In the book Same as ever, Morgan Housel says how some of the most or all of the most complicated things can actually be broken up into simple understandable points! In fact he indirectly says that for all the finance books and management courses out there, they all are an amalgamation and extension of simplest things like; spend less, earn more and save for long term! These three rules are in one way or the other the chief cardinal rules of your financial decisions!
This is very similar to another rule in the economic world called the 80-20 rule or the Pareto principle.
In 1941, management consultant Joseph M. Juran developed the concept in the context of quality control and improvement after reading the works of Italian sociologist and economist Vilfredo Pareto, who wrote in 1906 about the 80/20 connection while teaching at the University of Lausanne. In his first work, Cours d’économie politique, Pareto showed that approximately 80% of the land in the Kingdom of Italy was owned by 20% of the population!
Similar observations have been seen in many areas and they essentially point to the fact that roughly 80% of outcomes come from 20% of causes! Some observations which support this hypothesis are 20% of a plant contains 80% of the fruit! and
80% of a company’s profits come from 20% of customers and 20% of players (like in a game like say cricket) result in 80% of points scored!
Even in highly successful situations, almost 80 percent of the work is actually done by 20 percent of people!
It has been suggested that you can get 80 percent of the outcome by simply doing 20 percent of the important task! In other words if you concentrate on that 20 percent, then almost 80 percent of your work is done! In finance, this principle is to identify an entity’s best assets and use them efficiently to create maximum value!
If you are in charge of a team or overseeing a project, using the Pareto Principle can help you identify your team’s high-priority tasks. The 80/20 Rule assumes that even if your team spends an equal amount of time on each task on the to-do list, only two of those tasks will carry the bulk of the results for the project!
The 80/20 Rule can help you make tough business decisions, too! If you have a list of projects for several different clients, but you’re running short on time. You’ll want to focus your time and efforts on pleasing and developing solid relationships with the 20% of your clients who yield the most results for you!
Even in studies and examinations you know that almost 20 percent of important topics or subjects will form around 80 percent of the questions! So you can concentrate your 80 percent effort on those 20 percent!
The most important thing to note here is that 80 and 20 are not absolute numbers! Life and decisions are not statistics! It does not mean that you concentrate only on the 20 percent and ignore the 80! It is simply a methodology to prioritize your effort for maximum efficacy! Of course numbers may be misleading since almost 80 percent of movies made and directed by birthday celebrity Priyadarshan have made 100 percent profits! Pareto cannot work everywhere!
Now have only 80 percent of the food as dinner as you intended to have and have a 100 percent peaceful sleep!
Good Night!
ramadocblog 