80-20 Rule Overview: In the fast-paced world of financial services, quick action that is directionally correct often is much more valuable than precise solutions that require extensive time and study. Similarly, the sorts of people who thrive and succeed in this industry are those who can make sound decisions fast, and with limited information.
Whether it is written as 80-20 or 80/20, it is pronounced "eighty twenty" and is attributed to Joseph Juran, who also developed the Six Sigma quality control method. A much-used maxim in business and finance, the 80-20 rule is a popularization of the law of diminishing returns in economics. That is, as you put increasing effort, resources or inputs into a given task or production process, you usually tend to receive proportionately less output or returns.
Variations of the 80-20 Rule: The 80-20 rule has many variations. Among them are:
- The best 20% of a firm’s employees may generate 80% of its output.
- The best 20% of a firm's customers may produce 80% of its revenues or profits.
- You can be 80% right with only 20% of the effort needed to be 100% correct.
The last variation is the one that is particularly applicable to career development.
Applying the 80-20 Rule to Career Development: The race goes to the swiftest, as the well-worn maxim says. If you are too much of a perfectionist, if you are uncomfortable making educated guesses and sticking with them, then your chances to advance in management may be limited.
The people most likely to advance are those who can make quick decisions, and answer their superiors' queries just as speedily. These persons are quite comfortable operating in the 80-20 environment that characterizes much of the business world. People whose minds operate in this fashion are viewed as considerably more productive than those who strive for complete certainty.
Assume that it takes 5 days to solve a given problem with 100% accuracy. Unless 100% accuracy is really needed (usually it is not), you have a choice. You can spend a whole workweek solving just one problem with complete accuracy. Assuming that the 80-20 rule holds, you instead can get the answer roughly 80% right in only one day. Normally that is what your superiors really need.
If you determine with 80% accuracy, for instance, that a given project will be a money loser, that may be the end of the discussion, killing the initiative. There will be no need to waste another 4 days forecasting to the penny exactly how much it will lose, if a negative return of any magnitude means rejection. Better to devote the rest of the week to studying other proposals.
If your first day of analysis indicates that the project looks promising, however, then it is likely that you will be instructed to examine it more closely.
Conclusion: Consider the 80-20 rule, again in the context of analysis, to be a form of corporate triage. You allocate your time to get directionally correct responses to as many vital issues as you can within a limited period of time. If you spend too much time trying to get one absolutely right, the others may turn into crises. Likewise, the doctor doing triage makes sure that as many patients as possible are stabilized and are likely to survive, rather than risking that the others die while he tries to treat one completely. Deft application of the 80-20 rule is a way to manage and prioritize your time and tasks intelligently, allocating your efforts to gain maximum return.
