By Dr Gunjan Y Trivedi

Many of you wrote to me inquiring about how to use Pareto (80/20) analysis in your business.   I will share some methodologies to help you apply a similar approach to your work.

Before we discuss an example, let’s be clear about the objectives.  Remembering the bird from Dronacharya’s test during the training of Pandavas, we should be clear about the two crucial steps.  First, what’s our objective? Once we are clear about the objective, the second step is to achieve the objective.  Dronacharya spent much time probing whether each budding prince knew the objective he had set up.  Among many, only Arjun identified that his focus was on the eye (and not everything else that was present around the bird).  Once Arjun passed the first hurdle, he still had to achieve the second objective of hitting the bird’s eye.  The 80/20 rule helps us with both. First, we need to leverage it to identify our objective.  Once the objective is clear, we need to prioritize the most effective way to achieve the objective. Let’s discuss an example.

Managing business inquiries

Assuming you are tracking the sources of your inquiry over a specific duration, you can re-apply ideas from this example.  In the visual, you can see that inquiry types A, C, and F cover about 80% of our total inquiries. Hence, if I have to allocate a budget to maximize the number of inquiries, I will focus that money on inquiry types A, C and F.  This approach uses only one parameter (number of inquiries).

What if I add one more dimension to this?  Conversion ratio (number of inquiries generating business/total inquiries).   The second table shows the effectiveness (higher % of business conversions).  Now, suppose you have to review your budget, you may want to consider its effectiveness and explore if the number of inquiries (and therefore business conversion) from inquiry type B should also be increased. Thus, using two dimensions (total inquiries and effectiveness) is better than just one parameter.  This is step 1, like focusing on the bird’s eye in Arjun’s story.  After identifying the priority areas, we still need to generate more inquiries and get more business through the effectiveness of investigations (converting them into business opportunities).

Earlier, we discussed how this idea can be applied to complex situations such as work-life balance using four quadrants.  I hope this example provides useful and actionable ideas on applying the 80/20 rule to improve your effectiveness.  A similar process can be applied to prioritize various product types (categories) by considering two dimensions (share of the product in total sales and total profit).

Note: Please see the tables referred above in the Gujarati article visual