CHAPTER 2 Pareto's Principle “Eighty percent of results will come from just twenty percent of the action.” This is the Pareto principle, attributed to Italian economist and philosopher Vilfredo Pareto, who in 1906 observed an intriguing correlation. The story is that he began work on the “80/20 rule” with the observation that 20% of the pea plants in his garden generated 80% of the healthy pea pods. This observation caused him to explore uneven distribution. He discovered that 80% of the land in Italy was owned by just 20% of the population. He investigated different industries and found that 80% of production typically came from just 20% of the companies. The generalization became the concept that 80% of results will come from 20% of the action.
While it does not always come to be an exact 80/20 ratio, this imbalance is often seen in various business cases:
• 20% of sales reps generate 80% of total sales • 20% of customers account for 80% of total profits • 20% of the most reported software bugs cause 80% of software crashes • 20% of patients account for 80% of healthcare spending
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