The document discusses Vilfredo Pareto and his contributions including introducing the Pareto Principle, Pareto efficiency, and Pareto distribution. The Pareto Principle, also known as the 80/20 rule, states that roughly 80% of outcomes (sales, web traffic, etc) come from 20% of inputs (customers, products, etc). The principle is applied in business to focus on the most important 20% that drive the majority of results. Examples are given of how the principle applies in various contexts like donations, complaints, and employee time allocation.

1. Project 2 - Group 7
Jasmine Wright
Karly Gruener
Liza Sinani
Stephanie Terry
Pareto Principle

2. Vilfredo (July 15, 1848- August 19, 1923) was
an Italian engineer, sociologist, economist,
political scientist, and philosopher.
He graduated from the Polytechnic Institute in
Turin, Italy in 1869, where he studied
mathematics and literature.
Pareto did not study economics seriously until
he was 42 years old. In 1893, he became the
chair of economics at the University of
Lausanne, Switzerland.
Vilfredo introduced the Pareto Principle, Pareto
efficiency, and Pareto distribution in addition
to other concepts.
Vilfredo Federico Damaso Pareto

3. The Pareto Principle is also applied to
business, with the concept that “80% of
your sales come from 20% of your clients.”
20% of the customers are vital while the
remaining 80% are trivial.
The Pareto Principle is a reminder that the
relationship between inputs and outputs is
not balance, no matter how it is applied.
Also known as the 80/20 rule, Pareto initially discovered this principle
while observing his garden. He learned that 20% of the pea pods
contained 80% of the peas.
What is the Pareto Principle?

4. Efficiency
• Is the 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.
• It is popular in academic fields, economics,
engineering, and life sciences.
• It does not necessarily imply fairness or
equality
Pareto Efficiency & Pareto Distribution
Distribution/ Formula
• Is a power law probability distribution
that is used in description of social,
scientific, geophysical, actuarial, and
many other types of observable
phenomena.
• If X is a random variable in a type 1
distribution, then the probability that X is
greater than some number x, i.e. the
survival function, is given below

5. • Pareto charts are based is that 80% of
the problems incurred are caused by
20% of the sources. Therefore,
focusing in this few problem sources,
the vast majority of the problems can
be solved, and, usually, some other
small problems are usually associated
with the big groups.
• Thanks to the Pareto Chart, the main
defect sources can be identified, and,
efforts should be focus on improving
this poor design and giving correct
dimension to the parts.
Pareto Principle Chart

6. Let’s say you’ve just started a side gig as a dog walker and you charge $20
per dog for a 20-minute walk and had gained 10 clients.
Pretty soon you realize that 8 of your clients have just one dog and are
paying you $20 a day while the other 2 each own a dog compound with 10
dogs a piece. They’re each paying $200 to walk the dogs.
A 20-minute walk is a 20-minute walk whether you’ve got 1 on a leash or
10, right? Your dog compound clients are making you far more money and
using up much less of your time than the single dog owners.
You want more clients like that, but you’re exhausted and don’t have time
for them. You drop all 8 of those single dog owners, quit taking new
clients with only one dog and you start looking for just one more client
that has at least 8 dogs.
She’s harder to find, but you’ve got plenty of time now because you just
dropped 80% of your commitments and didn’t lose much.
How to apply the Pareto Principle
(Tyler Tervooren)

7. • You can use it to figure out what 20% of your
time produces 80% of your business’ results
to grow your business. This will increase your
total productivity.
• Vice versa, you can use it to find
unproductivity in your business
• The top 20% has a 80/20 rule as well. Which
means the top 20% of the top 20% is 4% that
represent 64% of your sales. Now that you
know who your top 4% of customers are, you
can find new customers like them and
continue to grow your business.
• You can use it to prioritize problems to
determine the issues that have the greatest
effect on the outcome of any given situation.
The Pareto Principle in Business

8. Examples of the Pareto Principle
can be found not only in business
but also within society.
A large portion of results are from
a small portion of causes of
circumstances.
• A nonprofit receives 80% of its
donations from 20% of its
donors
• A pizza business gets 80% of its
late delivery complaints from
20% of its customers
• Supervisor spends 80% of his or
her time dealing with 20% of the
employees.
Examples of the Pareto Principle

9. Video Example of Pareto Principle

10. • Davis, D. (2015). Pareto Immprovement project. In http://www.theteamvision.net/pareto-improvement-project-ii.html.
Retrieved May 30, 2015.
• How the 80/20 Rule Helps Us be More Effective (2006). In
http://www.pinnicle.com/Articles/Pareto_Principle/pareto_principle.html. Retrieved May 30, 2015.
• Lavinsky, D. (2014). Pareto Principle: How To Use It To Dramatically Grow Your Business. In
http://www.forbes.com/sites/davelavinsky/2014/01/20/pareto-principle-how-to-use-it-to-dramatically-grow-your-
business/. Retrieved May 30, 2015.
• Pareto Principle (n.d.). In http://www.investopedia.com/terms/p/paretoprinciple.asp. Retrieved May 30, 2015.
• Starak, Y. (n.d.). What Is The 80/20 Rule And Why It Will Change Your Life. In http://www.entrepreneurs-
journey.com/397/80-20-rule-pareto-principle/. Retrieved May 30, 2015.
• Tervooren, T. (n.d.). How to apply the 80/20 rule to earn more, work less, and dominate. In
http://www.iwillteachyoutoberich.com/blog/how-to-apply-the-8020-rule-to-earn-more-work-less-and-dominate/.
Retrieved May 30, 2015.
• Wiesenfelder, H. (2013). The Pareto Principle and Its Application in Six Sigma. In http://www.brighthubpm.com/six-
sigma/36907-the-pareto-principle-and-its-application-in-six-sigma/. Retrieved May 30, 2015.
• Zoeller, P. (2015, April 26). The 80 / 20 Rule: What Is It and What Does It Mean To Me.
• Retrieved May 29, 2015, from https://www.sbcncanada.org/articles/80-20-rule-what-it-and-what-does-it-mean-me
• (2012). Eighty Twenty Business Analytics Channel [Motion picture]. eightytwentybi.
References