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date: 01 June 2020

Pareto's Rule (80/20 rule) 

Source:
A Dictionary of Business and Management
Author(s):

Jonathan Law

A rule originally applied by the economist Vilfredo Pareto (1848–1923) to income distribution, i.e. 80% of a nation's income is earned by 20% of the population. It can be widely extended as a rule of thumb; for example: 80% of value is locked up in 20% of inventory; 80% of car breakdowns can be fixed by 20% of the spare parts range; 80% of a company's profits will come from 20% of its product range; and 80% of system failures will be caused by 20% of possible causes. The rule can be used as a guide to managers: in deciding how to spend limited funds, priority should be given to the most significant 20% of problems. Once they are eliminated the 80/20 rule will again apply to the remainder. ... ...

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