08 February 2006

The Pareto Principle and Good Procrastination

A hundred years ago, the social scientist Vilfredo Pareto observed the basic asymmetry between inputs and outputs in many areas of life. He began by noticing that one-fifth of all Italians owned four-fifths of Italian property, but the principle named after him has been generalized in many directions. It’s often called the “80/20 Rule,” since the generic form of it posits that 80% of outputs derive from 20% of inputs. This could mean 80% of sales coming from 20% of salespeople, 80% of profits coming from 20% of products, 80% of books written by 20% of authors, or what have you. It also works for Bad Things: 80% of complaints come from the whiniest 20% of customers, 80% of errors arise in 20% of processes, and so on.

(Note: It is coincidence that the two numbers add up to 100. The relationship could just as easily be 75/15 or 90/25.)

In personal and business productivity, the Pareto principle is used to prioritize work. All else being equal, it’s much better to focus on the 20% of activities that generate 80% of revenue, for example, than on the 80% of activities that generate just 20% of revenues. Smart workers and smart business take the principle further, of course, by repeating the high-output 20% over and over. In other words, if 20 hours of high-quality work yield $8,000 in sales, then 60 hours of the same work will yield $24,000 in sales. Even better, there’s sometimes a solid-gold 20% within the high-yield 20%--the 4% of super-premium inputs that yield the most disproportionate outputs. This is where Warren Buffett lives.

The other term in my title comes from Paul Graham’s recent essay, “Good and Bad Procrastination.” The relevant quote is this:
There are three variants of procrastination, depending on what you do instead of working on something: you could work on (a) nothing, (b) something less important, or (c) something more important. That last type, I'd argue, is good procrastination.
The good procrastination he’s talking about is essentially an application of the Pareto principle. Fiddling with Gridgame is fun, but those who diligently seek wealth don’t play Gridgame during working hours because, absorbing though it is to watch the little circles whirl around, Gridgame isn’t among the 20% most effective revenue-generating activities that lead to 80% of revenue. The most lucrative 20% of inputs include “making customers’ problems go away” and “giving customers good reasons to be happy to part with their money in return for what you sell.”

The top-4% principle applies here, too. Those who really seek wealth do things like start technology companies, practice tax law or nuclear medicine, or work in private equity. These people put off watching the big game; they put off vacations; they put off sleep; they may put off having a family or, if they already have one, may put off interacting with it. The point, in this case, isn’t to find out whether they are happy, but just to note that they are value-maximizing.

Graham has the right idea. Figure out what you’re after--what’s important to you. Figure out what’s more or less relevant to making that thing happen. Do the things that are more relevant, and put off the things that are less relevant. If you do the most relevant, most important things with the bulk of your time, you’re likely to get the important outputs you’re looking for in far more abundance than would typically be the norm. Instead of the 20 strong inputs yielding 80 outputs, and 80 weak inputs yielding 20 outputs, you could have 90 strong inputs yielding 360 outputs and 10 weak inputs yielding . . . well, who cares, once you have 360 outputs of what’s important to you?


The Bureau of Reclamation site has a very stripped-down introduction to the Pareto principle.

This page provides a more detailed basic approach to carrying out Pareto analysis.


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