For other uses of the word pareto, see Pareto. The Pareto principle (also known as the 80-20 rule, the law of the vital few and the principle of factor sparsity) states that, for many events, 80% of the effects comes from 20% of the causes. Business management thinker Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who observed that 80% of income in Italy went to 20% of the population. It is a common rule of thumb in business; e.g., "80% of your sales comes from 20% of your clients." Pareto can refer to: Vilfredo Pareto (born 1848), an Italian sociologist, economist and philosopher; Several things named after Vilfredo Pareto: Pareto chart, an ordered bar chart used in statistical quality assurance Pareto distribution, a power law probability distribution; Pareto efficiency, or Pareto optimality, a concept in economics; Pareto index, a...
Industrial engineer and philanthrop The industrial engineer Dr. Juran was born in 1904 in Braila, Romania and lives later in Gura Humorului. ...
Vilfredo Pareto Vilfredo Federico Damaso Pareto [vilfre:do pare:to] (July 15, 1848, Paris – August 19, 1923, Geneva) was a French-Italian sociologist, economist and philosopher. ...
A rule of thumb is an easily learned and easily applied procedure for approximately calculating or recalling some value, or for making some determination. ...
The Pareto principle is only tangentially related to Pareto efficiency, which was also introduced by the same economist, Vilfredo Pareto. Pareto developed both concepts in the context of the distribution of income and wealth among the population. Pareto efficiency, or Pareto optimality, is an important notion in neoclassical economics with broad applications in game theory, engineering and the social sciences. ...
Practical applications The observation was in connection with income and wealth. Pareto noticed that 80% of Italy's wealth was owned by 20% of the population. He then carried out surveys on a variety of other countries and found to his surprise that a similar distribution applied.
It also applies to a variety of more mundane matters: we wear our 20% most favoured clothes about 80% of the time[citation needed], we spend 80% of the time with 20% of our acquaintances[citation needed] etc.
The Pareto principle has many applications in quality control. It is the basis for the pareto chart, one of the key tools used in total quality control and six sigma. The Pareto principle serves as a baseline for ABC-analysis and XYZ-analysis, widely used in logistics and procurement for the purpose of optimizing stock of goods, as well as costs of keeping and replenishing that stock. For the Jurassic 5 album, see Quality Control (album) In engineering and manufacturing, quality control and quality engineering are involved in developing systems to ensure products or services are designed and produced to meet or exceed customer requirements. ...
Pareto Chart A Pareto Chart is a special type of Histogram where the values being plotted are arranged in descending order. ...
Total Quality Management (TQM) is a management strategy aimed at embedding awareness of quality in all organizational processes. ...
The often-used six sigma symbol. ...
Time management is straightforwardly defined as the management of time in order to make the most out of it. ...
Look up Logistics in Wiktionary, the free dictionary. ...
In computer science the Pareto principle can be applied to resource optimization by observing that 80% of the resources are typically used by 20% of the operations[citation needed]. In software engineering, it is often a better approximation that 90% of the execution time of a computer program is spent executing 10% of the code (known as the 90/10 law in this context). Computer science, or computing science, is the study of the theoretical foundations of information and computation and their implementation and application in computer systems. ...
In computing, optimization is the process of modifying a system to make some aspect of it work more efficiently or use fewer resources. ...
Software engineering (SE) is the application of a systematic, disciplined, quantifiable approach to the development, operation, and maintenance of software. ...
A computer program is a collection of instructions that describe a task, or set of tasks, to be carried out by a computer. ...
In computer programming, the word code refers to instructions to a computer in a programming language. ...
In business, dramatic improvements can often be achieved by identifying the 20% of customers, activities, products or processes that account for the 80% of contribution to profit and maximizing the attention applied to them[citation needed]. Similarly a vast majority of the business risk is contained in few risk scenarios. The greatest reduction in risk may therefore be focussed in this area. In economics, a business is a legally-recognized organizational entity existing within an economically free country designed to sell goods and/or services to consumers, usually in an effort to generate profit. ...
An 'inverted' application of the Pareto principle is the so-called 'long tail' focus in internet marketing. Rather than focusing on the high-popularity keywords for which there is a great deal of competition, some marketers have concentrated on the much larger number of obscure phrases that each get a few searches per month. Creating web pages that are search-engine-optimized for these is a less challenging task than for the small number of popular and highly competitive key phrases. The phrase The Long Tail (as a proper noun with capitalized letters) was first coined by Chris Anderson in an October 2004 Wired magazine article[1] to describe certain business and economic models such as Amazon. ...
Theil Index The Theil index is an entropy measure used to quantify inequities. The measure is 0 for 50:50 distributions and reaches 1 at a Pareto distribution of 82:18. Higher inequities yield Theil indices above 1.[1] The Theil index[1], derived by econometrician Henri Theil, is a statistic used to measure economic inequality. ...
Mathematical notes The idea has rule-of-thumb application in many places, but it is commonly misused. For example, it is a misuse to state that a solution to a problem "fits the 80-20 rule" just because it fits 80% of the cases; it must be implied that this solution requires only 20% of the resources needed to solve all cases.
Mathematically, where something is shared among a sufficiently large set of participants, there will always be a number k between 50 and 100 such that k% is taken by (100 − k)% of the participants; however, k may vary from 50 in the case of equal distribution to nearly 100 in the case of a tiny number of participants taking almost all of the resources. There is nothing special about the number 80, but many systems will have k somewhere around this region of intermediate imbalance in distribution.
This is a special case of the wider phenomenon of Pareto distributions. If the parameters in the Pareto distribution are suitably chosen, then one would have not only 80% of effects coming from 20% of causes, but also 80% of that top 80% of effects coming from 20% of that top 20% of causes, and so on (80% of 80% is 64%; 20% of 20% is 4%, so this implies a "64-4 law"). The Pareto distribution, named after the Italian economist Vilfredo Pareto, is a power law probability distribution found in a large number of real-world situations. ...
One should not be seduced by the symmetry of the idealised case: 80-20 is only a shorthand for the general principle at work. In individual cases, the distribution could just as well be say 80-10 or 80-30. (There is no need for the two numbers to add up to 100%, as they are measures of different things, eg 'number of customers' vs 'amount spent'). The classic 80-20 distribution occurs when the gradient of the line is -1 when plotted on log-log axes of equal scaling. Pareto rules are not mutually exclusive. Indeed, the 0-0 and 100-100 rules always hold. A log-log plot of y=x (green), y=x^2 (blue), and y=x^3 (red). ...
Note, however, that sometimes adding up to 100 is indeed meaningful. For example, if 80% of effects come from the top 20% of sources, then the remaining 20% of effects come from the lower 80% of sources. This is called the "joint ratio", and can be used to measure the degree of imbalance: a joint ratio of 96:4 is very imbalanced, 80:20 is significantly imbalanced (Gini index: 60%), 70:30 is moderately imbalanced (Gini index: 40%), and 55:45 is just slightly imbalanced. The Gini coefficient is a measure of inequality developed by the Italian statistician Corrado Gini and published in his 1912 paper Variabilità e mutabilità. It is usually used to measure income inequality, but can be used to measure any form of uneven distribution. ...
See also 10/90 gap refers to the statistical finding of the Global Forum for Health Research[1] that only ten per cent of worldwide expenditure on health research and development is devoted to the problems that afflict 90 per cent of the worlds population. ...
A logarithmic scale bar. ...
Mathematical economics is the sub-field of economics that explores the mathematical aspects of economic systems. ...
Sturgeons Law is an adage derived from a quote by science fiction author Theodore Sturgeon: Ninety percent of everything is crud. Sturgeon himself commented that Sturgeons Law was originally Nothing is always absolutely so; the former quote was originally known as Sturgeons Revelation. ...
The phrase The Long Tail (as a proper noun with capitalized letters) was first coined by Chris Anderson in an October 2004 Wired magazine article[1] to describe certain business and economic models such as Amazon. ...
A vitality curve is a leadership construct, assigning credit with certain proportions of the production to proportions of a producing population. ...
Wealth condensation is a theoretical process by which, in certain conditions, newly-created wealth tends to become concentrated in the possession of already-wealthy individuals or entities. ...
Originally, Zipfs law stated that, in a corpus of natural language utterances, the frequency of any word is roughly inversely proportional to its rank in the frequency table. ...
The principle of least effort is a theory of user behavior held among researchers in the field of library and information science. ...
Richard Koch, circa 1995. ...
Examples The Megadiverse countries are a group of countries in which less than the 10% of the global surface has more than the 70% of the biodiversity. ...
References - ^ http://www.poorcity.richcity.org/calculator/?quantiles=82.4,17.6|17.6,82.4
External links |
Feeds |
Contact