Problems have always been part of businesses. In reality, businesses exist to solve specific problems. Business analysts are typically positioned to identify some difficulty, the underlying cause of it and the effects that follow when it persists. After establishing causes of problems and their effects, business analysts can tackle problems better by proposing viable solutions. In this regard, the need to undertake cause and effect analysis is vital for business success. Sometimes called the fishbone diagram, the cause and effect diagram can be employed in virtually all business settings where it is necessary to understand the root cause of a problem. Be it analyzing why a certain product line is failing, determining the best production methods, or implementing the right management policies, cause and effect analysis is effective in achieving desired business outcomes by identifying and addressing the root cause of the business problem faced. This article provides a brief overview of how cause and effect analysis can help you find viable business solutions.
At the very least, this analysis involves two major activities:
1. Looking Backward
Only about two-thirds of companies survive their first two years in business. There is a set of underlying reasons why this happens, and if you own a startup, this information may be crucial to your business surviving. You wouldn't want to follow the path that the “unlucky” one-third of businesses took.
Looking backward involves analyzing past mistakes and problems. The rationale for looking backward is to identify where issues have come from, so that they can be avoided in the present course of business.
2. Looking Forward
Cause and effect analysis may also be carried out for future planning. It can be used for making an inquiry into the future state of affairs of a business and identifying the path that ought to be taken in the present for a better future outcome. In that sense, it can be used as a planning tool.
Using the Cause & Effect Analysis Tool
Step 1: Problem Identification and Description
The initial activity in a cause and effect analysis exercise is identifying the problem of interest. You need to adequately describe the problem in terms of its nature and magnitude. Determine the part of your business that’s affected and the possible reasons why. On the fishbone diagram, this represents the head of the fish.
Step 2: Brainstorm on the Main Causes of the Problem
At this point, your aim is to identify the root cause of the problem. This can be done effectively by analyzing the obstacle in relation to people, procedures, materials, and equipment in the business. Your aim at this stage, is to come up with as many potential causes as possible. In your fishbone diagram, these causes will closely follow the head of the fish.
Step 3: Break Down Each Main Cause Into Sub-Causes
For every major cause of a problem in business, there are always additional or minor events and ordeals that contributed to the occurrence of the major cause. For example, customer dissatisfaction may be a result of long lead times in supply or poor after-sales services. In the same vein, low employee productivity may be the result of poor working conditions, low pay, etc.
Therefore, you should try to find all the possible sub-causes that may have contributed to the occurrence of the main cause.
In your fishbone diagram, these sub-causes will branch out from your main causes.
Step 4: Analyze Your Diagram
After coming up with the sub-causes, spend some time reviewing the diagram as a whole. Check if the concerns raised and the needs identified are admissible. Ascertain which items are most critical to the business and which need real-time action. Order the problems in terms of priority and urgency. In this regard, you can delve deeper into the causes of a certain problem to analyze its legitimacy as a problem. For example, in the case of low employee productivity, you could interview or administer questionnaires to employees and concerned parties to validate your findings.
Step 5: Develop Your Action Plan
After describing your problem; knowing its causes and sub-causes; and ascertaining its legitimacy and priority; the last task is to develop an action plan. This plan should embody the necessary remedies to the identified problems. It should assist you in resolving, mitigating and addressing the problems your business is facing. We can authoritatively say that it helps you come up with viable business solutions.
Is Cause & Effect Analysis Effective?
Cause and effect analysis is only as effective as the people who use it to find business solutions. On the face of it, it is just like any other problem solving tool but it needs an able and astute professional, business leader and entrepreneur to make it effective. If you meet this description, then the tool will be effective in your business. However, if you feel you need some assistance, engage an able practitioner who is familiar with the tool to assist you in applying it.
Cause and effect analysis is indeed a quintessential tool for problem identification and resolution. Use it to find the most viable solutions, come up with business visualisations of existing problems and lastly, enhance the problem-solving process in your business.
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Lucas Cappel is an educator and a freelance writer from Ohio. Besides working as a tutor, he writes analytical articles and recently was part of a team that analysed cause and effect research topics. In his free time, Lucas enjoys reading philosophy and listening to classic rock.