Utilising the Pareto Principle in a Turnaround

Michael Fingland

Executive Director and CEO

The Pareto principle, also known as the 80/20 rule, states that roughly 80% of effects come from 20% of causes. This principle can be applied to various areas of business, including turnaround situations, where it can play a critical role in helping a company recover from financial distress.

In a turnaround situation, time is often of the essence, and resources are limited. The Pareto principle can help identify the most critical issues that need to be addressed first to have the most significant impact on the company’s performance. By focusing on the 20% of causes that are responsible for 80% of the company’s problems, managers can prioritize their efforts to address the most critical issues first, and thus have a more significant impact on the company’s bottom line.

For example, in a manufacturing company experiencing a decline in sales, the Pareto principle can help identify which products or processes are responsible for the majority of the company’s revenue loss. By focusing on these critical areas and making necessary changes, such as streamlining processes or investing in product development, the company can improve its financial performance and recover more quickly.

In a turnaround situation, every decision can make a significant impact on the company’s future. By applying the Pareto principle, managers can make informed decisions that prioritize the most critical issues, ultimately increasing the chances of success and helping the company turn around its fortunes.

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