5/6/17

Lessons From: The Pareto Principle

How to make the most of your time and effort




Economics is the sort of topic where an enthusiast thinks he knows what he's doing, but really doesn't. In itself, it's a very strange science about dealing with scarcity using efficiency, and in order to reach peak efficiency you must have a mastery of mathematics and statistics, besides understanding the theory behind them. Of course, if you can actually manage this, you can come up with some interesting discoveries, and one of these is called the Pareto Principle. 

Vilfredo Pareto was economist, who also happened to be an engineer and a sociologist that studied income distribution and the choices of individuals. He observed that 80% of the land in Italy belonged to 20% of the people, and that 80% of the pea pods in his garden came from 20% of the plants, and developed a theory around that, and nowadays that sort of distribution is called the Pareto Principle, which can be seen in pretty much every area of life. 



How does this distribution work? In order to avoid getting into the more complicated mathematical aspect, I'll explain it as such: The square root of the input produces 50% of the output, and in that half, if you take the square root of the input, you will find, again, that it produces half of that output. So, if you have 10,000 employees, 100 of them do 50% of the output, and even then, half of that output is made by 10 of those hundred employees. This means that the bigger the input gets, the bigger the redundancy is and we tend to lose track of those who are actually of any value, and eventually you get big systems that depend on a few key outputs to actually exist. Incompetence grows exponentially, and competence grows in a linear fashion.

You might think that this applies only to land distribution, or maybe the accumulation of wealth, but you don't only see this in economics, and there are a few notorious examples we can actually observe this in. 
  • Dr. Joseph Juran, while working in quality control in the 1940's, found that 80% of issues came from 20% of defects. 
  • It is a common rule told in marketing that 80% of your sales will come from 20% of your customers. 
  • The first 20% of input that a project yields 80% of its results. 
  • 1989, world Gross Domestic Product, the richest 20% had 82.7% of the world's wealth. 
  • In computer science and engineering control theory, for energy converters and such, the Pareto Principle is used for optimization. 
  • Microsoft noticed that 80% of issues with their computers were rid of by fixing 20% of their bugs. 
  • 20% of athletes participate in 80% of the biggest competition, and of those, 20% win 80% of the awards. 
  • In training, 20% of the exercise tends to have 80% of the impact on your body (This is probably why interval training is so effective).
  • In workplace injuries, 20% of hazards account for 80% of injuries.
  • 20% of patients in the U.S. use 80% of the resources. 

How can we apply this?

It depends on what you want to do. Of course, it's not always going to be exactly 80/20, but say you're a business owner, then look at who's producing more for your company, and you can fire the rest, reduce your input, basically reducing costs and keeping most of the productivity. Of course, this is a pretty simplified way of seeing it, but it tends to work. 



If you're working out more than one hour a day and it's not seeming to pay off then you can try the aforementioned intermittent workouts, wherein you do five minutes of intense exercise, and one minute of moderate, or one minute intense, thirty seconds moderate, whatever floats your boat. It's a very efficient method. 

Want to sell better? Focus your time and efforts on the 20% that actually will buy your product and generate your wealth. Want to fix most of your problems? Look at the root of what causes them. You can apply this logic to pretty much anything in your life, and if you do, then you will find that you will actually have time to follow your passions, which should also probably get 20% of your time of day. 


Read more about the Pareto Principle here:

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