Blog

Pareto’s 80-20 principle and it’s impact on managing your business

Pareto 80-20

Pareto’s law: the 80/20 principle

Pareto’s law has been developed by the economist and Italian sociologist Vilfredo Pareto in 1896. The Law is based on a principle of probabilities which applies in all possible areas, including business. The principle states that 80% of the positive or negative results are obtained by only 20% of the work, or the 80/20 rule.

How to apply the Pareto law?

The Act arose from a simple observation: given that only 20% of the work will create 80% of the results, it would be better to focus on the heart of the trade, on what the company’s employees know how to do and to assign tasks to areas where the enterprise is not effective. Then, in a concrete way, Pareto’s law will apply as follows:

  1. Itemize each of the tasks we are responsible for;
  2. Assess the importance and impact of each of these tasks;
  3. Evaluate how long is required for each task to run.

Once you have performed these steps, we now get to the nitty-gritty:

  1. Eliminate the tasks of producing few, if any, impact.
  2. Delegate necessary tasks that take a lot of time;
  3. Focus the energy and time you just saved on the higher-yielding tasks.

What is the purpose of Pareto’s law?

As you can see, the Pareto law is an excellent analysis and decision support tool. Thus, you will be able to conduct reflections on your strategy to properly refine the range of your products, your sales goals and choose the most efficient tasks.

  • Concerning the management you will be able to monitor your stocks to better determine and avoid breakages.
  • At the level of human resources, you will be able to better manage your teams and channel their competence.
  • Finally, in the General Organization of the company, you will either be able to avoid unnecessary tasks, prioritize the tasks, search for causes of a problem, work on the effectiveness and efficiency of individual tasks.

Thus, Pareto’s law, when it is well used, is a good way to know how to sort between processes, tasks and essential products and those that are less.

Save time and facilitate decision making

A popular feature of the PHPReaction business management software is its ability to provide relevant reports in a click on every facet of your business.

  • Who are your customers that bring you more turnover?
  • What are the products flowing less well?
  • How much time do you (or your employees) really spend to complete your tasks?

With PHPReaction you have all this information at the tip of your fingers and you are ready to take action!