Do *you* look beyond 80/20?

Pareto was an Italian industrialist, sociologist, economist, and philosopher. [1] Today, we often take his name to be a synonym of the much quoted ‘80/20’ rule.  This rule is used generically to hypothesise that 80% of an event’s effects come from 20% of it’s causes.  Pareto observed that in Italy in 1906, 80% of the land in Italy was owned by 20%[2], and this is widely believed to be where the principal of 80/20 originated.

This is often used as a ‘rule of thumb’ in a business context.   A regularly cited example is that 80% of sales probably come from 20% of your clients.  Pareto analysis can be used to prioritise clients, bugs, projects or just about anything that exists in a business, project, department or organisation.   The trouble is that people focus on the proportions ’80/20′ rather than analysing the underlying data.  Whilst chopping things up into the classic proportions of 80/20 is convenient for ‘rough and ready analysis, it could lead you to the wrong conclusions.

What if you found that 95% of your sales revenue came from 1% of your client base? If you know this, would you change your Customer Relationship Management (CRM) strategy?

What if 20% of your software project spend delivered 95% of the desired functionality? Would you revisit your project scope, critically evaluating the value of the remaining 5% of the functionality?

Pareto analysis can be incredibly illuminating, especially when we look beyond the ‘80/20’ rule. The truth of the matter is that 80/20 might not be the right proportions for the particular problem you are trying to solve.   It’s far more important to take a practical view, based on your project or operational objectives, than to stick slavishly to proportions which actually date back to Italian land ownership!


[1] http://en.wikipedia.org/wiki/Vilfredo_Pareto

[2] http://en.wikipedia.org/wiki/Pareto_principle

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