostimpact)fromthe"usefulmany"(theother80percent).ApplicationsoftheParetoprinciple:AParetochartillustratestheParetoprinciplebymappingfrequency,withtheassumptionthatthemorefrequentlysomethinghappens,themoreimpactithasonoutcome. Paretoefficiencyisabalanceofresourcedistributionsuchthatoneindividual’slotcannotbeimprovedwithoutimpairingthelotofanotherindividual.AParetoimprovementisassistancethatbenefitsoneindividualwithoutcausingimpairmenttoanother.AnotherapplicationoftheParetoprincipleisthe96-minuterule,whichmaintainsthatknowledgeworkersshoulddevotethemselvesto