The Pareto-Principle And ... Benchmarking

The Pareto-Principle And ... Benchmarking

The pareto-principle or the 80/20-rule was born after observations of Mr Pareto that many things in life were unequally distributed.

A famous example was "that 20 percent of the people owned 80 percent of the wealth."

This rule is very powerful because you can use it in many areas. One example is when dealing with projects; you know that 80 percent of the work is caused by the (last) details (20 percent). So in project management it is common practice to uncover risks as soon as possible. The thought behind this is that if you can solve the greatest risks you can solve everything.

Also the argument in favor of standardization is that 20 percent of the details or exceptions cause 80 of your resources. Thus the more you are able to standardize, the more you can benefit from cost savings. This will only be the case if you sell "NO" to your customers, which is something very daring.

The question with, not only, these two cases is one where you may ask: "How do we know whether we have reached the 80 percent level?"

Some projects are "nearly finished" during a long time. "We are nearly there. (that's what you said last month...)" The problem might be in that case that the 80 percent level is not measured.

A benchmark could very well serve to grasp this 80 percent level. For example, if you are to redesign your organization you may go for a best practice. This is a standard that has been in the market. It is not innovative - because previously used -- but it sets a measurable direction. If you choose so, you need to be sure whether this standard really is the best fit.

This fit analysis is something you might ask your management advisor to prepare for you. If it is well selected the last 20 percent will finish on time.

© 2006 Hans Bool

The Pareto-Principle And ... Benchmarking

The Pareto-Principle And ... Benchmarking

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