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80 20 Rule Relationship – Pareto Principle

by @reagan No Comments

The Pareto principle is one of the simplest ways to improve your business results and your thinking. It simply states that 80% of your results, comes from 20% of your effort. Our 80% of your outcomes come from 20% of the inputs.

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In other words, 80% of your sales, will come from 20% of your customers. Or 80% of your overall costs will come from 20% of what you buy. 80% of your time online will come from just 20% of the actions you take online. 80% of new customers will come from 20% of your advertising effort.

‘For many events, roughly 80% of the effects come from 20% of the causes’ – Vilfredo Pareto

Who invented the Pareto Principle

Developed originally by Vilfredo Pareto, he identified in Italy in the early 1900’s that 80% of the wealth (land) was controlled by 20% of the population. And today, 82% of all wealth is still owned by 20% of the population.

But what about website traffic? Well, 80% of users to your website will come from a web search.

Some more examples:

When investing, its been shown that 80% of the returns come from 20% of the investments made. And, unfortunately, on the other side, 80% of the losses come from 20% of investments as well.

DMAIC Cycle

DMAIC Summary

The DMAIC structure is a logical flow to solving both small problems to major cross-functional business problems. As you move through Define, Measure, Analyse, Improve and Control, there are a range of tools that can be used.

Remember:

  1. At the end of each stage, a clear decision point must be followed before moving on to the next
  2. The tool while appearing to be quite rigid, is iterative with flow across the first four phases
  3. It follows the PDCA flow
  4. Engage a team – you will get much better results

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