Pareto Principle definition

The Pareto Principle, also known as the 80/20 rule, the principle of factor sparsity and the law of the vital few, is a theory that in many events 80% of the effects are derived from 20% of the causes. The Pareto Principle is often used in business to encourage departments and organisations to focus their resources on their most profitable areas e.g. “80% of a company’s revenue comes from 20% of its products.”

The term is also used within a health and safety context and encourages organisations to focus on the most hazardous areas of the workplace i.e. 20% of hazards will account for 80% of workplace injuries.

The principle has applications in multiple other fields including public policy, financial risk and criminology.

The Pareto Principle was created by management consultant Joseph M. Juran, who named the theory after Vilfred Pareto – who also gives him name to Pareto Charts – who noted in the early 20th century that 80% of the land in Italy was owned by 20% of the population.