Matt Hrivnak

Kaizen: There's always another future state

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There are several versions of the 80/20 rule, but primarily it is used to describe an extended version of the Law of Diminishing Returns.  When I say extended, I mean for a certain length of time like an improvement or project plan that might span years.  For those individuals who are not familiar with the Law of Diminishing Returns, here is a quick definition followed by two examples.  The Law of Diminishing Returns states that you have a basic cause and effect relationship, where an increase in variable X somehow affects variable Y, positively or negatively.  At first, when X is increased, Y is greatly affected, but as X is increased, its affect on Y becomes less and less.  This is the fundamental idea behind the Law of Diminishing Returns.  

 

An example of this law:  quenching your thirst on a hot summer day.  After working several hours outside in the hot weather, you come inside and decide to take a drink of water.  The first glass of water is like some sort of magical water, making you feel much better; every sip quenches your thirst.  As you keep refilling your glass, each glass after the first adds very little enjoyment, until finally, you are sick of drinking water and no longer want it.  Big improvement up front and that quickly scaled off.

 

Another example:  installing a light bulb on a lamp on the ceiling.  One person could easily handle this, but two would be safer so that the second person could hold the ladder.  Adding a third or fourth person might help keep the ladder in place, but beyond that, no benefit is being added to the installation of the light bulb.  And so, as you add people, it begs the question, “how many people does it take to screw in a light bulb?”

 

Now that we have covered the basics behind the 80/20 rule, let’s see where it gets its name.  In reality, it is really a mixture of 80s and 20s that form the 80/20 rule.  The fundamental breakdown of the phrase is that 80% of your benefits come from 20% of your efforts.  This is often times used by quality experts to sort out root cause as it is routinely found that 80% of a company’s defects are coming from about 20% of their known problems.  That is, they might have 5 different quality problems, but only 1 of them makes up 80% of the cost associated with the problems.

 

Where do the other 80s and 20s come into play here?  Well, that’s easy.  If 80% of your benefits come from 20% of your efforts that means that you still have 20% of your benefits to come with the last 80% of your efforts.  This is the major sticking point of this rule:  Implement and then perfect!

 

Here is a visual of the 80/20 rule as it would appear on a graph.

 

 

80 20 rule graphed

80 20 rule graphed

 

Some companies perform improvement projects that show great results of upfront, but they never finish the last 20%. Other companies spend all of their time trying to perfect an application before they implement it, resulting in very little success and long drawn out timelines.  

 

Use the 80/20 rule to your advantage.  It is the essence behind continuous improvement.  You might get the big bang for your buck out of the initial investment, but over the long run, you can still pick up another 20% worth of benefits before the well runs dry.  That is, if it ever does 😉

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Comments (0) Posted by matt on Tuesday, November 10th, 2009