Manage your work more efficiently - Pareto principle (80/20 rule)
Sunder Poovananathan
Intro:
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In 1906, Italian economist Vilfredo Pareto created a mathematical formula to describe the unequal distribution of wealth in his country, observing that twenty percent of the people owned eighty percent of the wealth. In the late 1940s, Dr. Joseph M. Juran inaccurately attributed the 80/20 Rule to Pareto, calling it Pareto's Principle. While it may be misnamed, Pareto's Principle or Pareto's Law as it is sometimes called, can be a very effective tool to help you manage effectively.
What It Means
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The 80/20 Rule means that in anything a few (20 percent) are vital and many(80 percent) are trivial. In Pareto's case it meant 20 percent of the people owned 80 percent of the wealth. In Juran's initial work he identified 20 percent of the defects causing 80 percent of the problems. Project Managers know that 20 percent of the work (the first 10 percent and the last 10 percent) consume 80 percent of your time and resources. You can apply the 80/20 Rule to almost anything, from the science of management to the physical world.
You know 20 percent of you stock takes up 80 percent of your warehouse space and that 80 percent of your stock comes from 20 percent of your suppliers. Also 80 percent of your sales will come from 20 percent of your sales staff. 20 percent of your staff will cause 80 percent of your problems, but another 20 percent of your staff will provide 80 percent of your production. It works both ways.
How It Can Help You
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The value of the Pareto Principle for a manager is that it reminds you to focus on the 20 percent that matters. Of the things you do during your day, only 20 percent really matter. Those 20 percent produce 80 percent of your results. Identify and focus on those things. When the fire drills of the day begin to sap your time, remind yourself of the 20 percent you need to focus on. If something in the schedule has to slip, if something isn't going to get done, make sure it's not part of that 20 percent.
Manage This Issue
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Pareto's Principle, the 80/20 Rule, should serve as a daily reminder to focus 80 percent of your time and energy on the 20 percent of you work that is really important. Don't just "work smart", work smart on the right things.
Source: http://management.about.com/cs/generalmanagement/a/Pareto081202.htm
Cheers,
Sunder
sunder
Here's something to add on to the previous mail on 80/20 principle.
Here is an example.
Pareto Visits a Retail Store
Does 20 percent of your effort yield 80 percent of the results?
For example, 20 percent of the promotion techniques you use achieve 80
percent of the results. 20 percent of the items in inventory account
for 80 percent of the total inventory cost. 20 percent of the
customers account for 80 percent of the sales. 20 percent of the sales
force generates 80 percent of the sales volume. 20 percent of your
telephone callers consume 80 percent of your telephone time. And so
on.
Knowing these statistics does nothing to increase business. But taking
action will. See where this principle applies in your company and then
see what you can do to take advantage of these facts. If you are in
the retail business, for instance, you may find that 80 percent of the
profit is generated by 20 percent of the floor space. If so, you might
identify these high traffic aisles and maximize profit through product
positioning. If 80 percent of the sales are generated by 20 percent of
the products, you will want maximum exposure for these high-ticket
items.
If 80 percent of the traffic takes place during 20 percent of the day,
identify this time period and declare it sales time. Have additional
staff during this time if necessary. Make sure everyone devotes as
much time as possible to customer service and selling. Tell staff not
to work on paperwork, stocking etc. during that time period. They can
do the maintenance and administration tasks during off-peak times.
If 80 percent of the sales seem to be generated by 20 percent of the
staff, Train all employees on the basics of up selling and customer
service as well as product knowledge. Make sure the staff members who
interact well with customers are not hidden away in the back room. Set
sales goals. How many sales do they need to make each day or each
hour? Stephen Stressor, author of the book, Working It Out, claims
that goal-setting programs can increase performance by 16 percent.
About 80 percent of the shoplifting occurs in 20 percent of the
available hours. If your store is open 24hours, that's between 2 pm
and 7 pm with Saturday being the most popular day. Security should be
concentrated during these peak hours. And you should be well staffed.
There is a correlation between shoplifting and customer service so
interaction with customers should be greatest during this time period
as well.
If 80 percent of the sales come from 20 percent of the store's
traffic, figure out how to get even more sales out of existing
customers. According to eMarketer, it costs five to ten times as much
to find a new customer as it does to retain an existing one. And since
regular customers buy more, make more referrals and are less price-
sensitive, it would pay to get to know your customers. It would also
be wise to see how you can get more traffic into the store and keep
them there longer, since sales varies with the length of time spent in
the store. You could also attempt to convert some of those 80 percent
browsers into customers.
If 80 percent of your sales take place during 20 percent of the year,
you must maximize the use of this prime selling time to generate as
many sales as possible. But you should also try to convert lower sales
months to higher sales periods.
The Pareto Principle could apply to the names on your mailing list,
the source of shrinkage, customer complaints, returns, and staff
lateness as well as other areas. It's important to analyze reports and
collect data and take action where warranted. And if 90 percent of
your results are achieved in activities that only consume 20 percent
of your time, you have just identified your priorities.
Source: http://mngmnt.blogspot.com/2007/04/pareto-visits-retail-store.html
Cheers,
Sunder
On Apr 25, 3:21 pm, "Sunder Poovananathan"