Pareto Principle - Overview, Applications and Uses, Benefits
文章推薦指數： 80 %
The Pareto principle, commonly referred to as the 80/20 rule, suggests that 80% of results/outcomes will result from 20% of the actions/inputs ... Home›Resources›Knowledge›Economics›ParetoPrinciple ParetoPrinciple The80/20Rule Writtenby CFITeam UpdatedMay11,2021 WhatistheParetoPrinciple? TheParetoprinciple,alsoknownasthe80/20rule,wasoneofVilfredoPareto’smostnoteworthytheories,whichfoundthat80%ofoutcomesoftencomefrom20%oftherelatedinputs.ParetowasanItalianeconomistinthe19thand20thcenturieswhohelpeddevelopmoderneconomicsasweknowittoday. ParetofirstsawthesituationwhenevaluatingincomedistributioninItaly,wherehesawthat80%ofthecountry’sincomewenttoonly20%ofthepopulation.Histheorystretchesfarbeyondjustincomeandcanbefoundthroughoutmanybusinessandconsumerfields. Asawhole,thetheorysuggeststhatmanyaspectsoflifearenotdistributedevenly.TheParetoprincipleisalsoreferredtoasthe“vitalfew”and“usefulmany.” Summary TheParetoprinciple,commonlyreferredtoasthe80/20rule,suggeststhat80%ofresults/outcomeswillresultfrom20%oftheactions/inputsthatcanbeassociatedwithit. Therulecanbeviewedintwoways,eitherthevitalfew,whichasmallnumber(20%)offactorsresultinthevastmajority(80%)ofresultsortheusefulmanythatfindthatmanysourcesaccountforasmallnumberofresults. TheParetoprincipleisananalyticaltooltohelporganizethoughtsanddevelopsolutionstobusinessandconsumerproblems. PracticalApplications TheParetoprinciplecanbeseenacrossmanysectorsofbusinessandwithinconsumerism.Belowareafewexamplesofwhereitmightbefound: 80%oftheworkinagroupprojectisdoneby20%ofthegroup 80%ofrevenuescomefrom20%oftheproducts 80%ofenginefailurescomefrom20%ofpossiblecauses ImportanceoftheParetoPrinciple TheParetoprincipleisahelpfulruleofthumbwhentryingtooptimizetheallocationofresources.Thecorrectdistributionofresourcescanmakeasignificantdifferenceintheefficiencyandprofitabilityofabusiness. Forexample,thinkaboutifanewCEOishiredtoboostclientretentionforasmallbusiness.If80%ofthereasontheirclientsareleavingiscausedby20%ofthepossibleproblems,itwouldbeano-brainertofocusonthefirst20%. The80/20ruleisagreatdecision-makingtooltohelpoptimizeresourceallocationforabusiness.Ithelpsorganizethethoughtprocessandmakemuchmoreeducateddecisions. Therulealsoplaysintothelawofdiminishingmarginalreturn/benefit.Keepingallelseequal,whentheconsumptionofinputsincreases,themarginalbenefitofeachadditionaloutputwilldecrease. BenefitsandLimitations TheParetoprincipleoffersseveralbenefits,mostlysurroundingtheanalysisthatitcanbeusedfor.Itcanhelpanalyzeproblemswithinacompany,organizethethoughtsbehindthem,andprovidethemosteffectivesolutions. AnimportantnotetorememberwhenthinkingabouttheParetoprincipleisthatitismerelyaruleofthumbandnotahardlawthatisalwaysfollowed. OtherRelatedParetoTheories Paretoanalysisisananalyticaltoolusedtoaiddecision-making.Itisastatisticalapproachtorankproblemswithinabusinessandusesthedatatomakedecisions.Paretodiagramsandtablescanbeusedtohelpvisualizethefindings.ThefindingswilloftenresembletheParetoprincipleaseither: TheVitalFew:Asmallnumberofinputsleadtoalargemajorityoftheoutputs. TheUsefulMany:Alargenumberofinputsleadtoasmallpartoftheentireproblem. OthersimilartheoriesdevelopedbyVilfredoParetoincludeParetoefficiency,Paretoinefficiency,andParetoimprovement.AllofwhichrelatetotheProduction-PossibilitiesFrontier.AnypointonthefrontierthatisParetoinefficientwillenjoytheopportunityofaParetoimprovementtomovetowardsParetoefficiency. MoreResources CFIistheofficialprovideroftheCertifiedBanking&CreditAnalyst(CBCA)®certificationprogram,designedtotransformanyoneintoaworld-classfinancialanalyst. Tokeeplearninganddevelopingyourknowledgeoffinancialanalysis,wehighlyrecommendtheadditionalresourcesbelow: ParetoAnalysis AllocationalEfficiency ParetoImprovement PointofDiminishingReturns FinancialAnalystCertification BecomeacertifiedFinancialModelingandValuationAnalyst (FMVA)®bycompletingCFI’sonlinefinancialmodelingclasses! Sharethisarticle CorporateFinanceInstitute BacktoWebsite 0searchresultsfor‘’ Peoplealsosearchfor: excel Free freecourses accounting 2 Balancesheet DCF ExploreOurCertifications FinancialModeling&ValuationAnalyst(FMVA)® Learnmore CommercialBanking&CreditAnalyst(CBCA)™ Learnmore CapitalMarkets&SecuritiesAnalyst(CMSA)® Learnmore CertifiedBusinessIntelligence&DataAnalyst(BIDA)™ Learnmore Resources ExcelShortcutsPCMac ListofExcelShortcuts Excelshortcuts[citation... FinancialModelingGuidelines CFI’sfreeFinancialModelingGuidelinesisathoroughandcompleteresourcecoveringmodeldesign,modelbuildingblocks,andcommontips,tricks,and... SQLDataTypes WhatareSQLDataTypes? TheStructuredQueryLanguage(SQL)comprisesseveraldifferentdatatypesthatallowittostoredifferenttypesofinformation... StructuredQueryLanguage(SQL) WhatisStructuredQueryLanguage(SQL)? StructuredQueryLanguage(SQL)isaspecializedprogramminglanguagedesignedforinteractingwithadatabase.... SeeAllResources SeeAll PopularCourses Free! FMVA®PrepCourse 3.5h ExcelFundamentals-FormulasforFinance FMVA®Required 5.5h Buildinga3StatementFinancialModel FMVA®Required 7.5h BusinessValuationModelingPartI FMVA®Required 2.5h Scenario&SensitivityAnalysisinExcel BIDA™Required 6h Dashboards&DataVisualization FMVA®Electives 15h LeveragedBuyoutLBOModeling SeeAllCourses SeeAll RecentSearches Suggestions FreeCourses ExcelCourses FinancialModeling&ValuationAnalyst(FMVA)®
延伸文章資訊
- 1The 80 20 Rule - The Pareto Principle | Brian Tracy
The Pareto Principle states that 20 percent of your activities will account for 80 percent of you...
- 2Pareto Principle - Overview, Applications and Uses, Benefits
The Pareto principle, commonly referred to as the 80/20 rule, suggests that 80% of results/outcom...
- 3Understanding the Pareto principle (The 80/20 rule) - Asana
The Pareto principle (also known as the 80/20 rule) is a phenomenon that states that roughly 80% ...
- 4Pareto Principle - an overview | ScienceDirect Topics
The Pareto principle states that 80% of the problems are the result of 20% of the causes. To this...
- 5What Is the Pareto Principle—aka the Pareto Rule or 80/20 ...
The Pareto Principle specifies that 80% of consequences come from 20% of the causes, asserting an...
