Monday, September 22, 2008

Pareto's Principle

Pareto Principle

By: Joseph W. Norman

Italian economist Vilfredo Pareto discovered a principle in his research which states that for many events, 80% of the effects come from 20% of causes. Over time, this “rule,” has been adapted to business under the premise that 80% of your sales come from 20% of your clients. This creates an interesting phenomenon for our life about the critical few versus the trivial many.

In terms of practicality, it has become broadly accepted that this principle applies to most aspects of our life. For example, 20% of the things in your life are causing 80% of the stress or 20% of your daily activities are producing 80% of the results. Thus, my challenge to you this week is to break down your life with this concept.

By analyzing your stressors or daily activities you can move yourself closer to discovering what is really getting results for you and what is just taking up time. From a business perspective, if you can outsource the more mundane activities limiting your productivity, then you can release a bottle neck that could potentially be limiting your company. Utilize your strengths and outsource your weaknesses to people whose strengths are your weaknesses.

Please note that this is not a small task! But, the benefits could far outweigh the burden of the necessary time investment. Think about a few scenarios:

Right now you may spend 3 hours a week developing your list and shopping for your groceries based on the current diet you have in your family. If you hired that service out for $10 per hour, could you make more than $30 in those three hours with your work or would you be willing to sacrifice that cost for 3 more hours to spend with your family?

Personally, my business partner Shaun and I are using a team of 25 data experts in India to build a spreadsheet of the contact information for all of the Real Estate Investment Associations in the United States. We assessed this to be a 50 hour project and the reputable team offered their services for $1.50 per hour. Is 50 hours of our time more valuable then the $60-75 we will pay our virtual assistants? Absolutely!

It is all about managing your life in the most effective way. Create a list of the things in your life which you have to do but really stress you out. Be ruthless about it! Then, think of creative solutions for getting them accomplished for you at minimal cost. Once you know the cost, you can make a better assessment about how you want to proceed in the future.