| Main Entry: | Pareto principle |
| Part of Speech: | n |
| Definition: | a theory that states for many phenomena 80% of the effects stem from 20% of the causes; also called 80-20 rule, Pareto's law |
| Etymology: | named after Italian economist Vilfredo Pareto by Joseph Juran |
Pareto Principle
A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The principle states that, for many phenomena, 20% of invested input is responsible for 80% of the results obtained. Put another way, 80% of consequences stem from 20% of the causes. Also referred to as the "Pareto rule" or the "80/20 rule".
Investopedia Commentary
This principle serves as a general reminder that the relationship between inputs and outputs is not balanced. For instance, the efforts of 20% of a corporation's staff could drive 80% of the firm's profits. In terms of personal time management, 80% of your work-related output could come from only 20% of your time at work.
The Pareto Principle can be applied in a wide range of areas such as manufacturing, management and human resources. In Pareto's case, he used the rule to explain how 80% of property in Italy was owned by 20% of the country's population.
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See also: Dismal Science, Economics, Economies of Scale, Economies of Scope, Productivity
Also spelled: Pareto's Law, Paretos Law, Pareto Law, Pareto's Principle, 80/20, 80/20 Rule, 80/20 Principle, Pareto rule