Pareto Principle

"I'm not anxious to die, sir...just anxious to matter."
--Rafe McCawley (Pearl Harbor)

I first learned the Pareto Principle while studying quality management principles in the late 1980s under the tutelage of Joseph Juran and his institute.

Vilfredo Pareto was a European renaissance man of the 1800s--engineer, philosopher, economist, etc. In the 1890s, Pareto observed that the distribution of real estate-related wealth in Italy was not even. Instead, approximately 20% of the people owned about 80% of the land.

Juran suggested that many social phenomena are distributed in this fashion. In a long list of problems, a few of them usually offer the majority of payback. For sales people, a minority fraction of clients usually bring most of the commissions. Of the many things that you want to do on your personal bucket list, only a few of them are likely to really matter.

Juran called this the 'Pareto Principle.' or the '80/20 Rule.' The trick to being effective, he suggested, is being able to 'separate the vital few from the trivial many.'

In other words, you need to be good at prioritizing...

The Pareto Principle can be pictured by a special type of bar graph called a Pareto chart. Typically, the vertical axis represents some measure of cost, value, contribution, or opportunity while the horizontal axis includes categorical items sorted from high to low by the vertical axis variable.

A distribution reflects the Pareto Principle when the bars associated with the first couple of items are are relatively tall and the remaining bars quickly taper toward the horizontal axis. The overall effect resembles a 1/x hyperbolic shape:

Once aware of it, you might notice the Pareto effect more often. In the last day or so, I've recognized Pareto-like patterns in the distribution of Fortune 500 company revenues, in a ranking of debtor nations, and in an analysis of US individual annual income.

The Pareto Principle is a useful tool for both the analyst and for the effective liver of life.