We all have heard about the Pareto principle or the 80/20 rule. However, a bit more effective rule is the Price law. I use this rule (and not Pareto) to analyse my tail spend and find cost-saving opportunities!
It states 50% of the output is generated by the square root of the total number of resources that are working or contributing to it.
Need examples? Soon it is going to be appraisals! Let’s say you have 9 people in your team. So, according to Price law, 50% of your team’s achievement will come from 3 people only. Take note!
More? Ok, let’s speak about inventory optimisation. If you have 4 warehouses, you can only unlock 50% optimisation value from 2 warehouses!
This is a universal law loosely followed (like the golden ratio!).
So, for spend analysis, as I mentioned before, this is super useful!!
“50% of any given result is generated by the square root of the number of those who contribute to it.”- Price law! Remember this!
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