80/20 Rule : The Pareto Principal

The term 80/20 rule  is widely used now in all walks of life to describe relationships between “causes and effects” and “efforts and results”  but what is the rule ? and what are the uses and limitations in business analysis?

What is it? Well firstly few things are ever exactly 80% or 20% the rule is a general guide, a rule of thumb. For example;

  •  It could be the relationship between number of complaints versus the type issues or it could be the number of losses versus the type of problems.  So maybe around 80% of the customer complaints that are documented relate to the same 20% of issues.  Therefore fixing the top 20% of issues would reduce 80% of the complaints.
  • Or maybe it is looking at where to invest your precious IT resources, analysis might show a particular business process is responsible for 80% of the work, the other business process account for the remaining 20% of the work.
  • Or it might be 80% of the rework a business process has to do relates to one or two upstream teams, so these should be the ones to focus on.

In current state analysis 80/20 rule will appear repeatedly in any metrics that are collected, if not exactly 80% this or 20% that there will definitely be themes and patterns that will emerge. When looking at solutions they same things will apply, fixing a handful of key things can have a big benefit.

 

Posted in Principals Tagged with: , ,