Pareto's law

Pareto's law

[pə′rēd·ōz ‚lȯ]
(industrial engineering)
The principle that in most activities a small fraction (around 20%) of the total activity accounts for a large fraction (around 80%) of the result. Also known as rule of 80-20.

Pareto's law

A law (sometimes called the 20–80 rule) describing the frequency distribution of an empirical relationship fitting the skewed concentration of the variate-values pattern. The phenomenon wherein a small percentage of a population accounts for a large percentage of a particular characteristic of that population is an example of Pareto's law. When the data are plotted graphically, the result is called a maldistribution curve. To take a specific case, an analysis of a manufacturer's inventory might reveal that less than 15% of the component part items account for over 90% of the total annual usage value.

The mathematics required to calculate and graph the curve of Pareto's law is simple arithmetic. It should be noted, however, that the calculations need not be done in all cases. It may suffice to merely make a rough approximation of a situation in order to determine whether or not Pareto's law is present and whether benefits may subsequently accrue.

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References in periodicals archive ?
The Italian economist Vilfredo Pareto derived what has become known as Pareto's law from his studies of income distribution in a number of countries at the turn of the 20th century.
Professor Walker said this had resulted in many firms moving out of the trap of Pareto's Law - where 80 per of income comes from 20 per cent of customers.
Managers are aware of Pareto's Law, better known as the "80-20" rule.
In my data-handling course, I discuss Pareto's Laws of Maldistribution.