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The Pareto Principle And Decision Making

The Pareto Principle And Decision Making

The Pareto principle (also known as the 80/20 rule) states that, for many events, roughly 80% of the effects come from 20% of the causes. Management consultant Joseph M. Juran suggested the principle, and named it after Italian economist Vilfredo Pareto, who noted the 80/20 connection while at University in 1896, and published it in his first paper.

Essentially, Pareto showed that approximately 80% of the land in Italy at that time, was owned by 20% of the population. He developed the principle by observing that 20% of the peapods in his garden contained 80% of the peas.

Mathematically, the 80/20 rule is roughly diagrammed by a Pareto distribution, (see below) and many natural phenomena have been shown empirically to exhibit such a distribution.

Nature

  • The sizes of human settlements (few cities, many hamlets/villages)
  • The values of oil reserves in oil fields (a few large fields, many small fields)
  • Sizes of sand particles
  • Sizes of meteorites
  • Numbers of species per genus
  • Areas burnt in forest fires
  • Severity of large losses for insurance businesses such as general liability, commercial, auto, and workers compensation.
  • In hydrology the Pareto distribution is applied to extreme events such as annually maximum one-day rainfalls and river discharges.

Rule of Thumb

While it is common to referred to as the "80/20" rule, under the assumption that, in all situations, 20% of causes determine 80% of problems, this ratio is merely a convenient rule of thumb and is not, nor should it be, considered an immutable law of nature.

More generally, the Pareto Principle is the observation (not law) that most things in life are not distributed evenly. It can mean all of the following things:

Not distributed evenly

20% of the input creates 80% of the result
20% of the workers produce 80% of the result
20% of the customers create 80% of the revenue and often 80% problems as well
20% of software bugs cause 80% of the crashes
20% of software features cause 80% of the usage

And on and on…

Steps to identify important issues using 80/20 rule

  • Generate a table listing the issues and their frequency of occurrence as a percentage
  • Arrange the rows in decreasing order of importance of the issues (i.e. the most important one first)
  • Add a cumulative percentage column to the table, then plot the information
  • Plot (#1) a bar graph with items on x- and percent frequency on y-axis
  • Plot (#2) a curve with items on x- and cumulative percentage on y-axis
  • Next draw a horizontal dotted line at 80% from the y-axis to intersect the curve.
  • Then draw a vertical dotted line from the point of intersection to the x-axis. The vertical dotted line separates the important issues (on the left) and trivial ones (on the right)

Pareto distributions are often used in the cases when many different small independent factors contribute to a result.

Pareto Chart Example (Customer Complaints)

First find out how many customer complaints were received in each of, say, five categories.

Then take the largest category, let’s say in this case it is “documents”; break it down into, perhaps, six categories of document-related complaints, and show cumulative values.

If all complaints cause equal distress to the customer, working on eliminating document-related complaints would have the most impact, and of those, working on quality certificates should be most fruitful.

Pareto Example
Pareto Example - Document Issues

Draw a horizontal dotted line at 80% from the y-axis to intersect the curve.

Then draw a vertical dotted line from the point of intersection to the x-axis. The vertical dotted line separates the important causes (on the left) and trivial causes (on the right)

That means, in this example, quality certificate error, quality certificate missing and invoice error, (in that order) are what need to be worked on – the rest can be safely ignored.

Simple and effective.

Yaro Starak says

It really doesn’t matter what numbers you apply, the important thing to understand is that in your life there are certain activities you do (your 20 percent) that account for the majority (your 80 percent) of your happiness and outputs.

Life Isn’t Fair

What does it mean when we said above that “things aren’t distributed evenly”? The key point is that each unit of work (or time) doesn’t contribute the same amount.

In a perfect world, every employee would contribute the same amount, (red line in the graph below) every issue would be equally important, every feature would be equally loved by users. Planning would be so easy.

Pareto Distribution
Pareto Distribution

But that isn’t always the case:

The 80/20 rule observes that most things have an unequal distribution. Out of 5 things, perhaps 1 will be “cool”. That cool thing/idea/person will result in the majority of the impact of the group (the green line). We’d like life to be like the red line, where every piece contributes equally, but that doesn’t always happen.

Of course, this ratio can change. It could be 80/20, 90/10, or 90/20 (the numbers don’t have to add to 100!).

The key point is that most things are not 1/1, where each unit of “input” (effort, time, labour) contributes exactly the same amount of output.

Benefit:

The idea is to realise that you can focus your effort on the 20% that makes a difference, instead of the 80% that doesn’t add much.

In economics terms, there is diminishing marginal benefit. This is related to the law of diminishing returns: it means each additional hour of effort, each extra worker, is adding less “oomph” to the final result. By the end, you are spending lots of time on the minor details. Huge benefit right there.

Decision Making and The Pareto Principle

Think about 'diminishing marginal benefit'. Obviously building a bridge requires 100% of the construction to be completed, or else we don’t have a safe, working river crossing, but decisions, about almost anything in life, can be made using the 80/20 rule.

How so?

Look at the second graph, above, and come at it from the opposite direction, ie the right hand side moving left, you notice that at the 80 percentile of effort (bottom X axis) you will have achieved approx 96% of the result. (Take a line up to the green curve). A result in decision-making terms might be the level of certainty that the decision is correct.

Consider that effort is ‘researching if a decision is right or wrong’, then after we have 80% of the info - we are good to go. The last 20% of effort will only give you 4% more certainty. Why waste that effort?

A perfect reason for procrastinating just bit the dust. We DON’T NEED TO KNOW EVERYTHING before making a decision. So stop messing about, make that decision and get on with it.

The Pareto graph suggests, in fact, that at 50% of the effort/research/info you are likely to have a 90% result/certainty. Hmmm.

Stop. That’s Dangerous.

Yes, I can hear you. How do you know if you have reached 80%? Well you don’t. Not really. Just as you don’t know if you reach 100% of the required info.

Truth is – you never will. It’s all relative. A moving feast. We wrack our brains, ask experts, ask customers, do tests and experiments, contemplate our navel, but once the info gathering process appears to be slowing down, that is probably the 80% mark.

It’s a guess. You can keep guessing, or get on with doing stuff.

Decision Making Made Simple

  1. Get as much info as is reasonably easily obtained (remember, you don’t need to know everything – 80% is more than enough)
  2. Then ask yourself 2 questions about your impending decision.
    1. Knowing all that, what’s the worst that could happen? The very worst case scenario?
    2. Can I live with that? Yes/No.
  3. If yes. Just do it. Use the 5 second rule. But that’s another topic altogether.
  4. But, if no. You need to go right back to the beginning. Perhaps even think about if this is something you need to do, or decide. Or whatever.

Consequently, it really is that simple. Decision making on steroids. The 80/20 rule rocks.

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Crewing – Tony Robbins Sydney 2015

Unleash The Power Within

Well. Can't say too much or I'll have to kill you. Or they'll kill me. Or all of the above.

Secrecy

I signed a secrecy provision so what follows will be of necessity general and not secret.

One of the main themes we crew are asked to embrace was flexibility. Seems mine started on the early side. My 7.35 am flight on Wednesday was cancelled as were all Jet-Star flights early that morning as far as I could tell.

Flexibility

Mine and the airline. I was efficiently re-booked on an 11.50 am flight the same day. That was very serendipitous. Required a change of plans at the other end,but we aced that.

Instead of popping in to my fabulous AirBnB accommodation to drop off bags and things like that, I had to head directly to the Qantas Credit Union Arena. Do not pass go. Do not do anything. Grab a VERY QUICK bite to eat at Paddy's Market and Bob's your uncle. I had 2 pork Gyoza for $4.50. Nice, but not much. And as I found out later – I needed much.

But let’s not get ahead of ourselves.

Travel Club

Managed to sign up for a travel club in Sydney airport while waiting for my luggage and chatted to a chap who liked to travel while I was waiting for the light rail at Central Station to take me to the venue. All very cool. By he way I was not responsible for the fire at Hungry Jacks at that very station on Saturday evening.

The Event

Back to the event. The days were long and brutal, We worked hard. All of us; venue staff, event staff, volunteers and all. Averaged about 5-6 hours sleep per night. But it was worth it.

I stayed at a lovely little 2-up 3-down terrace house in Surrey Hills. It was gorgeous. A brothel (Jack told me, but I had noticed the big red light) on one side and a coffee/lunch shop next door but one on the other side, and then a corner pub. It was 10 mins walk to the venue and about 5 mins walk to the aforementioned Central Station. Yep. Very central. As expected Sydney was wet for a few of the days.

People

Only problem was Jack and Stephanie would have loved to have shared a leisurely glass of wine at least once during the 5 nights I was staying with them, but it was not to be. Maybe next time. There will very likely be a next time. I hope so anyway.

I met so many wonderful people; saw again some from last year (Sandy) and ran into a couple of coaching mates (Pina and Julia). Just to name a few. It was a bit like old-home-week. I loved it. New friends galore.

Sessions

We even managed to see a few moments of the sessions as well, when we had a break from serving the participants. Tony Robbins was awesome as expected.

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Ego – A Book Review: A New Earth: Create a Better Life – Eckhart Tolle

I have been reading this book the last few hours.

I have to say it is probably the best book of its kind, I have read for a long time.

Why?

I have not even finished Chapter 3 and am completely blown away by the content. Mr Tolle has taken me and given me the biggest shake.

There is soooo much here already that explains a lot about my life and why I am like I am.

Believe me I am going to change. I am not going to be ruled by ego any-more.

Need to know what this is all about – then get this book.

Example?

One very small example that stuck with me.

When he was a counsellor, Eckhart was working with a woman who had cancer and was told she had only 2 months to live.

She was raving, this particular day, about a belief that her carer had stolen her grandmother's engagement ring. “It has so much sentimental value,” she wailed.

Eckhart asked her what was she going to remember about this ring in 10 weeks time? She thought for a moment and then said, “They think I'll be dead by then.”

“Yep,” he said.

“And while it is not right that it might have been stolen, why are you wasting the little time you have left getting so excited about it? This is your ego talking. Someone has to be wrong. You are the one in the right. It is YOUR ring. 'Oh My God,' you are crying, 'what have they done to me?'

But it won't matter to you in two months. So let it go now. Live today. Enjoy. Don't fret. Be happy. All that good stuff.”

Think about it:

How many times have we all worried about something like this? Something where we complain and fret just to make a silly point? To be right? To be better than someone else? To be richer, happier, more moral, more beautiful? Ego. I am.

Let it go.

More soon. I am going to finish this wonderful book and take as much of it on board as I possibly can.

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Battles V’s Challenges

Battles

The best battle, Sun Tzu says, is the battle that is won without being fought.

One dictionary definition is: An encounter between opposing forces.

Therefore; we assume - if we use the word battle, that there will be opposing forces and one of these will be a winner.

By definition this pretty much always means one of the forces will lose, even if according to Sun Tzu an actual battle has not been fought in the traditional sense. We still have an assumed winner and a loser. Let us call that a “pre-supposition.” And definitely one with negative results for one of the parties.

Challenges

A challenge on the other hand is something that puts you to the test. It can often be used in the sense of questioning whether something is true or right. And it can be a demanding or stimulating situation as in questioning a statement and looking for an explanation. This doesn't, by definition, require either a winner or a loser. It assumes (pre-supposes) an outcome, but not necessarily one that means any party will be vanquished.

A challenge is often thought of as something you have to face and deal with as you see fit. Not necessarily involving another in direct conflict. It can – but usually doesn't.

If a challenge seems like a battle, it can nearly always be reduced to a win/win situation. The sort of thing that can be dealt with by finding and exploiting alternatives to any head-on confrontation.

A challenge can therefore, pre-suppose (or assume) a solution that is not necessarily competitive to the point where protagonists on opposite sides become engaged in a fight or a battle. This is likely a more positive outlook is it not?

This is not to say a situation remains uncompetitive and lacking in any desire (even STRONG desire) for a satisfactory outcome - just that win/lose is not the primary aim of the interaction as it is in a battle.

It suggests that YOU will find an outcome that is satisfactory to YOU without destroying, decimating or even sidelining others who might also have an interest in the outcome.

What we have here is a stance that involves the taking of individual or group responsibility for a particular situation along with the actions undertaken; and accepting the results obtained.

Not a fight to the death.

Conclusion

Therefore, let us not look for battles to win, but challenges to face.

And let us use words that help us to see outcomes in a positive win/win light and not conjure up adversarial elements where they do not need to exist. #CareerChangeStrategies

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Jillian 25 – The Big Game (Patterns)

A story from Jillian’s memories. A rogues gallery of friends and enemies.

Arthur had been retrenched and had no idea what to do or where to go. Money was not an immediate problem due to a reasonably generous package, and his partner who was still working at a really well paid job. She said she would support him as he figured out his next step.

His life coach worked with him to find out what he enjoyed and what he was good at, basing this on his life history up to now; and with a few generalisations and some chunking up - a model emerged.

Arthur’s patterns of life were related to sport – he didn't play just liked watching. All sports and all events like Aussie Rules, Rugby - Union & League, Cricket of all varieties, Superbowl, Grand Slam Tennis, Olympics – Summer & Winter, World Cup, Grand Prix Motor racing etc. You name it he was onto it.

He even had a pretty good grip on local sport in many of the major cities in Australia

Knowing almost everything there was to know about players, teams and competitions, his knowledge was legendary. Encyclopaedic.

If a player in any team was having relationship troubles he knew about it before the blonde bombshell stories hit social media and TV.

His numbers told him everything.

You see he was also into maths (another pattern that showed up when he and his coach looked for it) not the pure theoretical kind, of codes and theorems, but statistics, probability even finance.

His university studies led him into accountancy, finance and economics. He loved his job as an accountant in a well known city firm, but often seemed to have a plastic smile on his face. Perhaps he was not really a people person, even though as a financial advisor he was meeting with and talking to people all the time. It may have been the backroom stuff that excited him. Not the human element.

But now he had to re-assess - as 'there is no job'.

If sports and numbers were his thing, he needed to figure out how to make that pay. “You see, the clever way to do things is to evaluate what you know and then find a market”, Jillian said. “Someone or some organisation willing to pay money for this knowledge”.

Arthur started out volunteering with a local community radio station doing the sports round-up on Saturday evenings and a much longer summary on Sunday afternoons of all that had gone on sport-wise nationally and internationally in the last week. His numbers ability and knowledge in all sports was now front and centre. Interest in the programs and his audiences grew.

He was happy. And it was good.

So good that before too long he was being poached away from the free stuff to a paid gig at a commercial radio station and then was offered a show of his own on a TV station in Australia. Guests and all. His call. He was the boss.

It was syndicated nationally. A star was born.

A pattern followed, uncovered a life plan. Patterns and Big Game Hunting.

“You see.” said Jillian, “It's not who you know. It's what you know.”#ourjillian

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What Did You Learn today?

One of our core needs is to grow.

Growth comes from:

  • New stuff.
  • Old stuff with a new perspective.
  • Something completely out of left field.
  • Mistakes that show you why or how something didn't work.
  • Words that had the opposite effect from what was expected
  • Words that had a different effect from your expectations
  • Feedback both good and bad.
  • Reading
  • Listening

Nothing here about talking.

What else? This is just a teaser?

WHAT DID YOU LEARN TODAY?

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Bringing up Children V’s Being a Good Salesperson?

Have you ever thought of the similarities between these two? Between children and customers?

Just as an example:

Try shouting at a baby/child to make him/her do something.

Try shouting at a customer to get him/her to buy your goods/services.

Same result?

Why's that?

Your comments please.

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On-Line Marketing

Hi,

Thought I might see how to make a few quid using what I already know and leveraging off stuff others can teach me. So....

I found this guy John Chow and love his work.

He has some wonderful ideas. I'll let you read the compilation I made of some of his stuff and don't forget to have a look at the videos.

The four components (the lead magnet, tripwire, core product, and profit multiplier) of a proper sales funnel

Firstly in this training by John Chow, we break down the four components (the lead magnet, tripwire, core product, and profit multiplier) of a proper sales funnel. The reason most new Internet marketers don’t make money online is because they are missing the last two components. Without them, they’ll be lucky to break even on their advertising money.

When all four components are in place, the sale funnel can make you very rich in a very short time. That will allow you to live the Dot Com Lifestyle. John Chow will be breaking down, and going into the details, of each component in a proper sales funnel.

Video: https://www.youtube.com/watch?v=2XCd3dr0R08#t=21

Sales Funnel Creation Step 1 – How To Create a Lead Magnet

Previously John Chow walked you through the four components of the money-making sales funnel. Today, John’ll break it down into individual steps, starting with the lead magnet.

The lead magnet is the most important component of the sales funnel. This is something you must get right, or your dreams of living the Dot Com Lifestyle will just remain a dream. A lead magnet is a free item that you offer in exchange for getting the email address of your leads. Examples include ebooks (like the Ultimate Online Profit Models), downloadable software, video course, etc. The more perceived value the lead magnet offers, the higher the opt in rate.

While the lead magnet is extremely important, how you present it your leads is just as important. To get the highest opt in rate possible, John Chow uses a service called Lead Pages. Lead Pages. Lead Pages is the best lead capturing service on the Net. Cheapest is $25.00 per month paid annually.

Video: https://www.youtube.com/watch?v=jThx4YaYnfc#t=17

Step two of the sales funnel creation process, and that is the tripwire.

Last time John Chow went over the first step to creating a money-making sales funnel, which was how to create a lead magnet.

This time John will teach you step two of the sales funnel creation process, and that is the tripwire.

The tripwire is an extremely important component of the sales funnel because it’s what separates your leads from your buyers. Getting leads into your funnel is nice, but it won’t make you any money until they buy something. This is where the tripwire comes in.

A tripwire is a low priced ($9.95 to $297) product designed to get you a customer. Its job is not to make you money (that will come later in the funnel). In fact, you should be jumping for joy if your tripwire product covers your ad spend.

Examples of John's tripwire products include Blogging with John Chow, and IM John Chow. John Chow also licenses Tripwire products from MOBE/MTTB.

John Chow finds licensing products to be a better use of his time and resources. Creating your own tripwire can be extremely expensive. The sales page for Blogging with John Chow cost $7,500. Then there’s the cost of creating the product, affiliate manager, etc. This is why John Chow no longer creates his own tripwire. He can license them from MOBE/MTTB at a fraction of the cost.

Video: https://www.youtube.com/watch?v=nwxbxdnrlEo

Sales Funnel Creation Step 3 – The Core Product

Welcome to step three of the four-step million dollar sales funnel.

Step three is where we make our money. The core product is a high-end product that cost over $1,000. It is only offered to customers who have purchased our tripwire. The high profits built into a core product will more than make up for any losses created by the lead magnet and tripwire.

Lack of a core product is the number one reason new Internet marketers don’t make money online. They spend all their time and efforts promoting low priced products that barely cover their advertising expense. What they failed to understand is, if a customer buys a low priced tripwire product from you, he’ll buy a high priced core product from you. If you don’t have a core product, then you’re leaving all your profits on the table.

Watch the video below to find out how to make and market a core product. If you need a step-by-step blueprint, then download the John Chow eBook. It will show you how he makes a six-figure monthly income.

Video: https://www.youtube.com/watch?v=4p7HBLyxgIA

Sales Funnel Creation Step 4 – The profit Multiplier.

In discussions about how to create a money making sales funnel, the importance of the having a big-ticket core product and a profit multiplier was highlighted. Without these two elements, your sales funnel will never be able to pull in the really big money.

Big Ticket = Big Profit

Most Internet marketers shy away from high priced products because it takes more effort to sell them. While it’s common for a $10 info product to be sold with a sales letter, this can’t be done with a $10,000 product like a Mastermind. To sell a high-end product, a much more personal approach is required, and that generally means talking to the customer on the phone.

Most people hate getting on the phone and avoid it like the plague. The Tel line on John's business card has no phone numbers listed. Instead, it says “You don’t call me, I'll call you!”

The Solution – Your Own Phone Sales Team

How does John Chow make big-ticket sales without getting on the phone? He lets people like Max Aria do it for him. Max is a member of the phone sales team at MOBE and MTTB. All those big paydays you see John Chow make, like $30,000 during dinner and $8,000 during lunch, Max made those for him.

Below is a video interview John Chow did with Max during a recent trip to Costa Rica. The man is a machine. Shortly after the interview, he was back on his Skype calling leads up and making money for the MOBE/MTTB partners. Max can do the same for you.

Video: https://www.youtube.com/watch?v=cjDLH_nX34Y

Setting up your own phone team is a very expensive affair. This is why John Chow licenses a system like MTTB. They already have everything in place. John's job is just to send the leads into the sales funnel, and let the phone team takes over once the lead buys the tripwire product.

More than 60% of his blog’s income now comes from products that cost more than $2,000. These are the core products and profit multipliers. Most Internet marketers don’t have them because they don’t want to get on the phone. The solution is simple. Get your own phone team either by spending the big bucks to create one from scratch, or license a system like MTTB, that has a phone team already in place. For John, the choice is easy.

Video: https://www.youtube.com/watch?v=b16-WdR2zps

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The Successful Coach Magazine

Woo Hoo. Yippee and all that jazz. Another publication under my belt.

This time an article in a magazine.

Here is the link.

June Issue - The Successful  Coach Magazine

It is the first in a series of 8 articles covering the topic of retirement / retrenchment (Laid off for my American readers) which leads up to the generation of a life plan and a set of SMART goals. Stay tuned to see the rest of them.

Comment if you will.

That link again.

June Issue - The Successful Coach Magazine

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