# Pareto principle

The **Pareto principle** , named after Vilfredo Pareto (1848–1923), also known as the **Pareto effect** or the **80:20 ****rule** , states that 80% of the results are achieved with 20% of the total effort. The remaining 20% of the results require the most quantitative work with 80% of the total effort.

## Derivation

The Pareto distribution describes the statistical phenomenon that a *small* number of *high* values in a set of values contributes more to its total value than the *high* number of *small* values in this set.

In 1906 Vilfredo Pareto examined the distribution of property in Italy and found that around 20% of the population owns around 80% of the land. In 1989 it was found that 20% of the population owns 82.7% of the world's wealth .

The Pareto principle is derived from this. It says that many tasks can be done with a budget of around 20%, so that 80% of all problems can be solved. It is often used without criticism for a large number of problems without the applicability being proven in individual cases. However, the “principle” is a good memory aid for the value range of a Theil index calculated for two quantiles : This unequal distribution measure has the value “0” for a 50-50 distribution. The value “1” is just above an 80-20 distribution. (With a further increase in the direction of a 100-0 distribution, the Theil index theoretically increases to infinity .)

The division of a society into two parts made here is a division into two " a-fractiles ".

The distribution with 80 and 20 in the Pareto principle often leads to the false assumption that the sum of 100 is mandatory for similar distributions. Accordingly, in the generalization of the principle, only those distributions are possible in which k% of the success can be traced back to (100 - k)% of all efforts. In fact, any other distributions are also possible, in which, for example, 50% of the efforts lead to 90% of the effect. This is easy to see in the trivial case that 100% of efforts are responsible for 100% of success.

Pareto points out that this rule only applies if the elements of the system are independent of each other. The situation is changed by the interdependence of the elements (such as in an organization and all socio-technical systems). In practice, the number of relevant elements is therefore very small; very few elements determine almost the entire effect.

Nowadays, the Pareto principle is often used as an aid to project and time management , to identify important work packages and to make rapid progress with relatively good results (100% effort is required to achieve 100% results). It also helps to identify work that can be postponed or left out due to a lack of efficiency . Critics complain about the transfer to project management that the principle tempts you to no longer complete tasks completely, but that at the same time there are tasks or projects for which 80% completion is not sufficient.

## See also

## Web links

- Andreas Haufler:
*The Pareto principle*, accessed on July 27, 2018. - Bertram Scharpf:
*A theoretical model for the Lorenz curve and the Pareto principle*, accessed on September 14, 2014. -
Goethe University :
*Economic Policy Tutorial*, accessed on September 14, 2014.