The Pareto Principle in Business Engineering: Doing More with Less

If you've ever heard the phrase "focus on what matters most," you've already brushed up against the Pareto Principle, also known as the 80/20 rule.

The Origin of Pareto Principle

The Pareto Principle was discovered by Vilfredo Pareto, an Italian economist, in the late 1800s. While studying wealth distribution, he found that 80% of the land in Italy was owned by just 20% of the people. (Berger et al., 2024)

Over time, people noticed the same kind of pattern everywhere, in business, productivity, manufacturing, and even in nature itself!

So, simply speaking, what is the Pareto Principle?

Pareto shows that 80% of outcomes come from 20% of causes.

Although this is the common ration, yet it is not permanent. It can change to 90/10 or 70/30, but it all says the same thing. It shows that a small fraction of inputs is responsible for the majority of results.

How do Business Engineers Use the Pareto Principle?

1. Problem Prioritization

When solving business issues, you can't fix everything at once. Pareto helps identify the few vital causes that are creating most of the problem.

Example: In a factory, 80% of defects may come from just 2 machines out of 20.

2. Process Optimization

In process improvement projects, Pareto helps focus on the changes that will have the biggest impact first.

Example: If 80% of delays in a supply chain come from 20% of suppliers, then focus on those suppliers before handling everything else.

3. Resource Allocation

Business engineers use Pareto to decide where to invest time, money, and effort.

Example: If 80% of revenue comes from 20% of products, then prioritize improvements for those high-performing products instead.

4. Continuous Improvement

In Lean, Six Sigma, and Kaizen, Pareto is used to separate the "trivial many" from the "vital few." This allows teams to achieve goals faster before handling smaller issues.

Example: A Pareto chart in quality control can quickly highlight the top defect types causing the most rework.

The Pareto Chart

The Pareto chart (example shown in Fig. 1) is the most popular tool to apply this principle. This chart contains:

• Bars: to show frequency or size of each cause (from largest to smallest)
• Cumulative line: to show percentage of total impact

This visualization helps to reveal the biggest cause(s) of an issue.

Why is the Pareto Principle Important?

Pareto focuses on making impactful improvements while ensuring that energy is not wasted on low-value changes.

Pareto helps in:

• Increasing efficiency
• Reducing waste
• Driving higher ROI on projects
• Delivering results faster

In conclusion, there is no need to always fix 100% of problems to see major improvements. Focus on the right 20%, and 80% of the challenge will be solved.

So, make sure to always do what matters most.

References

SDG's: 4 - Quality Education