Pareto
It is probably true that I could get 80% of the ingredients for these lovely lamb chops from the grocer’s right at the end of the street. That is, everything needed for the dish except for the lamb chops themselves and some decent balsamic vinegar – for those, I’ll have to travel down town. With traffic and parking, getting those few extra ingredients is, for me, more than four times the trouble of getting the rest. The same is true from the financial perspective: the aggregate cost of the cheaper 80% of the ingredients is easily less than 20% of the combined cost for the entire dish. Still… seems like there isn’t much point in cooking it without actually using lamb chops and the balsamic, right? Just imagine a bewildered Vilfredo sitting there, looking silently at me, at his plate, and at me again.
The famous Pareto principle is an observation, a fact that holds true in a great number of cases. In itself, however, it is not a strategy. What we’re really after is efficiency, maximizing ROI, minimizing opportunity cost. The relation between the two concepts is a conditional one: when it’s 80% of the potential value that can be achieved through 20% of the potential investment, we’re probably looking at diminishing returns, so it might well be more efficient to direct additional resources into other venues. If it’s 80% of anything else that we get for 20% of whatever, although the principle certainly holds, it usually would not have implications on the best course of action.
A very local maxima (xkcd)
With software projects, it is often true that implementing just 80% of the requirements yields much less than 80% of the expected business value. Assessing the value of early feedback versus the costs associated with a Patch Driven Design (PDD) approach is a complex matter, deserving a post of its own; the notion of Pareto efficiency comes to mind, where the options on the frontier represent business value optimizations over different time spans – this would make for an interesting chat over the tiramisu, I guess.
You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
This post was 80% introduction and 20% money time :-) – elaborate.
“Implementing just 80% of the requirements” – reminds me of a great point made by Joel Spolsky – it all depends on which 80%, and the fact is that anyone might define a different 80%, which is probably why this usually indeed won’t work.
Speaking of tirami-su, when will you be free for a meal and a stimulating conversation?
By the way, you are looping with the “Pareto efficiency” link.
Thanks, corrected!