Browse Definitions :
Definition

Pareto principle

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 percent of the input.

The principle doesn’t stipulate that all situations will demonstrate that precise ratio – it refers to a typical distribution. More generally, the principle can be interpreted to say that a minority of inputs results in the majority of outputs.

Here are a few examples of the Pareto principle in action:

  • 20 percent of employees produce 80 percent of a company’s results.
  • 20 percent of a given employee’s time yields 80 percent of their output.
  • 20 percent of software bugs cause 80 percent of the software’s failures.
  • 20 percent of a company’s investments produce 80 percent of its investment profits.

The principle is named for Vilfredo Pareto, an Italian economist. In 1906, Pareto noted that 20 percent of the population in Italy owned 80 percent of the property. He proposed that this ratio could be found many places in the physical world and theorized it might indicate a natural law. 

In the 1940s, Pareto’s theory was advanced by Dr. Joseph Juran, an American electrical engineer who is widely credited with being the father of quality control. It was Dr. Juran who decided to call the 80/20 ratio the "The Pareto Principle." Applying the Pareto Principle to business metrics helps to separate the "vital few" (the 20 percent that has the most impact) from the "useful many" (the other 80 percent).

Applications of the Pareto principle:

A Pareto chart illustrates the Pareto principle by mapping frequency, with the assumption that the more frequently something happens, the more impact it has on outcome.  

Pareto efficiency is a balance of resource distribution such that one individual’s lot cannot be improved without impairing the lot of another individual.

A Pareto improvement is assistance that benefits one individual without causing impairment to another.

Another application of the Pareto principle is the 96-minute rule, which maintains that knowledge workers should devote themselves to their most important tasks for that time period each day to improve productivity.

 

Learn more:
Understanding the Pareto Principle (The 80/20 Rule)

 

This was last updated in August 2013

Continue Reading About Pareto principle

Networking
  • What is wavelength?

    Wavelength is the distance between identical points, or adjacent crests, in the adjacent cycles of a waveform signal propagated ...

  • subnet (subnetwork)

    A subnet, or subnetwork, is a segmented piece of a larger network. More specifically, subnets are a logical partition of an IP ...

  • Transmission Control Protocol (TCP)

    Transmission Control Protocol (TCP) is a standard protocol on the internet that ensures the reliable transmission of data between...

Security
  • What is exposure management?

    Exposure management is a cybersecurity approach to protecting exploitable IT assets.

  • intrusion detection system (IDS)

    An intrusion detection system monitors (IDS) network traffic for suspicious activity and sends alerts when such activity is ...

  • cyber attack

    A cyber attack is any malicious attempt to gain unauthorized access to a computer, computing system or computer network with the ...

CIO
  • What is a startup company?

    A startup company is a newly formed business with particular momentum behind it based on perceived demand for its product or ...

  • What is a CEO (chief executive officer)?

    A chief executive officer (CEO) is the highest-ranking position in an organization and responsible for implementing plans and ...

  • What is labor arbitrage?

    Labor arbitrage is the practice of searching for and then using the lowest-cost workforce to produce products or goods.

HRSoftware
  • organizational network analysis (ONA)

    Organizational network analysis (ONA) is a quantitative method for modeling and analyzing how communications, information, ...

  • HireVue

    HireVue is an enterprise video interviewing technology provider of a platform that lets recruiters and hiring managers screen ...

  • Human Resource Certification Institute (HRCI)

    Human Resource Certification Institute (HRCI) is a U.S.-based credentialing organization offering certifications to HR ...

Customer Experience
Close