Annoying corporate bunkum - The 80/20 rule

[simonmaal]

Is anybody else getting sick of hearing the 80/20 rule being used as an explanation of all things pertaining to business? Here are a few examples:

Project Managers know that 20 percent of the work (the first 10 percent and the last 10 percent) consume 80 percent of your time and resources. You can apply the 80/20 Rule to almost anything, from the science of management to the physical world.

You know 20 percent of you stock takes up 80 percent of your warehouse space and that 80 percent of your stock comes from 20 percent of your suppliers. Also 80 percent of your sales will come from 20 percent of your sales staff. 20 percent of your staff will cause 80 percent of your problems, but another 20 percent of your staff will provide 80 percent of your production. It works both ways.Source: http://management.about.com/cs/generalmanagement/a/Pareto081202.htm

Amongst this over-simplistic, anecdotal, unsubstantiated, highly subjective rhetoric, the text I highlighted in bold is the part that most concerns me: the writer is asserting (as many others do) that the countless variables involved in converting an enquiry to a sale can be reduced down to an easily-digestible, reliable statistical rule of thumb. To me, this nebulous generalisation sounds infantile in the extreme; it imposes some kind of universal order on random events and is therefore no better than superstitious thinking.

Are others in agreement with me on this or is there something I have missed ?

[Marquis de Carabas]

20 percent of your post is 80 percent correct.

[Wolfman]

This is one of those generalizations that is quite useful within a limited context, but that other idiots then take and try to apply to every area of life. I personally know a Chinese factory that was entirely turned around by introducing the concept of the 80/20 rule, it is valid and applicable in specific circumstances.

But this guy goes way too far; a demonstration of limited understanding overshadowed by massive ignorance.

[simonmaal]

20 percent of your post is 80 percent correct.

:D I like it - therefore 80 percent of the posters in this thread should be 20% wrong.

[Darat]

I agree with Wolfman. The problem is how people try to extend it and it then becomes meaningless. For example this part in the article you quoted from just made me laugh:

Project Managers know that 20 percent of the work (the first 10 percent and the last 10 percent) consume 80 percent of your time and resources.

That would on the whole be a sign of bad project management! If a project manager I employed came up with a schedule that looked like that I'd be having a very serious conversation with him or her and asking them if they had considered a different profession!

And I've read a bit about what he calls "Superstar Management" and he oversimplifies the ideas behind it to such an extent that he mischaracterises it. The "theory" (I'm loathe to call management ideas theories but it is part of the jargon) is in fact quite sound. After all it's based on a simple fact - that you (as a manager) have only limited resources so how do you determine where it is best to expend those resources to reach your goal. Sometimes it can be that is best to concentrate on your "superstars".

The issue is more the idea that there is "a" theory that encompasses all businesses, all goals and all people - which is what he tying to say the "80/20" rule is.

And I like his concluding comment:

"Pareto's Principle, the 80/20 Rule, should serve as a daily reminder to focus 80 percent of your time and energy on the 20 percent of you work that is really important. Don't just "work smart", work smart on the right things."

That is appalling advice - if only 20% of the work you are doing is "important" than you are working incredibly inefficiently so you should be looking to change so that you make sure that 80% ;) of the work that you do is "really important"!

[mad]

I work in quality where a Pareto is one of my quality tools. I wondered about the validity of it. I don’t know of any reason why things break down to 80/20 so I am a bit skeptical of it. At the same time, it is useful for me to for data analysis.

I use it to see what the majority of the problems are, but I base my actions on what makes sense and not an arbitrary 80%.

Is there any actual research on Paretos?

[Just thinking]

I heard that 80% of all alcoholic beverages are consumed by 20% of the public. (Or was that 90/10 ?)

[Just thinking]

Project Managers know that 20 percent of the work (the first 10 percent and the last 10 percent) consume 80 percent of your time and resources.

How is this determined? -- to me, it sounds absolutely ridiculous; but coming from a project manager ... well. If something consumes 80% of your time and resources, then it consumed 80% of your work effort, whether it took that much to just get started or wrap things up. It doesn't matter --- it consumed time and effort, so why should that not count in the same proportion as the other "80%" ???

[tkingdoll]

I agree with Wolfman. The problem is how people try to extend it and it then becomes meaningless. For example this part in the article you quoted from just made me laugh:

Project Managers know that 20 percent of the work (the first 10 percent and the last 10 percent) consume 80 percent of your time and resources.

That would on the whole be a sign of bad project management! If a project manager I employed came up with a schedule that looked like that I'd be having a very serious conversation with him or her and asking them if they had considered a different profession!



I always assumed it was a retrospective thing. It's certainly true that if you look back at all the work involved in a project, a good amount of it was undertaken at the start (the planning) and unless everything goes exactly to plan and there are no unforseen hiccups (impossible scenario) then it's also true that there's often a last minute/hours/days bunching-together of workload. Nearly every project is crazy hectic at the end.

However, you'd be nuts to try and make it go that way. The reason knowing that there's a bottleneck at the beginning and end is useful, is so that you can plan the project properly to try and avoid it.

The 80/20 rule may apply to projects in practice, but it's certainly not desirable. I can't imagine why anyone would create a schedule on that basis deliberately.

[Just thinking]

I love this brilliant comment ... The value of the Pareto Principle for a manager is that it reminds you to focus on the 20 percent that matters. Of the things you do during your day, only 20 percent really matter.

Yes... focus on what matters and not the trivial details. Wow, I would have never guessed! Homer Simpson would be proud.

[Wolfman]

In defense of the 80/20 thesis, it actually tends to be remarkably accurate -- within a limited context. It is all about allocation of resources and energy.

Far too many people tend to get lost in the 'big picture', and apply equal amounts of effort/energy to all aspects of a project. The result is that too much energy or resources are spent in areas that don't need them; while the areas that need them most don't get enough.

It is a mistake to interpret this in terms of importance; I'd tend rather to think in terms of energy and resources. For example, consider if you are planning a new project. The odds are that there will be a few discrete, specific components of that plan that will require a significant amount of energy and resources; the rest is not less important, but requires less.

In a surprising number of cases, the percentage of the plan that requires the most energy/resources is usually around 20% (and if you have a plan where that number is over 30%, you're likely in serious trouble). As a project manager who must allocate people, time, money, and resources, the greatest success will come from allocating those things suitably.

The problem is that most managers don't do this. They simply look at all the tasks that need to be accomplished, then spread their resources equally over the full range. This leads to waste (too many resources being assigned to areas that don't need it) and inefficiency (not enough resources where they are most needed).

Whether or not the figures work out to exactly 20% is irrelevant; it is the principle that should be focused on. As I said in an earlier post, there is a Chinese company here that gave their managers training in this principle, and it literally turned the company around. It is a valid and important concept to understand and be aware of.

However, as I said earlier, it is valid only within a very limited context; attempts to extend its relevance into other areas are pointless. Usually, it is the result of someone who "saw the light", and was amazed by how well it worked, and then assumed that if it worked here, it would work everywhere else as well.

[Just thinking]

But it sounds (on the surface) as nothing more than looking at where the effort is needed and simply applying it there. And if somehow this turns out to be more than 30% of the overall production, then it's a problem? That just seems to imply that the needed resources are only more evenly distributed --- what's wrong with that?

Plus, your comment on whether it works out to 20% being irrelevant again seems to go against the concern if it's over 30% ... which I addressed above. Even if it's 60%, one simply can look at that and say that's where 60% of the effort is needed. Does that automatically mean there's waste? --- at the high level that only 20% should use 80% of my resources implies?

The defense that it works in a limited context seems to me as an excuse to grant the theory credit where the situation allows for it and the cop-out (no offense to you) where it doesn't.

[Wolfman]

Just Thinking -- good questions, and I'm not trying to convince anyone of anything, just relating my own experience in this regard.

When I said, "Whether or not the figures work out to exactly 20% is irrelevant", I was thinking more of pedantic individuals who might say, "Why can't it be 19% or 21%?". 20% is intended not as a precise, exact figure, but more as a general target or range.

As to why I said a project where over 30% of the project requires significant resources is in danger, perhaps I should make my comment more clear.

Let's put energy expenditure on a scale of one to ten, with one being almost no energy (it'll pretty much take care of itself), and ten meaning that almost all energy is needed to accomplish it.

According to this scale, a level 10 will pretty much doom you from the beginning, because there's no energy or resources left to devote to the rest of the project, so we'll ignore that extreme. In my experience, a 7 or an 8 would be more reasonable for the most resource intensive aspects of a given project. About 20% of the work would fall within this range; the remaining 80% would mostly be a five or lower on this scale (obviously with a little variation, we're talking generalities here).

Now, if one assumes that the most resource intensive aspects of a project tend to be a 7 or an 8, then once you get into a 30% range, you are over-taxing your resources, and you'll be in trouble. This is not an indication that you're "more balanced"; it is an indication that you have inadequate resources to complete the job at hand, and either need to re-think the plan, or else find more resources.

Of course, if you assume that the most resource intensive aspects of a project are only a 5 or a 6, then yes, 30% would be feasible; and yes, project managers might prefer if they could have this kind of situation. But -- again in my experience -- such a situation is relatively rare. It is a very good rule of thumb that if you find yourself in a project where 30% or more of the work requires significant allocation of resources, that you should sit down and take a cold, hard look at what you're doing.

[Normal Dude]

This is one of those generalizations that is quite useful within a limited context, but that other idiots then take and try to apply to every area of life.

This is true for oh so many things.

[Foolmewunz]

The Pareto Principle is a generalization. It's useful, but as an interesting tidbit. The general idea behind trying to produce a pareto chart is to determine that X per cent of whatever total is produced by Y (clients, personnel, correspondents, etc...) How it got nailed down to 80/20, I feel is the coincidence that Pareto identified the 20% of the population in Italy that controlled 80% of the wealth. Just how he determined that in the economy of that era is not clear. I'm assuming he didn't google the results.

What if he had chosen Brunei, where 1% of the population in 1950 controlled 89% of the wealth? Would we have the 1/89 rule. Further, the X + Y (20 + 80) just looks real cool because it adds up to 100, and that sounds like 100%, right? It's not.... you can't add population to wealth and get bananas.

It's management shorthand, frankly. You use it to remind people to focus on the revenue or results producing activities. On my team I handle 67 clients. Of those, 16 clients (24%) will produce 65% of our gross profits this year. Yet, they are responsible for 52% of our sales/billings, and only 14.5% of our net (EBIT) profits. What rule are we to apply? The 24/65 rule? The 24/52 rule? Or the 24/14.5 rule? (And gee, none of them add up to one hundred.)


Again, the methodology is excellent. And as a reminder of what to focus on, it's excellent. In fact, it's one of the tools they use in the most rigid of quality management efforts (particulary 6Sigma). But the number of itemized studies I've seen that fall into 65/35, 50/50, 40/60, etc... is just as large as the 80/20 sampling.

[Cleon]

It could be worse. A couple years ago there was a nauseating corporate fad called the "Six Sigma" program. At the company I was working for at the time, all employees were required to take a three-day SS training class.

For three fun-filled days, we learned that the term "six sigma" refers to a statistical distribution, and that the key point was to try and limit your defects and inefficiencies to within a particular threshold. We learned all about how important it was to do things right, and to try and change our processes to be more efficient.

So for these three days, that cost the company god-only-knows-how-much money, we learned the following principles:

1. Try not to waste time, energy, and effort.
2. Try not to screw up.

It's a good thing we have programs like that. I can't imagine what we'd do without them. :rolleyes:

[Wolfman]

So for these three days, that cost the company god-only-knows-how-much money, we learned the following principles:

1. Try not to waste time, energy, and effort.
2. Try not to screw up.

It's a good thing we have programs like that. I can't imagine what we'd do without them. :rolleyes:Actually, it is shocking just how many managers fail to consider those very simple points. They are pretty much self-evident truths, and yet if you look at the majority of companies, you'll find they're not being adequately applied.

[bpesta22]

I think the principle's valid, but I frame it different: If you're trying to predict something, most of the variance in that thing is going to be sucked up by just a few (20%) of the predictors. Thereafter, because of a ceiling and diminishing returns, adding more predictors can/will account for less and less of the total pie.

Framing it as 80% of the effect is determined by only 20% of the causes is a very useful heuristic.

[simonmaal]

Perhaps then it is safe to conclude that the principle is one that has its basis in fact for a limited number of situations but that has since been woefully overstated.

[The Atheist]

wtf?

how'd that happen?

[Foolmewunz]

Perhaps then it is safe to conclude that the principle is one that has its basis in fact for a limited number of situations but that has since been woefully overstated.

Yep! It has its applications, and it's a good pointer to get you thinking in the right direction about goals and targets, but it's not the holy grail of business management.

[boloboffin]

Are you sure it's not 23%?

[Leif Roar]

Of course, in some industries such as IT, the 80/20 rule has been superseeded by the 80/80 rule:

80% of the work takes 80% of the time. The remaining 20% of the work takes the other 80% of the time.

[Zygar]

Of course, in some industries such as IT, the 80/20 rule has been superseeded by the 80/80 rule:

80% of the work takes 80% of the time. The remaining 20% of the work takes the other 80% of the time.

I've discovered this is highly true of waterfall development, but far less true of agile development methodologies. Infact, I have used the 80/80 rule as an argument against a waterfall approach on a project.

[Leif Roar]

I've discovered this is highly true of waterfall development, but far less true of agile development methodologies.

With the danger of distracting the discussion somewhat, the above is only true in as much that agile development methodologies don't allot an overall amount of time to a project in the first place.

Maybe I'm old fashioned, but I don't see how a refusal to make an initial estimate solves the problem that it's difficult to make good estimates.

[SpaceMonkeyZero]

It's more of a guideline than a rule.

I do personally suspect that as a programmer, somewhere between 70 and 90% of my users use only 15 to 33% of an application at any one time. This can be measured by running analyzers on the database to see what gets hit and how often.

That and we have those 10 to 30% users who seem to find the rare bugs that are in the lightly used portions of the application.

[Spindrift]

So to generalize it a bit further: A relatively small percent (X) of the output requires a relatively large percent (Y) of the input. Choose X & Y to fit your particular circumstance, but don't get your knickers in a twist over the actual values of X & Y.

The general idea is valid, the problem arise the minute anyone places a numeric value to something like this. Too many idiot managers take it to be gospel. Then FSM forbid that it comes out to 83%/19%, the pointy headed managers run around asking "Who screwed up?"

[timhau]

I heard that 80% of all alcoholic beverages are consumed by 20% of the public. (Or was that 90/10 ?)

90 percent of all bs is believed by 10 percent of the public.

Seriously though, this is like the one-out-of-ten rule: for every drug runner that gets caught, 9 make it through the customs. For every rape that is reported, there are 9 that aren't. For every child molestation that is reported, there are 9 that aren't.

A few years ago the news media was reporting that drug smuggling to Finland had doubled during the previous 12 months. Why? Our customs and border protection officials had more than doubled their drug-related checks at the borders, and as a result the number of drug-runners caught had doubled. And, since everyone knows that only 10% of all drugs are stopped at the border, this means that there had to be more illicit drugs on the streets than ever before.

[Almo]

In the game industry I find that we spend a small amount of time getting everything working, then a large amount of time cleaning it all up so it's publishable. I don't know about if it's 80/20, but that doesn't seem to far off. The problem is that thinking of all the tiny little details take a lot of effort, and sometimes some serious programming effort.

[Paul C. Anagnostopoulos]

What does it even mean? If 20% of the work took 80% of the time, then it was 80% of the work. The problem was that the people estimating the time required for various tasks didn't know what the hell they were doing.

Of course, if you don't define amount of work in terms of the amount of time it takes to do that work, then all bets are off.


80% of the work takes 80% of the time. The remaining 20% of the work takes the other 80% of the time.
Then the first 80% of the work was only 50% of the work! :D

~~ Paul