Pareto was an Italian industrialist, sociologist, economist, and philosopher.  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%, 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!