Read The 80/20 Principle: The Secret of Achieving More With Less for Free Online Page B
Authors: Richard Koch
percent of causes that is cited, not the bottom. 80/20 Analysis is my name for the way that the 80/20 Principle has generally been used to date, that is, in a quantitative and empirical way, to measure possible relationships between inputs and outputs.
Figure 6 The 80/20 Principle applied to beer drinkers
Figure 7 80/20 frequency distribution chart of beer drinkers
We could equally well observe from the data on our beer-drinking friends that the bottom 20 percent of people only consumed 30 glasses, or 3 percent of the total. It would also be perfectly legitimate to call this a 3/20 relationship, although this is rarely done. The emphasis is nearly always on the heavy users or causes. If a brewery was conducting a promotion or wanted to find out what beer drinkers thought about their range of beers, it would be most useful to go to the top 20.
We might also want to know what percentage of our friends combined to account for 80 percent of total beer consumption. In this case, inspection of the part of the table not displayed (the middle part) would show that Mike G, the 28th biggest drinker with 10 glasses, took the cumulative total to 800 glasses. We could express this relationship, therefore, as 80/28: 80 percent of total beer was drunk by just 28 percent of our friends.
It should be clear from this example that 80/20 Analysis may result in any set of findings. Clearly, individual findings are more interesting and potentially more useful where there is an imbalance. If, for example, we had found that all of our friends had drunk exactly eight glasses each, the brewery would not have been very interested in using our group for a promotion or research. In this case, we would have had a 20/20 relationship (20 percent of beer was drunk by the “top” 20 percent of friends) or an 80/80 relationship (80 percent of beer was drunk by 80 percent of friends).
Bar charts show 80/20 relationships best
An 80/20 Analysis is best displayed pictorially, by looking at two bars—as is particularly appropriate for our example! (Figures 2–4 above were bar charts.) The first bar in Figure 8 contains our 100 beer-drinking friends, each filling 1 percent of the space, starting with the biggest beer drinker at the top and ending with the smallest beer drinkers at the bottom. The second bar contains the total amount of beer drunk by each (and all) of our friends. At any point, we can see for a given percentage of our friends how much beer they accounted for.
Figure 8 Beer / beer drinking ratios
Figure 9 Beer / beer drinking ratios
Figure 8 shows what we discovered from the table (and could also see from Figure 7): the top 20 percent of beer drinkers accounted for 70 percent of the beer drunk. The simple bars in Figure 8 take the data from Figure 7 and display them from top to bottom instead of from left to right. It doesn’t matter which display you prefer.
If we wanted to illustrate what percentage of our friends drank 80 percent of the beer we would draw the bar charts slightly differently, as in Figure 9, to show the 80/28 relationship: 28 percent of our friends drank 80 percent of the beer.
What is 80/20 Analysis used for?
Generally, to change the relationship it describes, or to make better use of it!
One use is to concentrate on the key causes of the relationship, the 20 percent of inputs that lead to 80 percent (or whatever the precise number is) of the outputs. If the top 20 percent of beer drinkers account for 70 percent of beer consumed, this is the group that a brewery should concentrate on reaching, in order to attract as high a share as possible of the business from the 20 percent, and possibly also to increase their beer consumption still further. For all practical purposes, the brewery may decide to ignore the 80 percent of beer drinkers who only consume 30 percent of the beer; this simplifies the task immensely.
Similarly, a firm that finds that 80 percent of its
Figure 6 The 80/20 Principle applied to beer drinkers
Figure 7 80/20 frequency distribution chart of beer drinkers
We could equally well observe from the data on our beer-drinking friends that the bottom 20 percent of people only consumed 30 glasses, or 3 percent of the total. It would also be perfectly legitimate to call this a 3/20 relationship, although this is rarely done. The emphasis is nearly always on the heavy users or causes. If a brewery was conducting a promotion or wanted to find out what beer drinkers thought about their range of beers, it would be most useful to go to the top 20.
We might also want to know what percentage of our friends combined to account for 80 percent of total beer consumption. In this case, inspection of the part of the table not displayed (the middle part) would show that Mike G, the 28th biggest drinker with 10 glasses, took the cumulative total to 800 glasses. We could express this relationship, therefore, as 80/28: 80 percent of total beer was drunk by just 28 percent of our friends.
It should be clear from this example that 80/20 Analysis may result in any set of findings. Clearly, individual findings are more interesting and potentially more useful where there is an imbalance. If, for example, we had found that all of our friends had drunk exactly eight glasses each, the brewery would not have been very interested in using our group for a promotion or research. In this case, we would have had a 20/20 relationship (20 percent of beer was drunk by the “top” 20 percent of friends) or an 80/80 relationship (80 percent of beer was drunk by 80 percent of friends).
Bar charts show 80/20 relationships best
An 80/20 Analysis is best displayed pictorially, by looking at two bars—as is particularly appropriate for our example! (Figures 2–4 above were bar charts.) The first bar in Figure 8 contains our 100 beer-drinking friends, each filling 1 percent of the space, starting with the biggest beer drinker at the top and ending with the smallest beer drinkers at the bottom. The second bar contains the total amount of beer drunk by each (and all) of our friends. At any point, we can see for a given percentage of our friends how much beer they accounted for.
Figure 8 Beer / beer drinking ratios
Figure 9 Beer / beer drinking ratios
Figure 8 shows what we discovered from the table (and could also see from Figure 7): the top 20 percent of beer drinkers accounted for 70 percent of the beer drunk. The simple bars in Figure 8 take the data from Figure 7 and display them from top to bottom instead of from left to right. It doesn’t matter which display you prefer.
If we wanted to illustrate what percentage of our friends drank 80 percent of the beer we would draw the bar charts slightly differently, as in Figure 9, to show the 80/28 relationship: 28 percent of our friends drank 80 percent of the beer.
What is 80/20 Analysis used for?
Generally, to change the relationship it describes, or to make better use of it!
One use is to concentrate on the key causes of the relationship, the 20 percent of inputs that lead to 80 percent (or whatever the precise number is) of the outputs. If the top 20 percent of beer drinkers account for 70 percent of beer consumed, this is the group that a brewery should concentrate on reaching, in order to attract as high a share as possible of the business from the 20 percent, and possibly also to increase their beer consumption still further. For all practical purposes, the brewery may decide to ignore the 80 percent of beer drinkers who only consume 30 percent of the beer; this simplifies the task immensely.
Similarly, a firm that finds that 80 percent of its
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