Discovering the 80-20 Rule

The Pareto Principle, commonly known as the 80/20 rule, is one of the most well-known principles in business. It suggests that 80% of effects come from 20% of causes. This realization was made by Vilfredo Pareto, who discovered that 80% of the land in Italy was owned by only 20% of the population.

Vilfredo Pareto was an Italian born in the 19th century. He started his career as a civil engineer but developed an interest in economics in his forties. It was at that time that he published the concept of Pareto Distribution, which he realized applied not only to Italy but to most countries: a large percentage of wealth is concentrated in a small percentage of the population.

However, it was in the 20th century that Pareto became world-renowned after management consultant Joseph Juran labeled the “80-20 rule” the Pareto Principle. Juran recognized that Pareto’s insight applied not only to wealth distribution but also to problem-solving; for example, 80% of problems can be solved with 20% of the effort.

Since then, the 80-20 rule has been applied in various contexts, from 80% of bugs coming from 20% of the code to 80% of customer complaints arising from 20% of their products. This principle helps businesses focus on the most influential factors that drive success or problems, allowing them to allocate resources effectively to improve overall performance.

o deeper: Power laws, Pareto distributions and Zipf’s law - M. E. J. Newman

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