Bitesize No. 8 – Using the 80/20 Rule

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Probably one of the oldest, simplest and yet most useful management tools is the 80/20 rule.

Usually known as the "Pareto Principle" (named after the Italian economist Vilfredo Pareto 1848-1923) although probably more accurately attributed to the quality guru Juran who referred to the “vital few and trivial many”.

So what does the 80/20 rule tell us and how can a business partner use it in training?

The 80/20 rule helps you to prioritise. It suggests that you will get 80% of your results from 20% of your effort.

Your company probably gets 80% of its profit from 20% of its customers, or even 80% of its complaints from 20% of its customers.

It is not always in exactly the same ratio of 80/20 but the same principle always applies - focus your activities in the areas that will make the most difference.

The main practical implication is to always consider how you are spending your time.

Are you focusing on the 20% that will get significant results, the “vital few” (i.e. the main cause of the complaints?) or are you getting bogged down dealing with the “trivial many”?

It’s time to have another look at the data you collected for Bitesize 1.

* Look at how many customers you have and what their actual spend is? Do the top 20% provide 80% of your turnover/profit?

* Look at scrap, error, rework or complaint rates. Do most of them come from one or two specific areas? If so you need to be asking whether there is a training need to be satisfied that will help solve the problem.

* Look at your costs. Which parts of the organisation or which departments seem to eat up an inordinate amount of cash by showing seriously adverse variances? Why do they require so much cost? Is there anything they could learn that would make a significant cost saving?

Paul is happy to take questions and comments and can be contacted at:mailto:[email protected]

Earlier articles in this series can be found at:
The Bitesize Business Partners Page

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