The 80-20 Rule and Dental Practice Management
Dear Dr. Anonymous,
The Pareto principle (also known as the 80–20 rule, the law of the vital few, and the principle of factor sparsity) states that, for many events, roughly 80% of the effects come from 20% of the causes. Management consultant Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who, while at the University of Lausanne in 1896, published his first paper “Cours d'économie politique.” Essentially, Pareto showed that approximately 80% of the land in Italy was owned by 20% of the population; Pareto developed the principle by observing that 20% of the peapods in his garden contained 80% of the peas.
It is a common rule of thumb in business; e.g., “80% of your sales come from 20% of your clients.” Mathematically, the 80–20 rule is roughly followed by a power law distribution (also known as a Pareto distribution) for a particular set of parameters, and many natural phenomena have been shown empirically to exhibit such a distribution.
The Pareto principle is only tangentially related to Pareto efficiency. Pareto developed both concepts in the context of the distribution of income and wealth among the population. The distribution is claimed to appear in several different aspects relevant to entrepreneurs and business managers. For example:
80% of a company's profits come from 20% of its customers
Therefore, many businesses have an easy access to dramatic improvements in profitability by focusing on the most effective areas and eliminating, ignoring, automating, delegating or retraining the rest, as appropriate.
Concentrating on systems and people that do not support or produce the best outcomes for you is counterproductive. In a business sense, finding the 80-20 ratio is crucial for maximizing performance. Find the products or services that generate the most income (the 20 percent) and drop the rest (the 80 percent) that only provide marginal benefits. Spend your time working on the parts of the business that you can improve significantly with your core skills and leave the tasks that are outside your best 20 percent to other people. Work hardest on elements that work hardest for you. Reward the best employees well, cull the worst. Drop the bad clients and focus on upselling and improving service to the best clients. Identify what elements of your practice contribute to the worrisome nights. Are they critical to the success of the practice?
Perhaps employee performance is one. You ask for better customer service because you “feel” patients are leaving your practice because of it, yet you don’t like confrontation. Hire an outside service to conduct Performance Appraisals with each employee if you are not able to. You can design the appraisal to include the five best behaviors and the three that must be improved by a specific date. Put the deadline in the calendar and then keep your word.
Holes in the hygiene schedule plaguing your day? The schedule was full last week but today there are two cancellations that have not been filled. Assign a specific employee to contact by phone all patients who have not responded to email or postcard reminders. Look to see that the calls are placed daily and kept on a spreadsheet. Set a goal of setting five appointments a day.
Not enough money to pay yourself, yet production is okay? You don’t pay bills from the production, so meet with your accountant and discuss the “net” after costs or overhead are factored into the equation. Learn about the industry standards for measuring overhead and then look at your costs in comparison. What areas can be improved and what can you do to make it happen?
Don’t just work, work smart by focusing your 80 percent on the 20 percent that is really important. Need help managing your practice or figuring out the best course for success? Call McKenzie Management today.Forward this article to a friend
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