Food Corporation of India

Topics: Vilfredo Pareto, Pareto principle, Pareto distribution Pages: 2 (498 words) Published: April 24, 2013
The Pareto Principle (also known as the 80/20 Rule or the Law of the Vital Few) More than a century ago, an Italian economist by the name of Vilfredo Pareto observed that 80% of the land in Italy was owned by 20% of the population. Subsequently, others observed a similar phenomenon in other situations, e.g. 80% of sales come from 20% of customers, 80% of the rise (or fall) in the value a stock portfolio comes from 20% of the stocks, 80% of complaints come from 20% of problems, 80% of results are contributed by 20% of the workers, etc. See Figure 1 below.

Figure 1. The Pareto Principle of Time Versus Result
The Pareto Principle, or 80/20 Rule, is merely an approximation and applies to typical distributions. It could easily be 70/20 (e.g. 70% of complaints due to 20% of problems) or 90/10 (90% of work performed by 10% of staff). The numbers don’t necessarily need to add up to 100. The principle is based on the fact that the distribution of most things are unequal. For instance, each worker in a company does not contribute exactly the same amount to the results, adverse events that occur in hospitals have different levels of impact on reputation, customer satisfaction, finance, etc. Applying the Pareto Principle in Healthcare Quality Improvement An interesting observation but how is it useful?

A well-known business tool, the Pareto Principle can help you channel your resources to the most important items (the vital few) and give you the best bang for buck. For example, if long waits and billing issues in an Emergency Room (ER) are causing 70% of complaints by ER patients, then these two problems should be given priority (over a host of other issues) when selecting quality improvement initiatives. Some hospitals make the mistake of trying to tackle every problem simultaneously because they all seem important. And they might be; in an ideal world you would address all the problems. However, realistically, you are more likely to have limited resources (staff,...
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