As noted in podcast 16 of this series, A Primer on Lean, 80/20 analysis refers to the Pareto Principle and is used to determine the significant few items that drive outcomes. The 80/20 name arises from the fact that for many outcomes 80% of the results are produced by 20% of the inputs. For example, in many businesses 20% of the products sold account for 80% of the profit. This tool is used by the team to simplify the business, remove complexity and variance, and identify the best improvement opportunities.
The Pareto Principle was developed in the 1897 by Italian economist Vilfredo Pareto. Pareto discovered a pattern of imbalance when analyzing the distribution of wealth and income in 19th century England. More importantly he found that this imbalance was consistent across different countries and different time periods. George Zipf in 1949 discovered that the pattern of imbalance extended beyond wealth and income distribution to a wide range of data sets. In 1951, Joseph Juran, who many consider the “father of quality management”, published his book “Juran’s Quality Control Handbook” which utilized the Pareto Principle as one of its guiding principles.
