Despite of its age, the Pareto Principle is still a strong mechanism constantly used in quality control of projects from various areas, including the IT field

Felician ALECU

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Page 2  Oeconomics of Knowledge, Volume 2, Issue 3, 3Q 2010  The Pareto Principle in the Modern Economy    Felician ALECU, PhD, University Lecturer Department of Economic Informatics Academy of Economic Studies, Bucharest, Romania E-mail: alecu[at]ase[dot]ro; Web Page: http://alecu.ase.ro   Abstract:   Despite  of  its  age,  the  Pareto  Principle  is  still  a  strong mechanism  constantly  used  in  quality  control  of  projects from various areas, including the IT field. Keywords: Information Technology, Quality Metrics, Pareto Principle   1. Introduction The name of the Pareto Principle (also known as the 80/20 rule or Pareto’s Principle of Unequal Distribution) was suggested by the Joseph Juran (1904-2008), an American management consultant that was born in Romania (Braila).  He revealed the work of the 19th century Italian professor of political economy  Vilfredo  Pareto  that  discovered  that  the  top  20%  of  any country’s population accounts for more or less 80% of its total income.  Initially, Pareto noticed the distribution for Italy but right after he extended the analysis on several other countries obtaining very similar results. Of course, the principle can be virtually applied in any area, like domestic behavior, for example – we can easily notice that we eat 20% Page 3  Oeconomics of Knowledge, Volume 2, Issue 3, 3Q 2010  of  favorite  food  for  80%  of  time  or,  similarly,  we  spend  80%  of  time doing the most frequent 20% of activities.  Mathematically  speaking,  there  is  nothing  special  about  the proportion  of  80/20  but  many  real  systems  come  across  a  ratio  very closed by the Pareto’s distribution.  2. Pareto and the Modern Economy  In  the  modern  economy,  the  principle  was  quickly  extended  to quality control, stating that most defects in production are the result of a small percentage of the causes of all defects. This is generally defined as ―the  vital  few  and  the  trivial  many‖  or  ―the  vital  few  and  the  useful many‖. Starting  from  the  Pareto  Principle,  Juran  lately  introduced  the concept of CWQM (Company Wide Quality Management) that was based on three pillars (also known as Juran Trilogy):   quality  planning  –  is  focused  on  identifying  the  customers together with their needs that should be satisfied;   quality control – follows the process of producing goods and services that meet the previously identified needs;   quality  improvement  –  the  efforts  performed  to  constantly improve the previous processes.  In our days, the principle is still very applied in a variety of areas, especially the quality control field. For example, in the IT industry it is considered  that  80%  of  users  are  actually  using  only  20%  of  the features.  In the recent years, the principle was mostly applied on errors rather Page 4  Oeconomics of Knowledge, Volume 2, Issue 3, 3Q 2010  than features because it was observed that 80% of errors are generated by the 20% of the detected bugs, so a small proportion causes most of the errors (Figure 1).          Figure 1—Graphical Representation of the Pareto Principle   This  is  a  winning  strategy  applied  by  the  big  software  companies that  are  fighting  with  the  bugs  since  the  customer  satisfaction  can  be quickly improved by fixing only a small amount of the reported errors.  Conclusions The Pareto Principle is still a strong mechanism constantly used in quality control of projects from various areas, including the IT field. 80% Detected errors Software failures 20% Page 5  Oeconomics of Knowledge, Volume 2, Issue 3, 3Q 2010   References  J.M. Juran  Juran’s Quality Handbook, 5th ed., McGraw-Hill, 1999 J.M. Juran  Quality Control Handbook, 4th ed., McGraw-Hill, 1988    

The Pareto Principle in the Modern Economy

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