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The Pareto Principle

Think Big, Think Pareto

How much time do you spend on the little things? How much time do you spend on those things that are not wealth generating?

It is so easy for our attention to become enticed into something insignificant and our focus pulled away from what is important. Setting priorities in our activities is one way we can ensure that we stay on track. Look at how your activities and actions assist or impede your progress towards expansion. Your time is valuable. Look at how much of it is spent working on achieving your goals and how much is not.

On April 14th, 1912 a great ocean liner, The Titanic sank. One interesting story which emerged from that event concerns a woman getting into a lifeboat suddenly stopped and, turning around, rushed off stepping over money and jewelry scattered on the decks. She reached her cabin and, ignoring her own jewelry, grabbed some oranges, rushed back to the lifeboat and jumped in. A dramatic shift in priority when an emergency arrives. Determining a priority will depend on what your goal is at a particular time. The goal of the woman on the Titanic was to survive the open sea. She adjusted her priorities to fit her goal.

What sort of goals should you have in relation to your business or investments?

'Principle: You cannot overestimate the unimportance of practically everything.'
-John C. Maxwell, Developing the Leader within You

Robert K McKain said, 'The reason most major goals are not achieved is that we spend our time doing second things first.'

When building a business it is easy to become distracted by the mundane and petty things around us.

What is The Pareto Principle?
The Pareto Principle was named after Vilfredo Pareto, an Italian economist who worked out and developed the concept while studying economic efficiency, by one Joseph M. Juran, a business management thinker.

The Pareto Principle is a method of isolating your time, money, activity or priorities in such a way that you are able to increase those things that will assist you in achieving your goals quicker while at the same time decreasing those things which would impede or stop your progress towards the accomplishment of your goals.

It is also known as the 80/20 principle. It describes a ratio of one thing to another. Sales people know it well and are often taught it in the early stages of their sales training.

Corporations use it to manage their business strategies. For example Microsoft applied the principle in relation to bugs in the software. Microsoft discovered that 80 percent of the errors and crashes in Windows and Office are caused by 20 percent of the bugs detected, so that eliminating that 20 percent of bugs would reduce 80 percent of the errors and crashes and, sure enough, it did.

Basically it demonstrates that 20% of any time, activity, money, etc will produce 80% of the results.

Here are some examples:
20 Percent of your work will produce 80 percent of your results
20 percent of your money will produce 80 percent of your profit
20 percent of a book will contain 80 percent of the content
20 percent of the people will eat 80 percent of the food
20 percent of the people will have 80 percent of the money
20 percent of the products will produce 80 percent of the profit
20 percent of your customers will be responsible for 80 percent of your profit
20 percent of your customers will produce 80 percent of your complaints
20 percent of your orders are more likely to be fraudulent orders

And the other way round.

80 percent of your work will produce 20 percent of your results
80 of your money will produce 20 percent of your profit
80 percent of a book will contain 20 percent of the content
80 percent of the people will eat 20 percent of the food
80 percent of the people will have 20 percent of the money
80 percent of the products will produce 20 percent of the profit
80 percent of your customer will be responsible for 20 percent of your profit
80 percent of your complaints will come from 20 percent of your customers
80 percent of your fraud problems will come from 20 percent of your orders

Sales people know that 80 percent of their time is spent getting 20 percent of their sales and 20 percent of their prospects result in 80 percent of their commission. The exercise they are constantly engaged in is locating those 20 percent type of prospects to increase their commission. A business understands that 80 percent of their profit comes from 20 percent of their customers. Their task is to either make the other 80 percent of their customers produce the same ratio of income as the 20 percent do or to reduce the 80 percent that only produce the 20 percent profit or change them for the 20 percent type of customers that produces the 80 percent of their profits.

Imagine what would happen if 80 percent of your time, energy and money which you spend on problems was reduced to 20 percent? What a difference that would make!

So if we can understand how to use this principle to reduce problems such as increased expenses, complaints and fraud, for example, to an acceptable maximum. Perhaps we only need to apply our policies of handling complaints and fraud to that 20%? Reducing 80% of our time handling fraud and complaints down to 20% of our time.

Using the Pareto Principle, 20 percent of your priorities will give you 80 percent of your production if you spend most of your time, energy, money and personal attention on that 20 percent.

Isolating those successful actions which resulted in an sudden increase in business; perhaps a special discount offered or a particular phasing in your advertising, could result in an increased flow in business thereby.

Discovering that 80% of the communications in the company are a waste of time due to the same communications being bounced around with no result and putting in place processes to ensure this does not happen can reduce the amount of company time wasted.

Even one's own communication lines reading that report or email and actually handling it on the spot rather than putting it off with the thought 'I will handle that later', will reduce wasted valuable time and energy as the matter will not then require handling twice.

There are so many ways this principle can be applied and it only takes a bit of thought to see how one can apply this in your business. Perhaps 20 percent?

For more information on Debt Consolidation companys, go to Debt Consolidation.

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