80-20 Rule

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DEFINITION of '80-20 Rule'

A rule of thumb that states that 80% of outcomes can be attributed to 20% of the causes for a given event. In business, the 80-20 rule is used to help managers identify problems and determine which operating factors are most important and should receive the most attention based on an efficient use of resources. Resources should be allocated to addressing the input factors have the most effect on a company's final results.

Also known as the "Pareto principle", the "principle of factor sparsity" and the "law of the vital few."

INVESTOPEDIA EXPLAINS '80-20 Rule'

The 80-20 rule was developed by Joseph Juran, a 20th century figure in the study of management techniques and principles. The 80-20 rule has been applied to a number of different facets of business.

An example of the 80-20 rule in economics would be that 80% of a country's wealth is controlled by 20% of the population, although this can be explained by the Gini index.

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