80/20 Rule for Decision Making

In a world increasingly driven by data analytics and AI, it might surprise you that the 80/20 rule or Parento Rule which was proposed over a hundred year ago is still as relevant as ever before.

• 80 percent of profits are generated by 20 percent of customers
• 80 percent of revenues are generated by 20 percent of sales reps
• 80 percent of complaints come from 20 percent of customers 
• 80 percent of quality issues impact 20 percent of a company's products 
• 80 percent of healthcare spendings are for 20 percent of patients.
• 80 percent of sick days are from 20 percent of employees.

The ratios may not be exact, but countless numbers of examples closely collaborate this simple rule. What does this mean for decision making in the business world or personal life? This rule suggests that 20 percent of your activities will account for 80 percent of your results. We can take this 80/20 rule and apply it to many situations. Understanding the principle is essential to learning how to prioritize your tasks, days, weeks, and months.

All businesses are constantly challenged by limited resources. The 80/20 rule provides a framework on what management should focus on to maximize the business impact of the team. They use Pareto to help them determine what is of vital importance. Then, they delegate the rest, or simply let it go.

When you assess your individual to do list, chances are only a few are tied to critical issues. The 80/20 rule suggests you focus on the few more important items that will generate the most significant results. It does not mean you ignore the rest, but simply allocate your effort and prioritize appropriately. You often hear that people who are busy all day long but seem to accomplish very little. This is almost always because they are busy working on tasks of low value while procrastinating on the one or two activities that could make a real difference to their companies and to their careers.

In the book The 5 Patterns of Extraordinary Careers by James M. Citrin and Richard A. Smith, the author proposed a different perspective on the 80/20 rule for career management. In the business world, it is usually the last 20% of what you accomplish (beyond your predefined objectives), that allows you to truly differentiate yourself. Most professionals believe they consistently meet their objectives, but it is those who go to the extra length and accomplish the extra 20% who truly differentiate themselves.

In summary, 80/20 rule can be an effective tool to enhance your productivity, or that of your business. To be strategic is to concentrate on what is important, on those few objectives that can give you a comparative advantage. A few things are important, most are not. For decision making, being mostly correct and decisive typically yields better results than taking the time to figure out what is perfectly correct.

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