I have read a lot about it and I just still don’t understand it. I feel incredibly stupid whenever I see it come up somewhere and I know it’s name and I know that I’ve read about it, but I still don’t know what it is.
This has gone on for almost a year now.
Help.
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The 80/20 rule, or Pareto Principle, isn’t a law of nature like E=MC^2 . It’s more of a rule of thumb that provides a “first guess” estimate when analyzing a situation.
Assuming you don’t know anything about the situation, you can fairly safely guess that 20% of the cause makes 80% of the effect. For instance, you could guess that 20% of drivers cause 80% of accidents, 20% of your customers leave 80% of your complaints, 20% of your birthday party guests eat 80% of the cake, etc.
For instance, a programmer could use it to convince his boss to let him re-build some old code – after all, 80% of the bugs are probably caused by only 20% of the code.
The Pareto Principle is definitely not a substitute for real in-depth investigation – just a way to think about a situation. It means that in many situations, you can prevent 80% of your problems by focusing on the worst 20% of the people and things that cause them.
It’s also not even the best estimate. Businesses often use a 20-100-20 rule – for instance, the top 20% of customers contribute 80% of the profits, but the bottom 20% of customers actually lose the company 20% of their potential profits.
Statisticians use a much better estimate called the 68–95–99.7 rule or empirical rule. In most sets of real-world data, about 16% will be very high, 16% will be very low, 2.5% will be extremely high, 2.5% will be extremely low, 0.15% will be “off-the-charts” high, and 0.15% will be “off the charts” low. This rule applies to people’s IQ and height, household incomes, rolls of two or more identical dice, and tons of other examples.
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