What is the pareto principle?
Vilfredo Pareto was an Italian economist, he discovered that in any situation twenty percent of the inputs/activities are responsible for eighty percent of the outputs/results. Pareto first discovered this law in his own garden. He noticed that twenty percent of his pea pods, created eighty percent of the peas, as an economist he then drew parallels to Italy’s economy, discovering that eighty percent of the land belonged to twenty percent of the population. However, this principle was first introduced into manufacture by ‘Joseph Juran’. He thought to use paretos principle to determine where to focus efforts on the supply chain, by identifying where most problems occurred. Juran found that it is a principle that comes up repeatedly in almost every field.
“Dr. Joseph Juran was the first to point out that what Pareto and others had observed was a “universal” principle—one that applied in an astounding variety of situations, not just economic activity, and appeared to hold without exception in problems of quality” (Juran, 2012)
Some simple examples of the pareto principle would be how you wear twenty percent of your clothes, most of the time, and the other 80% you wear for special occasions or if everything else is in the wash or how most of the important information in this segment is in the first paragraph.
Why use the pareto principle?
Juran published the ‘quality control handbook’ which is a guide for how companies can implement this principle in different ways to increase quality and overall profit. Juran applied the pareto principle in his company and it began to show where the major influences were. Such as their top five products making 75% of their sales or a few employees accounting for the majority of the absences. The pareto principle is extremely useful recognizing where you need to focus your efforts. This applies on an individual level for employees, like where they lack in skill or training and on the company level, where they need to focus their sales.
“Pareto’s Law is dramatically effective when applied to selling and marketing situations – because it encourages a focus of activity and energy that usually produces very fast and substantial improvements” (Businessballs.com)
Even us students can use the pareto principle to our advantage. It is shown that the pareto principle has huge effects on time management skills. For example when studying for exams, because they never contain 100% of the content learned, by identifying which 20% of the content is most important, like which past questions appear more often you save time by focusing on those and worrying less about the 80% of content less likely to appear. And very common in group projects, 80% of the work done by 20% of the people.
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Downsides to the Pareto Principle.
Although the pareto principle offers great advantages in manufacture there are also some downsides to using the principle. The pareto charts are very easy to make to show the twenty percent of issues causing the major problems but they don’t show any insight into the causes. Further quality assurance methods are needed to investigate these areas in a more detailed manner, which may end up costing more to the company than the issue as in the firs place.
Pareto charts can only show qualitative data. It just shows how often an issue takes place. Because the variability of the chart changes so much it cannot be used to calculate an average or a mean or any other necessary data to calculate statistics. The lack of quantitative data means it’s impossible to test the values shown by the chart
“While a Pareto chart may show which problem is the greatest, it cannot be used to calculate how bad the problem is or how far changes would bring a process back into specification.” (Wilhite, 2017)
The future of the pareto principle
With developing AI and increasing development into industry 4.0 it’s theorised that the pareto principle will drive innovation to another level. There will be much greater amounts and variety of data to be compared to make AI’s smarter, so they could provide much more accurate analyses with various possible solutions and supply more data-driven questions to be addressed. It will see to it that the amount of errors will drop, and the 80/20 principle could start getting more efficient, decreasing to 90/10, or lower.
Another plan would be using 80/20 to divide the workload been humans and AI.
“We would employ human skills such as strategy, creativity, and collaboration for the 20 percent of tasks that drive 80 percent of business impact. Then, apply AI to the 80 percent of tasks that are routine-oriented and structured, making them ideal for automation.” (Murphy, 2019)
This method would allow humans to focus their efforts on the 20% on the information with the biggest impact and the AI could supply a bigger picture.
References:
Juran (2012). Pareto Principle (80/20 Rule) & Pareto Analysis Guide | Juran. [online] Juran. Available at: https://www.juran.com/blog/a-guide-to-the-pareto-principle-80-20-rule-pareto-analysis/?__hstc=51647990.aa85a1e3439d30b62e3d8ec385021fb4.1565814557605.1569321297871.1569777300001.10&__hssc=51647990.20.1570541995483&__hsfp=3108627566 [Accessed 6 Mar. 2020].
Businessballs.com. (2020). Pareto Principle: The 80-20 Rule – BusinessBalls.com. [online] Available at: https://www.businessballs.com/self-management/paretos-80-20-rule-theory/#80-20-application [Accessed 6 Mar. 2020].
Betterexplained.com. (2020). Understanding the Pareto Principle (The 80/20 Rule) – BetterExplained. [online] Available at: https://betterexplained.com/articles/understanding-the-pareto-principle-the-8020-rule/ [Accessed 7 Mar. 2020].
Wilhite, T. (2017). The Disadvantages of Pareto Analysis. [online] Bizfluent.com. Available at: https://bizfluent.com/list-6831238-disadvantages-pareto-analysis.html [Accessed 7 Mar. 2020].
Murphy, E. (2019). Artificial Intelligence, jobs and the Pareto Principle – Marchex. [online] Marchex. Available at: https://www.marchex.com/blog/artificial-intelligence-jobs-and-the-pareto-principle/ [Accessed 7 Mar. 2020].
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