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80/20 Risk Management Rule

- September 29, 2017 by Philip Bivens, CSP (View all posts by Philip)

Have you ever thought about how much time you spend productively at work? At the end of the day do you feel like you were busy, but didn’t accomplish much? If so, the 80/20 rule could be very useful to you.

The 80/20 rule is a simple principle of how a small number of things can have the biggest impact. Specifically, the rule means that in any situation, 20 percent of the inputs or activities are responsible for 80 percent of the outcomes or results. People who don’t apply the 80/20 rule are inclined to spend a large portion of their time on things that yield small results.

The 80/20 Rule & Risk Reduction

Let’s look at some specific examples of how this rule can apply to a business owner or risk manager. When assessing risks, not all risks carry the same consequence. For most industries, manual material handling and slips/trips/falls are the leading loss sources, but a lot of companies do not allocate the same time and resources to these loss sources as they do for loss sources that have smaller impacts on their business. By applying the 80/20 rule to risk reduction, companies can select the top risks that pose the highest potential for damage and focus the majority of the efforts on those. That doesn’t mean that you can forget other risks, but it will allow you to better allocate your time and resources to the most impactful areas.

Another example could be a specific location/department that is having the majority of the injuries. By applying the 80/20 rule to this situation, you may find that a trivial few number of locations/departments are accounting for the majority number of total injuries. Knowing this information will allow you to focus your efforts in a more effective way.

This same rule can be applied in many other areas of business as well; sales, production, employee retention/turnover, etc. If you take the time to really understand and apply this rule to your business, the results could be very lucrative.