What is the Pareto Principal?

What is the Pareto Principal?

The pareto principle (AKA 80:20 Rule)
The so-called Pareto principle (also known as the 80-20 rule,the law of the vital few and the principle of factor sparsity) states that for many phenomena 80% of consequences stem from 20% of the causes.The idea has rule-of-thumb application in many places,but it is commonly misused.
The principle was suggested by management thinker Joseph M.Juran.It was named after the Italian economist Vilfredo Pareto,who observed that 80% of property in Italy was owned by 20% of the Italian population.(Since J.M.Juran adopted the idea,it might better be called Juran's assumption.) The assumption is that most of the results in any situation are determined by a small number of causes.This idea is often applied to data such as sales figures:20% of clients are responsible for 80% of sales volume. Such a statement is testable,is likely to be approximately correct,and may be helpful in decision making.
The principle is often misconstrued because of the coincidence that 80 + 20 = 100:it could just as well read that 80% of the consequences stem from 10% of the causes.Many people would reject such an 80-10 rule,but it is mathematically meaningful nevertheless.
The principle can be viewed as recursive,and may be applied not only to the top 20% of causes; thus there would be a 64-4 rule (64% of the consequences stem from 4% of the causes),and a 51.2-0.8 rule,and so on.
In the opposite direction,Tipton Cole has observed that the Pareto Principle applies to the residue of its first application,yielding a 96-36 rule.
Certain common applications of the principle misunderstand the original intent and are not,by themselves,credible.For instance:20% of individuals in an organization perform 80% of the work. Or:20% of our advertising creates 80% of our increased sales.
This is a special case of the wider phenomenon of Pareto distributions.
The Pareto principle is unrelated to Pareto efficiency,which really was introduced by Vilfredo Pareto.