How the 80/20 rule can enhance business efficiency


I often think of Nasa’s Apollo 13 mission and how, when things kept going wrong, the team never accepted failure as an option. Neither the ground control in Houston nor the astronauts on the stricken spaceship allowed themselves to panic, and they never gave up trying to find a solution. The key was that they accurately defined and prioritised each problem. With the exceptional leadership of Gene Kranz, the ground control flight director, they kept their focus and responded rapidly to all issues that were thrown at them.

Like any mission, whether in space or in business, risk and change are certain. It is very unlikely for a business to anticipate everything that can possibly go wrong. Millions of businesses across the globe face problems where quick thinking, accurate information and rapid response are required daily to achieve business goals or simply to survive.

Kranz and his team had very limited resources to bring the astronauts back to earth. We may argue that they applied the 80/20 (Pareto) rule during the Apollo 13 ordeal. This technique can be used in decision-making for the selection of a limited number of tasks that will produce a significant overall effect.

Since 1896, when Vilfredo Pareto first noted the rule, it has evolved for practical application in modern business. In short, the Pareto rule takes the stance that 20% of your time produces 80% of your business result.

Imagine painting a room. The major (but the easiest) part of the work is to apply the roller until all the walls are covered. The painstaking part is doing the edges. If you rush it or you’re scrappy your result will not be pleasing. A paint job that is not pleasing is not a successful result. To increase the likelihood of success you’ll have to focus on your edging. You might consider getting specific tools such as small paint rollers or masking tape, or even hiring a professional with a steady hand to do this part.

This is an elementary example where little can go wrong, unless of course there is a “Mr Bean” in the picture. However, most business scenarios have “edging” parts needing substantial focus.

The Pareto Principle is a simple phenomenon that allows us to shift our focus to the areas that will have the most profound impact on the end goal and will yield the greatest results. Since business activities determine resource requirements, which in turn drive costs and ultimately affect overall financial success, we need to determine those business activities that require specific attention.

The trick is, though, that it is not always easy to find the “20%”, and when we do, to determine what options are available to achieve better outcomes. This is where business and cost analysis comes in.

In my next few blogs I will discuss cost drivers and business analysis in more detail. A thorough business and cost analysis will certainly point you in the right direction.

Your team will have more and better options. This may be the difference between success and failure.

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