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Apply the Pareto principle to make most ofcritical 20

August 24 2012 at 0508pm Comment on this story

Steven Delport

The Pareto principle (also known as the 80-20 rule

the law of the vital few and the principle of factor

scarcity) states that for many events roughly 80

percent of the effects come from 20 percent of the

causes

We all know of or have heard of the 80-20 rule and

we glibly bandy it about yet we seldom apply the

principle in our lives or business

Look at the following and see if you recognise any of

them then correct them

l Eighty percent of sales or profits are generated by

20 percent of products ndash why then do we sell the other products Do we really need them Maybe we

do but have you checked

Do you know the profitability of each product you sell or service you provide

What about the hidden costs of holding stock such as storage interest paid and stock obsolescence

l Eighty percent of sales come from 20 percent of your clients ndash do you know who the 20 percent of

clients are who generate 80 percent of sales and profits

Are those 20 percent really profitable If you donrsquot develop relationships with your key clients maybe a

competitor will

Have you asked these key clients what is important to them instead of your assuming (rightly or wrongly)

what is important

When last did you visit your clients The oft-heard response is ldquoBut I donrsquot have the timerdquo

You donrsquot have to visit all of them just 20 percent

If you had a hundred clients and visited two a week you would see 100 a year and so visit each key

client five times a year (20 percent of 100 clients is 20 key clients)

l Eighty percent of complaints come from 20 percent of clients ndash are these 20 percent the same 20

percent who generate 80 percent of sales or profit or are they from the 80 percent who generate 20

percent of sale or profit Do you need them

l Often something 80 percent complete today is worth much more than something 100 percent complete

(Is it ever 100 percent) Does the extra 20 percent make a difference Is the opportunity cost of the

extra 20 percent worthwhile Probably not but that does not absolve you from running the ldquospell checkrdquo

Avoid paralysis by analysis and get started when 80 percent ready the remaining 20 percent wonrsquot

make a difference or you can make it up or learn it along the way

l Eighty percent of production problems come from 20 percent of the operators or machines ndash why donrsquot

we train them or fix them

l Eighty percent of your raw materials and products are sourced from 20 percent of your suppliers

Have you developed relationships with these suppliers Have you told them what is important to you

Remember you are their client

Are these relationships strong so that they contribute and add value to your company Are these

suppliers paid punctually How important are you to your supplier

l Twenty percent of a companyrsquos stock is critical to its survival ndash do you know which stock makes up the

20 percent

l Eighty percent of our time is spent doing things of little value or things we dislike ndash why not employ

someone else to do them Someone who enjoys these activities

We are all different and need different things to blow our hair back Do what blows your hair back if you

have any

l Eighty percent of the work is done by 20 percent of your staff ndash do you really need the rest What

about outsourcing these functions

l Eighty percent of the earnings are paid to 20 percent of the staff Make sure you are one of them

Motoring

Should sleepy drivers be taken off the road

Yes No

Sleepy drivers will be forced to rest

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1

n Steven Delport is the founder of Integer Consulting Solutions Visit wwwintegerconsulting

solutionscom

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