Does the 80:20 rule actually help?

Pareto was the first (well, the first to get his name attached) to notice that many systems have the property that 80% of the payoff comes from 20% of the effort.

Systems where the 80:20 rule holds are often touted in business books, the implication being that one should get the 80% of the total available payoff by putting in 20% of the effort, and then stopping. Overall, of course, this produces a large benefit-cost ratio. However, this idea makes two huge assumptions:

  1. You know, in advance, which 20% of the effort leads to the 80% of the payoff; in other words, it’s possible to pick out the low hanging fruit in advance.
  2. The other 20% of the payoff doesn’t matter, and so can be ignored.

The first assumption is particularly unrealistic. It may well be that 80% of the commissions come from 20% of the sales calls, but this isn’t as useful as it sounds because you generally don’t know which 20%. Maybe it’s possible to detect the high hanging fruit: those calls that are long shots, with a lower probablility of success.

The second assumption assumes that you are looking at a pool of independent tasks, and you can leave any number of tasks undone.

But what of the more realistic scenario where the tasks are related, they all need to be done, and it’s difficult or impossible to decide on the reward for completing any particular one of them?

There are two extremal possibilities. The first is that all of the easy tasks come at the beginning, so that the payoff versus effort curve looks like this:

Here the payoff comes early with the first 20% of the effort producing 80% of the result. But all good things come to an end, and once this first 20% of effort has been expended, an awful lot of effort is left. And notice that the payoff per unit of effort increases 16 times (!!) from the easy to the hard section.

The second extremal possibility looks like this:

hardfirstThis, of course, is really daunting because the first 80% of the effort leads to only 20% of the payoff. These tasks may never get done because the first steps seem so unrewarding that they are given up on. So although tasks with the 80:20 property are often labelled as attractive, some of them at least may be among the most unattractive possible.

Of course, most real tasks lie somewhere between these extremes, with regions that are steep and regions that are flat. The real force of knowing that a task is 80:20 is that it informs you that the effort required for different parts of the task can vary by as much as a factor of 16. It may be useful to know this pattern in advance to avoid discouragement.

In contrast, a task with a 60:40 ratio varies in difficult by only a factor of 2¼. Since any task that has to be completely done has the property that 100% of the effort is required to obtain 100% of the payoff, the differences in these ratios are really about expected variations in the apparent difficulty at different moments in the process. Less useful than it’s often touted, but useful in a different way.


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