Ever struggle with too much information? Do you look at your financial reports with no idea how to find the few important numbers? Are you continually befuddled by your inability to locate the true risks in project management despite the amount of detail in your estimates?
Trust me, you probably already know the antidote, even though you don't know the power of its application. It's the 80/20 rule, and it applies not only to field productivity, company management, and customer choice, but also to life and time management as well.
The 80/20 rule says that 20% of the input provides 80% of the value — or 20% of your activities account for 80% of the results. This means that, after counting any range of variables, you should focus on only 20% to provide the greatest impact.
Let's apply the 80/20 rule to project management by determining which line items in your estimate represent the greatest risks. We'll need to apply the 80/20 rule in two different ways.
First, multiply the total number of major categories or phases in your estimate by 20%. Take the result and highlight that number of phases, looking for those items with the largest estimated dollar amount. For example, 20% of the 13 phases in the estimate below is 3 (rounded up from 2.6). The three with the highest dollar cost are Mechanical, Electrical, and Masonry, which together account for about 55% of the total estimated costs. Add the fourth highest phase (Finishes) and that figure jumps to almost 67%. It's not exactly the 80% promised by rule, but you get the idea. If you take direct action to control those four items, you control two-thirds of project volume.
Next, sort the same information by cost type. First, assign each phase the cost type that best characterizes it: L = labor, S = subcontract, M = materials. Because labor is always a high-risk proposition, highlight the three or four phases for which labor is the primary component. Set up your time cards, look-ahead schedules, and field controls to effectively manage those line items. Note that Finishes is in both groups — pay special attention to that work.
By looking for the pattern in the information, you've identified areas of primary risk before the job even starts. By focusing on areas where you can have the greatest effect on the outcome and setting the rest aside, you'll make the most of your time and get the most bang for the buck! Next month we'll apply the 80/20 rule to overhead. —Judith Miller is a Bay Area construction business consultant and trainer specializing in accounting, finance, and computerization.
Origins of the Rule The 80/20 rule was first proposed by Vilfredo Pareto, an Italian economist, in 1895. He noticed that 80% of the land was owned by 20% of the people and, after further study, he realized that the entire society was divided in the same way. He characterized that 20% as the “vital few” and the remaining 80% as the “insignificant many.”