All About The Pareto Principle: Understanding The Rule Of Thumb

Everyone’s busy these days. In fact, it seems to be a badge of honor to have more responsibilities than hours to do them in. But being busy doesn’t mean that what you’re doing is helping you to get ahead. The Pareto Principle can help with that. It’s a relatively new idea that forces you to look at what you’re doing compared to the results and encourages you to rethink those priorities based on what you learn.

The Pareto Principle originally came from economics. It came from an observation about wealth distribution in Italy, when a man named Vilfredo Pareto noticed that 20% of the population held 80% of the wealth. The scope of the Pareto Principle has widened considerably since that time. The idea behind it, that most things in life aren’t evenly distributed, has been applied to business, goal setting, and even to relationships. And it really can be very helpful in all of these contexts.

For example, if you think your relationship’s in trouble, you might make a number of changes. You could spend more time with your spouse, organize date nights, bring them flowers, or just start a good conversation. But it’s likely that one of these tactics will work better than the others. Perhaps your partner opens up during your conversation, resulting in a strengthening of your bond. This doesn’t mean that your other efforts were a waste of time or not appreciated, it’s just that the effort you put in to improve your communication resulted in 80% of the results. This is the Pareto Principle at work.

How much of your day is already scheduled and booked? And have you ever examined the activities you have planned to determine the value they add to your life? What do you think the results would be if you looked at your to do list from this perspective?

The Implications of the Pareto Principle

The Pareto Principle implies that maybe you’re not working in the most efficient ways possible. You might be running around, busily trying to get everything done, and wondering why you’re still struggling in certain aspects of your life. If you’re having business troubles for example, you’re probably doing everything you can to improve the health of your business. You might be overwhelmed with everything that you’re doing. And yet when you look at the results, they might not seem to match up with your efforts. That’s because they don’t, according to the Pareto Principle. In fact, according to this idea, only about 20% of what you’re doing is actually helping you. The rest is just busy work that isn’t really worth doing.
 

The Science of the Pareto Principle

In 1906 Vilfredo Pareto noticed that only 20 percent of Italy’s population held 80 percent of the country’s wealth. This seemingly innocuous observation spawned the Pareto Principle and is now used in a variety of contexts and situations. Unfortunately, this is a difficult idea to test scientifically because it isn’t set in stone. So many factors can affect the outcome of actions and efforts that the 80/20 ratio is rarely if ever exact. However, that doesn’t diminish the effectiveness of this idea. It’s actually reliant upon a mathematical law known as the power law distribution, which is inextricably linked to complex systems. This makes it a natural system that individuals can take advantage of but not change in any real way.

The Pareto Principle can be observed naturally in a variety of contexts. For example, in business 20 percent of the customers provide 80 percent of the sales and 20 percent of the employees generate 80 percent of the company’s income. In technology, 20 percent of the bugs cause 80 percent of the software problems. No matter what type of system it is, whether business, technology, sales or personal, this kind of distribution is always the most natural result.

Applications of the Pareto Principle

The Pareto Principle started in economics but it can now be applied to any part of your life. Some of the most useful and common ways this principle can be applied to different aspects of your life are as follows:

Finance

In this context, the idea indicates that 80% of your incomes comes from 20% of your work efforts. This means that you need to work out which ideas and activities result in the most income and how can you increase the amount of time you spend on these activities.

Work

When it comes to your work productivity, the Pareto Principle can make you think about the tasks you set for yourself. If you have a particular project to finish, are you going about it in the most efficient way? And which tasks have you been putting off that could actually put you ahead of your timetable? These are both questions that will help you work according to the Pareto Principle.

Goal achievement

Whether it’s choosing the actions that will help you achieve your goals or choosing the goals themselves, looking at your goals through the lens of the Pareto Principle can help you prioritize and direct your efforts where they’re really needed.

Marriage and other relationships

People in today’s society are often obsessed with work success, and as a result relationships are becoming more complex and even breaking down. 40 percent of Americans now report that they’re socially isolated, which is a huge jump from previous decades. This is a frightening statistic and it suggests that a shift in thinking is needed. Relationships and social connections need to be as important to you as your work success. So if you want them to work, you need to put the same amount of effort into them that you put into your work success.

No relationship is easy, a fact that modern fairy tales seem to ignore. In fact, there’s a prevailing idea at the moment that the ‘right’ relationship will be easy. This often results in people leaving relationships as soon as they get difficult because they believe that the problems indicate that the relationship isn’t ‘right’. This is a naïve idea that refuses to die. In reality, relationships take work, and the Pareto Principle can help you define the actions that best benefit your relationships and their ongoing health.

Self-education

Everyone should be dedicated to their own self-improvement, and this means outlining and following a plan for self-education. But choosing subjects and areas to work on at random is inefficient and usually results in very little benefit from the activity. Choosing to learn according to the benefits you get from each subject or course is a much more effective strategy.
 

Potential Problems with the Idea

The Pareto Principle can encourage you to rethink your priorities and redesign your life for the best end results. But that doesn’t mean that it’s without its problems. Using this idea in the wrong way can result in broken relationships and substandard work, so it’s important that you’re careful when you apply it to your life. Some of the potential pitfalls to avoid include the following:

Using it as an excuse

A truth about the world that seems almost unchangeable is the fact that people see what they want to see. This is why people can hold ideas that go against all the available evidence and it’s why there are so many different ideas and lifestyles in the world in the first place. This is related to the confirmation bias, which is a natural part of human thinking and basically means that you will exaggerate the importance of any information that supports what you already think. In this context, it means that you may try to use the Pareto Principle as an excuse to avoid activities you don’t really want to do.

Setting the wrong priorities

If you choose your priorities using the Pareto Principle, you might find yourself going down the wrong path. No matter how good you are at decision making, you will make mistakes. This is human. Sometimes you get it wrong, or just don’t have an important piece of information. This can result in you making the wrong choices and focusing on actions that don’t lead you to that 80 percent. When this occurs, don’t be afraid to stop, re-evaluate and change your direction. It’s only a problem if you stubbornly keep moving forward regardless of the waste. When this occurs, you’ll waste even more time on actions that don’t get you what you want. As long as you acknowledge your mistake and make adjustments, you’ll keep yourself on track.

Assuming it’s set in stone

Despite the popularity of the idea, it isn’t a scientific one and it shouldn’t be treated like it. If you focus on the 20% in your life, it doesn’t mean you will automatically get 80% of the results. There are many other factors that determine what results you get from your efforts, and the Pareto Principle isn’t set in stone. This means that if you don’t get the 80% return, you shouldn’t just toss the idea aside. It doesn’t and isn’t meant to control your results or dictate what they should be. Instead, this principle should be used to refocus your priorities when needed and to help you remove inefficient activities and habits from your life.

Relying solely on this rule

This is related to all of the above problems. You can’t rely solely on the Pareto Principle to determine what you do and how you do it. There are multiple causes for any effect. You might think that praise you got from your boss was solely due to a recent project, but the reality is a little different. If your boss was in a bad mood, they might have held back on their praise. If the clients didn’t like the work, no matter how good it actually was, you could have been told to redo it.

The simple fact is, no matter how hard you work on something the outcome is subject to numerous factors that you can’t predict or control. There is never just one cause for one effect, this is an overly simplistic idea of the way the world works. Instead, every effect has whole systems of causes that contribute to it. This is called systems thinking, a complex idea that gives you a much better idea of how the world functions. In practical terms, this means you should still apply the thinking taught by the Pareto Principle to your work. However, don’t let it be the only way you determine your goals or the actions you take towards those goals.

How to Use the Pareto Principle in Decision Making

Making the good decisions is one of the hardest skills you can develop. This seems strange, because you make decisions every day and would probably assume that you’re pretty good at it. But in reality, there are so many barriers to good decision making that it’s an extremely rare skill. These barriers can include cognitive biases, heuristics, your physical state, and even your emotions.
Learning to use the Pareto Principle to help you overcome some of these barriers and evaluate information more effectively can be very valuable. It won’t make you a perfect decision maker, but it will streamline the process. To use the Pareto Principle effectively, try the following steps:

List your options

To choose the right course, you need to know what your choices are in a concrete way. This means writing them down so you can see them. Make sure you take your time with this. Sometimes we have options that we don’t consider, so really think about it and try to list all of your options.

Write down why each is important/ needed

Write down the benefits of each option and think about why those benefits would be so important to your life. This will help you understand the affects you’re looking for from your decision and give you a better idea of the best option for your needs.

Look at your goals, which actions help? Which hinder?

Another one to use the Pareto Principle in decision making is to compare the options and their benefits to your goals. Which decision will get you closer to your goal? To what degree? And if you discover that one of the options will actually push you away from one of your goals you can just strike it off your list.
 

Goal Setting and the Pareto Principle

One of the most effective ways to use the Pareto Principle is to apply it to your goals. There are a number of ways that you can use this idea to maximize your chances of success with goal achievement. This ranges from streamlining how you choose your goals to evaluating the value of the actions you take to achieve them. Some of the ways that the Pareto Principle can help with goal setting includes:

It will help you evaluate your actions

You can use the Pareto Principle to determine what actions you take towards your goal and evaluate once you’ve started the process. For example, if you’re trying to lose weight through exercise, you’ll probably find that your efforts are only minimally effective. But if you focus all of your attention on what you eat, you’ll probably start to see the results of the 80% return.

It will help you make better choices

But this principle can be used in a larger ways around goal setting too. You probably have a lot of goals, big and small, and each of them are designed to make your life look a certain way. So if you want to be fit, healthy and happy, you might decide to go on a diet, start an exercise program, work on your confidence levels, make some new friends, and shop for a new wardrobe.
This list of goals is by no means definitive, and they all contribute to a larger goal, the way you want your life to be. But working on all of these goals at once will only split your focus and make you less likely to succeed. Using the Pareto Principle, you can learn to choose which goal will give you the best outcome and get to work knowing that your efforts will probably give you a big reward.

It will dictate your agenda

There’s always one to do list entry that’s more important than the others. It’s the big ticket item, the usually time consuming or difficult entry that you probably put off as long as possible. But according to the Pareto Principle, you should probably do that item first. Because it’s difficult and complicated, it’s probably also essential to your success

It will help you focus

Life is full of distractions. From kids, pets, family, social media, ringing phones, chores and physical needs, there’s no end to the number of things that can pull you away from the work that you need to do. You might think that doing the dishes and feeding the dog will help with your work, after all it only takes a few minutes and will cut down on the background noise, but in reality those distractions will cost you time, focus, and may even decrease your creativity. But you can use the Pareto Principle to bring your mind back to where it should be, by reminding yourself of the value of the work you’re doing compared to the value of doing the dishes. After all, that deadline won’t wait, and the dishes will.
 

Turn the Pareto Principle Around

There’s another way to use the Pareto Principle that may be just as, if not more effective than other ideas. This has to do with an idea called the theory of constraints. This idea claims that in any process or endeavor, there’s always a constraint on the action, some big barrier to the process. And learning to see this barrier and get rid of it is one of the most effective ways to use the Pareto Principle. It encourages you to focus on eliminating the most important barriers to your success before you start putting on focused work on achieving that success. That way, there’s nothing in your way when you do start moving forward.
To use the Pareto Principle to eliminate one of the barriers to your success, try the following ideas:

Identify your goals

This has to be the first step in any process. If you don’t know where you’re going, you can’t identify the barriers that are stopping you from getting there.

Identify problem areas

Look at each goal and evaluate the progress you’re making. If you’re steaming towards your goals, with nothing but blue sky ahead, you can move onto the next one. But chances are that your progress isn’t that smooth. Write down the progress you want to make, the progress you’re actually making, and why you think that difference exists.

Track the problems

To identify the most problematic barriers to your goal achievement, you need to understand the extent of each problem. And this means measuring your activities. If you think procrastination is a big problem, set up a timer. This will allow you to record your actual working hours compared to the time you spend procrastinating. If you want to identify the problems in a personal relationship, start keeping a diary of your interactions, fights and communications.

Address the biggest problem first

After you’ve finished your research, identify the biggest problem and start making changes to improve it. Starting with the biggest barrier has the best chance of giving you that 80 percent result you’re looking for. In a relationship, this might mean getting counselling or learning to communicate better. In terms of your productivity, it might mean timing the work you do and setting up a reward and punishment system for the right behaviors. Whatever you do, make sure your actions are designed to address that 20 percent that’s causing most of the problems.
 

The Takeaway

Re-evaluating your life according to the Pareto Principle may seem like a fairly pointless activity. After all, there are some things that you just have to do no matter how small the results are. But the Pareto Principle advocates a different kind of thinking. It can encourage you to re-evaluate your daily activities and to find more effective and worthwhile ways of doing things. It may even result in you removing a few items off your daily to do list as well.

Looking at your activities from the point of view of the end result can give you a unique perspective that’s unmatched in helping you determine how to achieve your goals. Just make sure that you don’t over rely on the idea, or use it to suit your own agenda. And if you can avoid those traps, it can provide you with new information that you need to make really good choices in your life.
Have you noticed the Pareto Principle at work in your own life? Tell us about it in the comments below.

Leave a Comment

Your email address will not be published. Required fields are marked *