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Finance Terms: “80 – 20 Rule”

17 Sep

Defition of “80-20 Rule”

A rule of thumb that states that 80% of outcomes can be attributed to 20% of  the causes for a given event. In business, the 80-20 rule is used to help  managers identify problems and determine which operating factors are most  important and should receive the most attention based on an efficient use  of resources. Resources should be allocated to addressing the input factors have  the most effect on a company’s final results.

 

Also known as the “Pareto principle”, the “principle of factor sparsity” and  the “law of the vital few.”

The 80-20 rule was developed by  Joseph Juran, a 20th century figure in the study of management techniques and  principles. The 80-20 rule has been applied to a number of different facets of  business.
An example of the 80-20 rule in economics would be that  80% of a country’s wealth is controlled by 20% of the population, although this  can be explained by the Gini index.

For you who visits the famous 80-20Fashions Blog by Shamim Mwasha ‘Zeze’  This is the meaning behind the name.

 

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