Pareto principle

[1] In 1941, management consultant Joseph M. Juran developed the concept in the context of quality control and improvement after reading the works of Italian sociologist and economist Vilfredo Pareto, who wrote in 1906 about the 80/20 connection while teaching at the University of Lausanne.

[3] In his first work, Cours d'économie politique, Pareto showed that approximately 80% of the land in the Kingdom of Italy was owned by 20% of the population.

The Pareto principle is an illustration of a "power law" relationship, which also occurs in phenomena such as bush fires and earthquakes.

[9] Because it is self-similar over a wide range of magnitudes, it produces outcomes completely different from Normal or Gaussian distribution phenomena.

This fact explains the frequent breakdowns of sophisticated financial instruments, which are modeled on the assumption that a Gaussian relationship is appropriate to something like stock price movements.

In this case both are the same: Pareto analysis is a formal technique useful where many possible courses of action are competing for attention.

Pareto analysis is a creative way of looking at causes of problems because it helps stimulate thinking and organize thoughts.

[11] Steps to identify the important causes using 80/20 rule:[12] Pareto's observation was in connection with population and wealth.

[17] According to the New York Times in 1988, many video rental shops reported that 80% of revenue came from 20% of videotapes (although rarely rented classics such as Gone with the Wind must be stocked to appear to have a good selection).

[19] For example, Microsoft noted that by fixing the top 20% of the most-reported bugs, 80% of the related errors and crashes in a given system would be eliminated.

"[21] Occupational health and safety professionals use the Pareto principle to underline the importance of hazard prioritization.

[24] In engineering control theory, such as for electromechanical energy converters, the 80/20 principle applies to optimization efforts.

[25] With regard to variation causality, this principle states that there is a non-random distribution of the slopes of the numerous (theoretically infinite) terms in the general equation.

The combination of the Pareto principle and the square-root-of-the-sum-of-the-squares axiom means that the strongest term in the general equation totally dominates the observed variation of effect.