Did you know that applying the 80/20 rule can help you solve your challenging problems faster? It is an incredible strategy that can be used to solve practically any complex issue in any industry. I have used this strategy in a variety of positions in the manufacturing and healthcare sectors, generating successful outcomes. In this post, I’ll explain what the 80/20 rule is, why it’s significant, and how you can use it to overcome some of the most complex problems you are trying to solve. Let’s start by defining what the 80/20 rule is.
What is the 80/20 rule?
The 80/20 rule describes a situation in which 80% of issues come from 20% of the causes. This concept is also known as the Pareto principle and was created by Vilfredo Pareto, an Italian economist and sociologist. He began investigating this theory more when he made an interesting observation; That 80% of all land in Italy was owned by only 20% of the population. He tested this theory again in the manufacturing industry and found that 80% of the production came from only 20% of the manufacturing companies. The conclusion was that not all things are distributed evenly.
Below are some additional examples of how the 80/20 rule may show up in the world:
- 80% of the wealth is owned by 20% of the population
- 80% of the results are produced by 20% of your team
- 80% of sales are generated by 20% of clients
- 80% of your stress is caused by 20% of your stressors
- 80% of the week is spent wearing 20% of your wardrobe – we all have a favorite t-shirt we wear way too much!
So, how can you apply the 80/20 rule to solve problems more quickly? When it comes to solving a problem, there are typically multiple factors to consider. The 80/20 rule will help you identify what those biggest factors to the problem are so that you can prioritize your time there. Let’s look at two examples I’ve encountered over my career.
Case Studies: Applying the 80 / 20 Rule
Example 1
I consulted with a hospital clinic to help them decrease the number of patients waiting more than 2 weeks to get their appointment scheduled. We found that on average, patients were waiting an average of four months to get their appointment scheduled. When investigating why this was happening, we found something interesting. Approximately 20% of the patients with a specific diagnosis comprised of 80% of the patients who were waiting for the longest to get an appointment scheduled. Once understanding that a specific patient demographic by diagnosis was the biggest factor, the team was able to prioritize creating solutions for them. This resulted in decreasing the overall average wait time.
Example 2
During my time in the manufacturing industry, I was assigned to a production line that was experiencing quality issues. When we started to identify the root causes of the quality issues, we found that approximately 80% were coming from a single work cell on the production line (see picture below). This single work cell accounted for about 20% of the whole production line. We identified that the team members in this cell had only been on the job for three months and were still learning their job. Upon learning this, I recommended that the cell add a more experienced team member and provide more training for the team members. Within three weeks, quality issues decreased significantly!
By taking the time to understand what issues were causing the most impact, you can solve problems faster. My approach to solving problems is to make things visual so that the people I work with also understand the situation. An effective way to illustrate the biggest contributing factors to a problem using the 80/20 rule is with a Pareto Chart.
The Pareto Chart
A Pareto Chart (pronounced pah-ray-toe) is a bar graph that illustrates the frequency and significance of different situations or contributing factors. It is, in my opinion, one of the more powerful tools that show the impact of multiple causes towards the overall problem. It also highlights a few different pieces of vital information: the causes, the volume of the causes, and the total percent they contribute to the overall problem or scenario. Let’s look at the example below where the Pareto chart is tracking a variety of restaurant complaints from customers:
If you were a restaurant manager who was trying to improve yelp reviews, this chart would be a powerful tool that tells you where to focus your efforts. Right off the bat, you can see that an overpriced menu and small portions are contributing to most of the complaints (around 80%). As a next step, the manager would adjust menu prices and offer bigger portions to boost customers’ ratings.
Without this tool, it would be difficult to know where to focus efforts. Often, many leaders, managers, etc. start with a focus on people. The Pareto chart shows there were only 12 complaints about unfriendly staff. If a manager were to focus efforts here first, they would not be working on the issue that customers are complaining about the most. Therefore, the reviews would not be improved and you may have upset staff members.
How to Create a Pareto Chart on Excel
To create a Pareto chart, my go-to approach is using Excel. However, before doing that, you need to collect the data on the problem you are trying to solve. Using the restaurant complaints example above, here are the steps I would take to collect the necessary data:
- Define the problem (the numerical gap between the current state and ideal state) i.e. Google reviews for the restaurant show 4.0 stars and the goal is to be at 4.5 stars. The gap is 0.5 stars
- Identify the root causes and/or factors contributing to the problem. i.e. the different complaints you are hearing from customers
- Collect the volume of complaints per contributing factor
Once you have collected this information then you are ready to create a Pareto chart on excel. Click this link for an in-depth guide on how to create a Pareto chart using the “Restaurant Complaints” example.
For visual learners, like me, watch the two-minute video below that walks you through how to create a Pareto chart on excel, using a different scenario:
Next Steps
The Pareto chart has tremendous power and benefits to tell a compelling story about complex problems and scenarios. By prioritizing the factors that have the biggest impact, you will be able to solve problems faster. People that can solve problems faster are better leaders and are in constant demand.
Practice applying the 80/20 rule using the following steps below:
- Make a list of challenges/problems you are currently trying to solve
- Select one that has multiple contributing factors
- Follow the three steps above in the “How to Create a Pareto Chart on Excel” section of the post
- Create a Pareto chart on excel using the guides provided
- Resolve the biggest contributing factors
You can look forward to faster results, increased problem-solving capability, and better outcomes. As always, let me know how things are going in the comments below!