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Pareto Principle - Team 1

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  • 1. Pareto Principle Presentation        Melody Denise Almond Tanisha Amber Justus Maria Lourias Joseph Henry Phillips Daniel R. Roehl Matias Santome Breanna Wells
  • 2. Pareto Principle Other names used:     The Pareto Rule The 80/20 Rule Law of the Vital Few Principal of Factor Sparcity
  • 3. Pareto Principle What is it?  80% of the effects comes from 20% of the causes 80% of profits come from 20% of the customers  80% of results come from 20% of employees  80% of repair costs come from 20% of repairs  80% of project results come from 20% of workers  80% of a country’s wealth comes from 20% of the population  80% of the time you wear 20% of your wardrobe  80% of time writing comes from 20% of writing activities
  • 4. Pareto Principle     Focus on the 20% who attribute to your profits Reward the 20% who focus on their job Research the 20% to see what repairs need to be made Use the 20% of time spend on writing to really focus on what's being written
  • 5. Vilfredo Pareto  Vilfredo Pareto was an Italian economist and sociologist born in 1848. His big discovery in 1897, “Pareto’s Law,” claimed that in any society, 20% of the people would earn 80% of the income. Pareto’s observations, now usually referred to as either the Pareto Principle, Pareto’s Law or simply the 80/20 principle, have since been used in areas that Pareto could never have imagined.  Discovered the principle while observing that 80% of the land in Italy is owned by 20% of the population.  Pareto did not name Pareto’s law of income distribution, (Pareto’s law) after himself. Joseph M. Juran is responsible for the naming after Pareto.
  • 6. Vilfredo Pareto  Best known for the two concepts that are named after him: The Pareto optimality & Pareto’s law of income distribution.  Today’s common rule of thumb, 80% of your sales come from 20% of your clients” is based on Pareto’s principle and belief.  The Pareto efficiency, or Pareto optimality, also named after him, is a state of allocation of resources in which it is impossible to make any one individual better off without making at least one individual worse off.  In 1923 he was nominated to a senate seat in Mussolini’s fledgling government but refused the nomination. He died later that year.
  • 7. George Kingsley Zipf American linguist, philologist and statistics professor for Harvard University.
  • 8. Zipf’s Law Examples Came up Zipf’s law, which means that many types of data can be interpreted by utilizing this law of distribution. Also known as the Discrete Pareto Principle.
  • 9. Zipf’s law  “Although the literature surrounding both the Zipf and Pareto distributions is vast, there are very few direct connections made between Zipf and Pareto, and when they exist, it is by way of a vague reference or an overly complicated mathematical analysis” (Adamic)
  • 10. Dr. Joseph Juran Through his work, the 80/20 Rule became known as Pareto’s Principle  Realized that Pareto’s distribution applied to much more than just the wealth of the population  Applied Pareto’s Principle (80/20 Rule) to Quality Control  Recognized that 20% of defects were causing 80% of the problems 
  • 11. Dr. Joseph Juran    Insisted that quality could not be left to end-of-theline inspections but rather needed to be led from the top levels of management His advice on quality and continuous improvement was applied in Japan which led to the Japanese becoming a world leader in quality products Wrote the Quality Control Handbook in 1951, which was based on Pareto’s Principle and how it applied to continuous improvement
  • 12. Peter Drucker  BusinessWeek called him “the man who invented management”  He used the Pareto principle to show how achieving more with less is possible. He saw how 20% of almost everything yields 80% of the results.  Drucker tried to show companies with the Pareto principle how to look at their business’s inner workings.
  • 13. How Drucker used the Pareto principle  In his writings he gave an example of an employee survey given to a group of nurses. He used their answers to show a hospital how they were misusing the nurses’ abilities and because of it the nurses were unhappy and patients were unsatisfied. Nurses were unsure of their tasks and all agreed that they were given “chores” that took up most of their time. Drucker looked at the chores and saw tasks that the non-nurse employees could take over. Within four months this one change doubled productivity and patient satisfaction, in addition it almost completely eliminated turnover of nurses.
  • 14. Richard Koch Use of individual creativity, perhaps only 20% or so of the time, accounts for 80% of creative ideas • An individual can capitalize on the 20% of the things they do well • Though a person must know what they excel at; to be a specialist • An individual should outsource the 80% of the things they don’t do well • “People can do precisely the same thing… Find the 20 percent (or less) that you are outstandingly good at, the ask other people to perform the rest.” (Koch, 2003, p. 33) • The 80/20 individual realizes that time has the greatest value
  • 15. Whether shaping your life or your business look for the 20% of profit sources    An individual must find the most profitable use of his or her time By profits, there are personal profits as well as financial ones The individual must deem which tasks bring them both kinds of profit    An individual should ask these questions What creates the most wealth for me from the least amount of effort? What resources do I have an abundance of, or need?
  • 16. The present economy is shifting toward a state where individuals, especially entrepreneurs, will be the big winners. “More and more, ownership and control are being reunited. Personal ownership by individuals is becoming important again, as key individuals both run their corporations and won large and valuable stakes in them.” (Koch, 2003, p. 179)
  • 17. Jack Welch CEO of GE from 1981 to 2001  His unique management practices are called the “Welch Way”  GE increased in value more than 30 times to become the wealthiest corporation 
  • 18. Jack Welch        Used Pareto principle by breaking down staff into three segments The top tier or 20 percent performed the best thus earning the most in bonuses The next 60 percent were people with potential to rise to the top tier The last 20 percent were those who sunk to the bottom and were eventually let go Welch’s take on Pareto principle weeded out the many and focused on the crucial few The Pareto principle is used by Welch in a wide focus rather than each specific instance which is what works for the “Welch Way” Welch attributes weak managers for destroying jobs and claims his methods filter out the weak only leaving strong managers
  • 19. Jack Welch “Welch also developed a "4 E's" formulation of business leadership. "Energy" people, he noted, move at 95 miles per hour in a 55 MPH world. "Energizers" provide the spark that gets others excited about the task at hand. "Edge" designates competitive types who know how to hire, fire, and promote—and who regard roadblocks as challenges, not impediments. "Execution" refers to people who get things done, who channel their work directly to the bottom line.” (Flaum, 2007)
  • 20. Resources  Adamic, Lada A. "Zipf, Power-law, Pareto." Zipf, Power-law, Pareto - a Ranking Tutorial. HP, n.d. Web. 08 Oct. 2013. <http://www.hpl.hp.com/research/idl/papers/ranking/ranking.html>.  Admin. (2013). Peter Drucker Quotes. Retrieved from http://www.rugusavay.com  Editorial Staff at Process Excellence Network. (2011). The Secret to Achieving More with Less - The Pareto Principle in Action. Retrieved from http://www.processexcellencenetwork.com/people-performance-and-change-in- process-improveme/columns/the-secret-to-achieving /peter-drucker-quotes/ more-with-less-increasin/ Flaum, S. (2007, Feb 1). Leadership: Pareto's principle. Retrieved from http://www.pharmexec.com/pharmexec/article/articleDetail.jsp?id=401662  Koch, R. (2003). The 80/20 Individual: How to accomplish more by doing less - the nine essentials of 80/20 success at work. New York: Currency/Doubleday.  Phillips-Donaldson, D. (2004, May). 100 Years Of Juran. Quality Progress, 25-39.  Unknown. (2005, May 5). The Pareto Principle. Printing World, 33.  Unknown. (2009, May 30). Pareto's principle at work. Dominion Post, p. G.3.  Vilfredo Pareto. (2013). In Encyclopædia Britannica. Retrieved from http://www.britannica.com/EBchecked/topic/443519/Vilfredo-Pareto  "Vilfredo Pareto." The Concise Encyclopedia of Economics. 2008. Library of Economics and Liberty. Retrieved October 8, 2013 from the World Wide Web: http://www.econlib.org/library/Enc/bios/Pareto.html  Wartzman, R. (2012). A Great Recipe for Management Success. Retrieved from http://thedx.druckerinstitute.com/2012/02/a-great-recipe-for-management-success/  http://www.themostinfluentialbooks.com/8020-principle-author-richard-kochs-most-influential-books/  http://list25.com/25-most-expensive-yachts-ever-built/