VeriQuest's eKnowledge Toolbox
Focus Rules: 50-5, 80-20, 15-70-15, Waterfall...
Use the normal distribution, cumulative normal distribution, waterfall (sorted categories) and cumulative waterfall to focus your efforts.
The 15-70-15 Rule (exceptions and rule, tails and middle)
Use the 15-70-15 Rule when the normal distribution applies. Either focus on the tails [the upper 15% (above one sigma) and the lower 15% (below one sigma)] and forget the middle (the +/- one sigma 70%) or focus on the middle and forget the tails. á
The 50-5 and 80-20 (Pareto Principle) Rules establish that a small percent of the units is responsible for a large percent of the total effect. Use the 50-5 and 80-20 Rules when the cumulative normal distribution applies.
The Waterfall Rule
Sort (arrange categories biggest to smallest) the categories. Notice the graph looks like a waterfall. Focus on the best or the worst and forget the middle or focus on the middle and forget the best and the worst.
Starting with sorted categories (see the Waterfall Rule immediately above), create a cumulative total and set a Break Point when the graph begins to flatten (more and more units produce less and less effect). á
Applying Focus Rules
(examples mainly refer to the 80-20 Rule):
*Costs*. Identify the 20% using 80% of the resources. Identify the 20% producing 80% of the positive cash flow. Focus on the group of "Using 80% of resources" and "not producing 80% of the positive cash flow". Charge them for the resources they use or shift resources away from them.*Quality*. Identify the 20% causing 80% of the unacceptable quality/performance and cost effectively eliminate them.*Profits and Personal Productivity.*Identify the 5% producing 50% of the positive cash flow, the 20% producing 80% of the positive cash flow... Concentrate on the Vital Few.*Sales*. Identify the 5% producing 50% of sales, the 20% producing 80% of sales... Concentrate on the Vital Few. Balance with profits: The 20% who generate 80% of sales may not be the same 20% that produce 80% of the profits.*Product Mix*. Considering both profits and sales, evaluate the all segments. Average profits will increase as less profitable segments are discontinued, sold, or traded. á
Working Knowledge
Select an important example and perform these basic steps to understand the power of Focus Rules and their application:
*Structure and Measure*. Create categories (enough to draw conclusions, but not so many as to become cumbersome) that fit the situation and gather the data. Keep both the cumulative normal distribution and normal distribution in mind.*Graph*. Create a cumulative column, 1st and 2nd differences for both the raw data and the cumulative data. Graph both the raw numbers and the cumulative numbers.*Analyze*. - Find Break Point(s) (*places where significantly different behavior is occurring*). For the cumulative case, the point where the slope becomes flatter (noticeable behavior: as more and more units are added, less and less effect is added...another noticeable behavior: 2nd difference is negative and 1st difference is 10-20% of what it was as its high).*Vital Few*. Identify those on the positive side(s) of Break Point(s).*Trivial Many*. Identify those on the negative side(s) of Break Point(s). á
Everyday Examples of the 80-20 Rule:
- 80% of interruptions come from 20% of the people.
- 80% of a budget comes from 20% of the items.
- 80% of the benefit comes from 20% of effort (generally, the first 20%).
- 80% of complaints are about 20% of the projects, products, services.
- 80% of network traffic is local (LAN) while 20% in not local (WAN).
- 80% of telephone calls are to 20% of the people who could be called.
- 80% of the decisions are made in 20% of the meeting time.
- 80% of what we wear is just 20% of what is available to be worn.
- 80% of the traffic travels over 20% of the roads.
- 80% of growth comes from 20% of the projects, products, services.
- 80% of innovation comes from 20% of the Providers (internal and external).
- 80% of website traffic comes from 20% of the pages available on the site. á
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