Pareto Principle: Implications, Application, and Various Examples

What is it that you do to prioritize your tasks each and every day? Well, there could be different answers to this question coming from different perspectives and people. However, where we all agree is that the effective prioritization of our tasks holds the ultimate key to success. If we are simply investing our time and energy in unproductive things, we are definitely hurting our vision of success.

Basically, it is all about how much the input is and what output we are deriving from it. This is where the Pareto Principle, also popularly known as the ‘80/20 Rule’ provides a unique relationship between input and output. In this article, we delve deep into understanding what this principle is, its implications, and its relevance in different domains of life.

What is the Pareto Principle?

Speaking of Pareto Principle’s origins, the rule is named after an Italian engineer and economist, Vilfredo Pareto. The famous principle explains that 80 percent of the outcomes are eventually driven by 20 percent of input or causes for almost all consequences. Moreover, the principle further highlights that the relationship between input and output is highly unequal and inconsistent. In the simplest terms, 80 percent of the outcome in terms of your goals, strategies, and ambitions will come from 20 percent of your effort and actions.

For instance, if you are the owner of a car dealership, 80 percent of your car sales would be driven by roughly 20 percent of your customers as per the ideal Pareto case. You can also look at it as how a handful of your friends or colleagues offer you the maximum motivation and support in life.

You can understand the principle in terms of a simple assertion that the majority of positive outcomes are a consequence of a few important tasks or actions that you need to get right. Focusing on a few important things will ultimately offer you the largest share of your efficiency. For that, it is imperative that you are able to recognize what is of greatest value in terms of your tasks.

The 80/20 principle can be of high utility as it can help you prioritize your tasks in a highly systematic and productive way. With the help of the Pareto Principle, you can ascertain which tasks are the most significant in terms of productivity, and then you can designate higher priority to them in terms of your time and effort. You can ascertain which tasks need to be done first and which tasks can be delayed or delegated.

Needless to say, such systematic planning of your tasks will optimize your efficiency incredibly and will also help you a great deal in managing your time in an efficient manner. You could be a student, a corporate employee, an educator, or even an entrepreneur managing a wide range of tasks every day. Pareto Principle is for everyone and everyone can reap the amazing benefits of this technique. You can apply the principle to your wealth management, personal relationships, academics, and in any other context. It’s a simple cause-and-effect relationship after all!

However, it is equally important that you know how to effectively apply this principle if you are using it. The subsequent section sheds light on the best practices for applying the principle.

How to apply Pareto Principle?

The application of the principle is quite simple and time-efficient. All you need to do is follow the simple steps illustrated below

• List down all your tasks: The first step is to list down all your daily tasks or weekly tasks so that you have complete clarity on what is to be done.
• Identify the 20 percent: The next step is to identify the tasks which are the most important and will account for the largest segment of your daily or weekly productivity. You need to identify the 20 percent of tasks that you should be doing first to achieve around 80 percent of the expected results.
• Find a way to remove unproductive tasks: Next, when you have identified productive and unproductive tasks, you then need to find ways to get rid of tasks that offer little or no productivity but need to be done anyway. You can either delegate these tasks to others or find a way to eliminate them from your to-do list.
• Execute the 80/20 Rule: subsequently, when you have arranged your tasks on the basis of importance and productivity, you can then take up the more essential tasks first and unlock new horizons of efficiency. This is where you rearrange your to-do list in the order of priority and begin your important tasks.

Quite simple, isn’t it? You need to follow the Pareto Principle consistently for a few weeks for results to be tangible. There are going to be some inconsistencies in the beginning but you need to be patient.

Going ahead, let us look at some real examples across different contexts in which the Pareto Principle can be applied. So, let us get started with Pareto Principle examples.

Different cases of Pareto Principle’s application

Pareto Principle in time management

In the context of time management, the Pareto Principle’s application will be in terms of how you distribute your time between different tasks. When you follow the Pareto Principle in time management, you ought to identify the 20 percent tasks that are the most crucial tasks and dedicate the maximum amount of time to these tasks.

When you start doing that, you will feel that your time management efficiency and individual productivity have improved immensely.

For instance, let’s say an entrepreneur struggles to manage time between commuting for meetings, mentoring employees personally, supervising workflow management, and other entrepreneurial tasks. The business owner can apply the Pareto Principle to find out which tasks yield the maximum business benefits. Let’s say delivering mentoring programs and supervising teams is responsible for the most part of the company’s success. Subsequently, the entrepreneur can start dedicating roughly 80 percent of his or her time to these tasks and can delegate the tasks of business meetings and looking after the finances to others in the top management. The entrepreneur can save maximum time and energy for 20 percent of the most important business obligations and objectives.

Pareto Principle in economics

In the US economy, as per Statista, around 20 percent of Americans enjoy the ownership of more than 80 percent of the country's wealth.

This also explains that to alleviate poverty among US citizens, the government will basically have to cater to roughly 15 to 20 percent of the population that does not lie in the wealthy class and the overall economic metrics will improve a great deal by offering economic benefits to merely these 15 to 20 percent of Americans.

Pareto Principle in business

The Pareto Principle can be effectively used in the corporate world for strategic planning, various verticals of decision making, and creating a vision for the future. Using the Pareto Principle, business leaders can determine the most important business strategies or innovations that account for the largest part of business success.

To exemplify, every business enterprise has its range of star products that it recognizes using the BCG Matrix. In fact, the Boston Consulting Group’s matrix for evaluating growth and market share is an imperative strategic planning tool applied by most organizations. The BCG Matrix classifies the product line into the following four categories.

• Star
• Question Mark
• Cash Cow
• Dog

Companies often ascertain using this matrix that products or services in the ‘Star’ category help the company’s revenue flourish the most as they have the highest market penetration. Thus, Star products accounting for almost 20 percent of the product portfolio generate 80 percent of the company’s profits. These are the products that bring in 80 percent of the cash flow. For instance, if we look at McDonald’s star products, they include budget-friendly burgers, chicken nuggets, and cold coffee.

So, when businesses use the BCG Matrix for strategic planning, their aim is to identify the star products generating 80 percent of the revenue. The companies then create effective plans to bring new features and greater personalization in these 20 to 25 percent products bringing four-fifths of the cash flow to further increase profitability.

Pareto Principle in relationships

Healthy relationships play an essential role in human life and offer emotional stability. Let’s look at the application of the Pareto Principle by taking the example of a husband and wife’s relationship.

For instance, Jane and Martin have been married for 4 years and both have their own careers to look after. Jane is a chef and Martin is a sales officer at an IT solutions company. Both of them work for more than 8 hours a day and now they have started to feel that there is a disconnect between them. So, they apply the Pareto Principle and start dedicating 80 percent of their time after work to their relationship. They reserve 20 percent of that time for their individual growth, catching up with their friends, learning new skills, pursuing their personal interests, and planning their career advancement. This way, with the help of the Pareto Principle, they can revive their relationship and make it great again.

Pareto Principle in education

The 80/20 Rule can be a simple and highly effective technique for students to plan their academic goals in a more worthwhile manner. Using this principle, students can find out which tasks are the most important in terms of helping them meet their academic objectives. Based on that, they can achieve HD grades and attain the success they have always aspired to have.

For instance, let’s say a political science student has been assigned the task to complete two research papers and four assignments within two weeks, and the credits of the research papers are much higher than the assignments such that the two research papers carry around 80 percent weightage of the subject credits.

So, in accordance with the Pareto Principle, the student should invest the largest segment of academic hours in completing the research papers and rest in the assignment. This way, the student can be more productive in the pursuit of these submissions.

Pareto Principle in work

Probing further, the Pareto Principle can also be applied in work to set work priorities right for getting greater productivity out of a workday. As per the Pareto Principle, 20 percent of work-related tasks will yield the maximum amount of productivity.

In alignment with the principle, entrepreneurs or employees can plan their daily tasks to boost their efficiency. Let's say you are a copywriter at an advertisement agency and also lead a team of 5 people. Despite working with utmost diligence, you face trouble in meeting work deadlines. You can apply the Pareto Principle and determine the 20 percent of daily tasks that account for more than 70 to 80 percent of your weekly workload. Then you can enhance your approach and start spending around three-fourths of your daily time on these 20 percent tasks and stay ahead of your deadlines. Additionally, you can make use of some copywriting tips in order to enhance your efficiency.

You can apply the Pareto Principle and determine the 20 percent of daily tasks that account for more than 70 to 80 percent of your weekly workload. Then you can enhance your approach and start spending around three-fourths of your daily time on these 20 percent tasks and stay ahead of your deadlines.

To conclude, originally the Pareto Principle’s application was limited to economics and business management. But eventually, it became popular as a widely accepted time management and productivity-boosting technique. From planning their finances to planning relationships, people extensively apply the Pareto Principle for the amazing benefits it offers.

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