Tuesday, May 7, 2013

80--20 rule makes perfection very costly

In business, the 80-20 rule, also known as the "Pareto principle", the "principle of factor sparsity" and the "law of the vital few." It 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. As a rule of thumb it that states that 80% of outcomes can be attributed to 20% of the causes for a given event. Resources should be allocated to addressing the input factors that have the most effect on a company's final results. 

 I often urge those working under me to make an effort to view the world through the 80-20 rule. It was explained to me years ago that most of a company's sales were generated from an important 20 percent of it's customers. From those customers often flow 80 percent of the profits. I have found that as a rule of thumb, while not always accurate, it is a reasonably good guide line and extends into other things. In my mind the power of this rule can be applied to a massive number of under takings, situations, and projects. It applies to our personal lives, business, and government.

For example in business it seems that 80 percent of your problems come from a small percentage of your accounts, say 20 percent. This might lead someone to speculate that beyond a certain point efforts to reach a higher level of achievement will begin to require much more effort, sometimes more then worth investing. The government should look at this rule and take away the idea that the first few dollars spent to correct any ill are the most effective, after that the impact of your spending diminishes rapidly, and much of it turns to waste. Government not as constrained by cost as business often forgets this very important fact, and squanders away our money.

The return on investment necessary to achieve perfection, or get it all, may take substantially more effort and come at a tremendous cost then just reaching an acceptable level. Robert Ringer, author of Looking Out For #1 , and a man who preaches the principles of practical living, sees "perfection as the enemy of good". Yes, this means what you think it does, if someone demands perfection they often become frozen in place unable to accomplish anything, think of the artist that constantly destroys their work because they see it as flawed. The amount of effort to achieve perfection after a certain point becomes pure folly and a exercise in futility. Caution should be preached to those going down this path for the destination tends to be a mirage.

A woman I knew was always waiting for the right guy to come along, she said that only then would she begin to take vacations, or go out and do this or that, in effect her life was on hold. Sadly if we wait for all the stars to become perfectly alined before moving forward, we often will find that we are stuck in place. Other destructive methods exist for us to deal with the reality that life does not always dole out to us what we want, some people give up and go through life not even trying. Addicts often go on a binge when they fail to stay on the straight and narrow, this tends to reinforce their inability to control their behavior.      

Back in the day when I was a residential contractor working with different materials was not easy, it seemed that they often contained flaws. Wood tends to have crowns and bows, sometimes to where a piece is unusable. When my work got me down and failed to meet my expectations, I found that driving over to a competitors much more expensive house, and viewing a few flaws, was what it took to set me straight. Life is a learning process. One of the lessons many of us learn and forget many times is that we live in an imperfect world. When we do obtain  perfection we often find it has a very short shelf life in our changing world, this means that many times is not worth the price.

1 comment: