Wednesday, April 18, 2007

Optimize your resources- Apply the 80-20 Rule

Formally known as the Pareto principle, the 80-20 rule states that "80% of the consequences stem from 20% of the causes."

Startups - who by definition are starved for resources - would do well to apply the Pareto principle to everything they do.

From the wikipedia:

It is a common rule of thumb in business; e.g., "80% of your sales come from 20% of your clients."

It also applies to a variety of more mundane matters: we wear our 20% most favoured clothes about 80% of the time, we spend 80% of the time with 20% of our acquaintances etc.

In business, dramatic improvements can often be achieved by identifying the 20% of customers, activities, products or processes that account for the 80% of contribution to profit and maximising the attention applied to them.

The idea has rule-of-thumb application in many places, but it is commonly misused. For example, it is a misuse to state that a solution to a problem "fits the 80-20 rule" just because it fits 80% of the cases; it must be implied that this solution requires only 20% of the resources needed to solve all cases.


This is exactly what Agile development is all about- identifying and focusing on 20% of the work that gives you 80% of the value!

No comments:

Post a Comment

Is the world upside down?

Is the world upside down?
It's a topsy-turvy world out there!