The Pareto Principle is named after its originator, Italian economist Vilfredo Pareto. The idea is pretty simple: 80 percent of outcomes flow from 20 percent of causes.
The Pareto Principle (also known as the "80/20 Rule") can be applied to many areas of business. For example:
In sales, 80 percent of your business comes from 20 percent of your customer base.
In productivity, 80 percent of your accomplishments come from 20 percent of your task list.
In day-to-day business, 80 percent of the work you do comes from 20 percent of your service offerings.
In marketing, 80 percent of your achieved response comes from 20 percent of your marketing efforts.
In customer service, 80 percent of the complaints come from 20 percent of your customers.
And, in your backlog, 80 percent of the value delivered will come from 20 percent of what's in your backlog.
(For those of you who want to know where these numbers come from, here is the Wikipedia definition of the Pareto distribution: http://en.wikipedia.org/wiki/Pareto_distribution
In the spirit of effectively managing your backlog with a goal of delivering high value and customer delight, we recommend ruthlessly culling the to-do list that your backlog represents. This means identifying 80 percent of features that do not make customers happy (delighting them), and eliminate them. Find the 20 percent that delights customers, deliver them, and repeat.
The Pareto Principle acknowledges the imbalance in effort and results and allows us to use that imbalance to our advantage. But that doesn't mean we can write off everything that falls in the noncritical or less-critical 80 percent. We can't ignore regulatory requirements, for example; however, we can modify actions so that we focus the most where we need to. For example, we won't waste time time marketing a regulatory requirement just because we do that with other customer-critical features.
And the Pareto Principle lives at all levels: Can you name the 20 percent of the product in your portfolio that delivers 80 percent of the value? Do you know the 20 percent of epic stories contributing to this? And when you break an epic story into smaller bits, does your team know the critical 20 percent of daily tasks that will deliver the 80 percent of value every day?
The Pareto Principle is about recognizing the imbalance of what needs to be done to reach satisfaction/completion/happiness and doing only that, not extra work that doesn't result in anything delivering positive value. This extra effort should be reserved for the critical 20 percent.
Applying the Pareto Principle
The point of applying the Pareto Principle to your backlog is that you need to focus primarily on the critical 20 percent to achieve 80 percent customer satisfaction. Rinse and repeat. Of course this is a general rule, not an irrefutable statistic; for some actions, the breakdown may be closer to 90/10 or 70/30. But the point is the same, and it can be eerily accurate when you start looking at what features you have delivered that aren't pleasing to customers (or features that your customers aren't using at all.)
The challenge lies in identifying that critical 20 percent. With some areas that have measurable metrics (such as the number of clients, amount of income, and time spent on each of your services), it's a no-brainer. But it can be difficult to take the same analysis and apply it to your backlog, especially when you have a lengthy to-do list with lots of items that need to get done. What we recommend is that you don't stop at delivery but that you follow through with what was delivered and see if you truly delighted customers with that product. If you spent a lot of time on features in the bottom 80 percent, maybe you won't do that twice. Why we like to measure success here is because hindsight is 20-20 when determining the 20 percent to concentrate on, and many times that 20 percent changes by the time you're ready to address it. If you follow through with what you are delivering, truly measuring customer delight, you will see continuous improvement of delivering higher value in your backlog.
Take this thought experiment:
Cost of a team for a year -- let's assume 1 million euros.
What the team delivers on that cost -- this team delivers 3X on the 1 million, and let's assume it delivers 3 million per year.
Now let's add another assumption: We are working with a product owner who has stocked the backlog with 10 percent more value (the backlog is 10 percent richer).
Now add another assumption of your own: Perhaps the product owner motivated the team by being a visionary and providing a real purpose for their daily work, removed impediments, and the team's velocity increased.
Finally, apply the Pareto Principle to this backlog (20 percent of the backlog is delivering 80 percent of the value, and the PO has organized the backlog accordingly) and answer this question:
"How much value could this product owner possibly deliver in a year?"
The concept is brilliant. Give it a shot.