Tuesday, February 4, 2014

An error around Pareto or 80-20 principle

Do you know Pareto principle?

It is a general rule as the most of the effects come from quite limited parts of the causes for many events. Joseph M. Juran, a business consultant, named the empirical principle based on the observations published by Wilfredo Pareto, an Italian economist.

Wikipedia: Pareto principle

Pareto principle is often partially introduced as 80-20 rule. Perhaps you have heard that, the 80% of whole profit is usually created by only 20% of the whole employees in a company.

This principle has not proven as correct in a mathematical method. Nonetheless, many people accept it through their own observation and experience. I also agree with it in my sense. There are a lot of examples around our society. For instance, staff members in a psychiatric ward have to devote almost 80% of their resource to 20% of the inpatients who are extremely difficult to treat. Thus, after one of these patients discharged, the staffs feel truly relieved, although the fact is that the number of inpatients was reduced by one, from 40 to 39!

By the way, as a worker, we tend to believe that we are included in the 20% who earns much more money than the other 80%. Therefore, we always complain that we are exploited. As far as I know, there is no exception. Is the lazy 80% too unconscious to recognize that they depend on other superior workers?

The real world is a little more complex.

If there were one unique standard to calculate the contribution, 80-20 principle would be applicable. However, our activities are usually codependent.

Let us compare the department of the sales department and the development department in a company. It is obvious that more than 80% of sales owe to salespersons. Researchers in a development department seldom contribute to the sales. In contrast, from the point of view of future investment, the role of the researchers is decisive. More than 80% of the improvement in the products may be born in development department. Thus, both of the salespersons and researchers insist that they support the whole company by themselves.

This occasion is the same in a hospital. Some general physicians deal with many patients in a day. In contrast, some specialized doctors cannot deal with many patients because they need more intensive care. As a result, general physicians earn much money. Then should the director of this hospital dismiss all the specialist doctors? Of course, not. If specialists went out from here, there would be no treatment option for complicated patients. General physicians can achieve high performance in usual care only because specialist doctors are engaged in the treatment for more difficult patients. In the other words, 80% of the profit in this hospital is generated by the generalists, meanwhile 80% of the honor is protected by the specialists. They should respect each other.

You can find a similar situation around you. Members who make the vast profit at the mainstream and some specialists who is dealing with a particular situation are mutually depending. It is important for you to identify which role is demanded. In addition, which is more suitable to you also should be taken into consideration.

No comments:

Post a Comment