The idea of the 80/20 rule (formally known as the Pareto Principle) is one of the greatest concepts that has gained traction in the past century. From a conceptual perspective I think Investopedia does a fine job putting this into terms that apply to most of us. They state it is:
“A rule of thumb that 80% of outcomes can be attributed to 20% of the causes for a given event…This principle serves as a general reminder that the relationship between inputs and outputs is not balanced. For instance, the efforts of 20% of a corporation's staff could drive 80% of the firm's profits.
In terms of personal time management, 80% of your work-related output could come from only 20% of your time at work. An example of the 80-20 rule in economics would be that 80% of a country's wealth is controlled by 20% of the population.”
So let's talk about how this is valuable and practical to you.
I have heard it discussed at length in the workplace, in conversations with friends and all sorts of places online. It is used to justify all manners of thought, behaviors and actions…often without the appropriate context or use.
At its core it's about the best use of resources and managing them in the most effective way.
Despite the fact I personally believe strongly in the concept of the 80/20 rule I think the application of it is limiting and counter-productive at times.
Why This Matters
At its core the ratio is arbitrary although there is some scientific basis behind it. Like everything I write on Enlightened Resource Management (ERM) there is a chance that someone has covered a topic as well and this is no different.
- Paul Krugman has analyzed it
- Ruben Berenguel has broken it down
- People smarter than me have waxed poetic about it.
Here's the thing though. Sometimes you need to go all in or spend more than 80% of your resources on something. Would you give your parents a handmade card for their 50th wedding anniversary with 80% effort? Would you spend only 80% of your time volunteering at your favorite non-profit providing value and then ignoring your responsibilities the rest of the time?
If you built a house with 80% top notch material and then made the foundation out of plywood would you expect that to be OK?
Proper resource management requires more than a focus on the 20% input driving the 80% output.
What You Can Do About This
As this community grows you'll hear me constantly reminding you to think critically and challenge what I write about. Sometimes I will try to persuade you by telling a story, presenting what I feel are facts based in sound science or appeal to your raw emotions.
Conservation of and proper management of resources can't always be measured by “bang for your buck”. A relentless focus on efficiency as advocated by the 80/20 rule will narrow the lens through which you perceive your resources and what you get from them. This ratio is arbitrary and could logically be moved to be 70/30, 90/10 or any other split that examples could be given to justify it.
My favorite professor in college ingrained in me that we often need to focus first on making sure things don't get worse before we try and make them better. I often need to spend 100% of my input (time, money, organization, etc) on maintenance so that I can drive future output in a way that benefits me and those around me.
Trying to determine how to use 20% of a resource to get 80% of a result often sacrifices the process in favor of the outcome.
I feel that at the very least that if the principles behind the 80/20 have meaning – and I believe they do – then we owe it to the desired outcome of our resource use to at least squeeze more gain by going more than 80/20. Can you push it to 90/10? Would you want to push it to 95/5?
I don't know about you but I'm constantly striving to manage my resources without rigid rules holding me back from thinking about the best way a task can be done. Different jobs call for different tools and flexibility in achieving a goal is critical.
My attempts at enlightened management of resources tend not to come from adhering to an Italian economist a century ago who found a trend that pointed to an 80/20 rule of thumb. Context is crucial here so this doesn't mean we can't take this further and leverage it more.
This is why I plan to use all the available construction paper colors, markers and colored pencils when I make that 50th wedding anniversary card for my parents. Who knows though; 20% of my stick figures might drive 80% of their enjoyment of my card.
So where do you think we can apply 90/10 over 80/20? Or maybe you think the idea behind or application of the 80/20 rule is a waste of time? Tell us all about it real offshore merchant account high risk in the comments on this post.