Are you using the 80/20 principle to its fullest?
Image by Austin Distel via Unsplash
If you are working in FP&A, it can make your life so much easier.
Here are 5 ways to apply it in your role:
The 80/20 principle, also known as the Pareto principle, says that it takes 20% of the effort to achieve 80% of the results. To get the remaining 20%, you’ll need to put in 80% of the resources.
This principle stood the test of time and holds (approximately) in many areas of business - 80% of the revenue comes from 20% of the customers, 20% of the products create 80% of the profits, and so on.
It’s also invaluable in helping you save time in your FP&A role. If you give 100% to every task, you won’t have time for those important but not urgent tasks that actually move the needle.
Of course, you shouldn’t apply the 80/20 principle to everything you do - for example, you have to stick to the accounting rules, and the numbers you present need to be accurate.
But these are the areas where you should apply 80/20 instead of spending more time:
#1 Variance analysis
80% of the variance is caused by 20% of the line items. So focus on those and spend the time you saved finding the root cause.
#2 Reporting
Don’t overload your slides with metrics. Instead, pick only the ones that tell the story and suggest an action.
#3 Forecasting
Accuracy isn’t directly proportional to the effort you put in. Sometimes a simple model is best.
#4 Follow-up
Fixing a broken process is faster and more effective than repeated follow-ups.
#5 Consolidation
If it takes you more than 15 minutes to pull together the numbers for any kind of report, then you are wasting your time. Prioritize automation or consider implementing a new FP&A tool instead.
If you’d like to learn more about FP&A, I offer help in three ways:
1️⃣ Subscribe to my free newsletter “FP&A Tuesday” here.
2️⃣ Listen to 75 bite-sized mini lessons and get FP&A advice on the go.
3️⃣ Join my live online course FP&A Bootcamp to master FP&A in two weeks.
