80-20 Rule

cost-benefit curve

20% of the projects generate 80% of the benefit

We see the Pareto Principle at play over and over again as we model NPD project portfolios with clients. Many times, 20% of the projects (i.e. the $'s) generate 80% of the benefit towards reaching an organization's objectives. This means that 80% of the projects fall on that diminishing returns part of the cost-benefit curve.

It becomes particularly interesting when using this analysis tool to determine where to reallocate resources as the quantity of resources are reduced (i.e. loss of head-count). The idea is that if you know which projects give you the biggest bang for the buck, then those projects should get the majority of the remaining resources. This permits management teams to quickly simulate and respond to questions such as:

  • Where can resources be most effectively deployed?

  • Which projects can be delayed?

  • Which projects should be killed?

  • What impact will resource reallocation decisions (today) have on my strategy plans in the future?

  • What is the gap between resources needed versus the resources that I have?

    • How does this gap affect the mission?

    • How can I align or reconcile this gap?

  • What is the potential future impact of further resource reductions? How could this change/alter my strategy?

  • What is the impact of a 10, 20, 30, (etc.) percent decrease in my budget? How does this affect my portfolio?

  • What is the right resource skills mix for my new portfolio (i.e. on the left side)?

The alternative approach, which we see every day, is to cut 25% of all resources across the board and make all projects suffer--the ones on the left side generating 80% of the value and equally the ones on the right side sucking up valuable time and generating little in return.