I was reminded this week about the wonder of the 80-20 rule when a small company looked at their product portfolio through that lens and found one more example of the rule's durability.

Historically, Vilfredo Pareto (1848 to 1923), an Italian economist and political sociologist, conceptualized the law of the 'trivial many and the critical few', better known as Pareto's Law, or the 80:20 rule. This rule says that in many endeavors 80% of the value is derived from 20% of what drives that value, with the remaining 80% of the drivers returning relatively little 20%.

In sales, 20% of the customers often provide 80% of the profit, in product cost 20% of the components usually generate 80% of the cost, in a product portfolio 20% of the products are often responsible for 80% of the sales. For this web site, 20% of the almost 100 articles on project management and project leadership generate 80% of the web traffic. Examples are everywhere.

The 80% of the products that account for 20% of your business should only be considered for investment if they can join the 20% that drives the results. Otherwise, they should be considered candidates for phase out – particularly if they are intensive users of business resources that are not directly allocated to their cost such as management attention, purchasing problems, or manufacturing complexity.

The value of this as an analytical approach is not that it’s exactly 20%, it’s about focus. Your project and product investments should be in opportunities that can become part of the 20% that yields 80% of your results.

Home | Privacy