The 80/20 Principle: The Secret of Achieving More With Less Read Online Free PDF

between causes and results, inputs and outputs, and effort and reward. Typically, causes, inputs, or effort divide into two categories:
     
    • the majority, that have little impact
    • a small minority, that have a major, dominant impact.
     
    Typically also, results, outputs, or rewards are derived from a small proportion of the causes, inputs, or effort aimed at producing the results, outputs, or rewards.
    The relationship between causes, inputs, or efforts on the one hand, and results, outputs, or rewards on the other, is therefore typically unbalanced.
    When this imbalance can be measured arithmetically, a good benchmark for the imbalance is the 80/20 relationship—80 percent of results, outputs, or rewards are derived from only 20 percent of the causes, inputs, or effort. About 80 percent of the world’s energy is consumed by 15 percent of the world’s population, for example. 1 Eighty percent of the world’s wealth is possessed by 25 percent of the world’s people. 2 In health care, “20 percent of your population base and/or 20 percent of its disease elements will consume 80 percent of your resources.” 3
    Figures 2 and 3 show this 80/20 pattern. Let us imagine that a company has 100 products and has found out that the most profitable 20 products account for 80 percent of all profits. In Figure 2, the bar on the left comprises the 100 products, each occupying an equal hundredth of the space.
     

    Figure 2 Shows a 20/1 pattern
     
     
    In the bar on the right are the total profits of the company from the 100 products. Imagine that the profits from the one most profitable product are filled in from the top of the right-hand bar downwards. Let us say that the most profitable product makes 20 percent of total profits. Figure 2 therefore shows that one product, or 1 percent of the products, occupying one hundredth of the space on the left, makes 20 percent of the profits. The shaded areas represent this relationship.
    If we continue counting the next most profitable product and so on down the bar, until we have the profits from the top 20 products, we can then shade in the right-hand bar according to how much of the total profit these top 20 products make. We show this in Figure 3, where we see (in our fictitious example) that these 20 products, 20 percent of the number of products, comprise 80 percent of the total profits (in the shaded area). Conversely, in the white area, we can see the flip side of this relationship: 80 percent of the products only make, in total, 20 percent of the profits.
    The 80/20 numbers are only a benchmark, and the real relationship may be more or less unbalanced than 80/20. The 80/20 Principle asserts, however, that in most cases the relationship is much more likely to be closer to 80/20 than to 50/50. If all of the products in our example made the same profit, then the relationship would be as shown in Figure 4.
     

    Figure 3 A typical 80/20 pattern
     
     
    The curious but crucial point is that, when such investigations are conducted, Figure 3 turns out to be a much more typical pattern than Figure 4. Nearly always, a small proportion of total products produces a large proportion of profits.
     

    Figure 4 An unusual 50/50 pattern
     
     
    Of course, the exact relationship may not be 80/20. 80/20 is both a convenient metaphor and a useful hypothesis, but it is not the only pattern. Sometimes, 80 percent of the profits come from 30 percent of the products; sometimes 80 percent of the profits come from 15 percent or even 10 percent of the products. The numbers compared do not have to add up to 100, but the picture usually looks unbalanced, much more like Figure 3 than Figure 4.
    It is perhaps unfortunate that the numbers 80 and 20 add up to 100. This makes the result look elegant (as, indeed, would a result of 50/50, 70/30, 99/1, or many other combinations) and it is certainly memorable, but it makes many people think that we are dealing with just one set of data, one 100 percent.