Business leaders are supposed to know the causes of their business’s performance in a given year. A business’s performance can be an improvement, a contraction, or status-quo in the business activities. A business year is always full of ups and downs. Most businesses do not have smooth operations from the beginning of a business year to the end. There are periods when sales will increase and a period when sales will be stable or fall. For example, during the rainy season, the sale of hot coffee, hot chocolate, umbrella, rain coat, rain boot and auto screen wiper will soar, whereas during dry season, the sale of cold water, building materials like cement, paint, water closets and tiles will see high patronage.
In Nigeria, the prices of palm oil, wood and charcoal increase during the rainy season because of transportation difficulty from places of manufacture to the markets, whereas the prices are less during the dry season. Rational sellers of these products will therefore stock an adequate number of these products in the dry season and wait for big profit in the rainy season (speculation). This is the experience of marketers that is worth studying and emulating!
Markets also follow the interplay of demand and supply (market forces) in which prices of goods and services will fall due to excessive supply and rise due to excessive demand. In some seasons, the price of rice will be higher than the price of beans because more farmers planted beans than rice. Mostly, after this experience, the majority of the farmers will plant rice because in the previous harvest season its price was higher than that of beans and the experience will be different – beans will attract a higher price due to scarcity. People buy more goods in December of every year as the festive period is approaching and hotels, restaurants and pubs witness fall in sales during Muslim fasting period (month of Ramadan) in West Africa, at least. Rational business men and women do not just follow the trend; they analyse and look at the root cause of every surge or fall in price of their products and goods. This analysis is important for any serious business person to be able to be on top of his or her business and to be able to adapt or make decisions.
Root cause analysis (RCA) is the process of ascertaining the root causes of problems so as to identify proper solutions. In business, progress is a challenge as it attracts competitors to the business. Tom Sachs said the “reward for good work is more work”. RCA presumes that it is much more helpful to systematically avoid and resolve underlying factors rather than just treating surface symptoms and putting out fire instead of the fuel. RCA enables organisations to address the true causes of asset failure or success, instead of simply treating symptoms or uncaring. It also allows management to be able to communicate organisation challenges to the employees and proffer solutions. In most cases, organisations are more interested in the cause of a failure than in the cause of success. Modern business management does not only adopt RCA when there are challenges; they do when there is remarkable improvement and when the status quo remains. The tools and techniques used in RCA are scientific and include computerisation to make room for easy tracking and investigation.
The best practice to an effective root cause analysis requires performing the following steps:
- Defining the problem and asking questions: The first step in root cause analysis is the definition of the problem and asking questions about the cause of change (either positive or negative). The leader must be able to ask questions about what led to the problem or success of the organisation. What are the objectives of the organisation? What are the targets and why are the targets met, over-met or under-met? The analyst must know where the organisation is, where it is supposed to be and why it is where it is.
- Gathering data: The leader must gather adequate information both qualitative and quantitative for the purpose of analysis. These data should not be restricted to internal data alone. The root of a tree may extend outside the premises of a building and if the roots are not totally uprooted beyond its location, it may be difficult to eradicate it.
- Identifying probable causes of change: From the arrays of data obtained, the analyst must be able to identify the probable causes of change in the performance of the organisation. Why is the company doing fine and why are other similar companies not performing well or vice versa.
- Identifying the root cause or causes: The next step will be identifying the root cause or causes of the change. The root cause is the main or actual reason why there is an occurrence. It is the singular factor which, if it does not exist, there would not be a change; or, if they occur, there will be change. Root cause is not the last straw that broke a camel’s back but the result of a post mortem.
- Prioritising and streamlining the causes: In some instances, analysis will show many causes for the change. It then becomes expedient to prioritise and streamline the causes. There will be a factor that will supersede another in the list of causes of an action. There are cases when the second and or third causes can be relegated but not the first cause. The cause that cannot be relegated to another is of higher priority.
- Proffering solutions for improvement: The next step is looking for means of improving the situation. There is no problem without solution; and
- Implementing the solutions: The last but not the least step is implementation of the solutions identified from the root cause analysis. These solutions are usually to improve the situation of an organisation as the only objective of any business organisation is to maximise profit.
Conclusion
Root cause analysis is a strategic management tool necessary for business sustainability. It is an activity that should be done in all organisations, whether thriving, challenged or at break-even point, at least twice a year. It is either done internally or through the help of consultants. It involves identifying the reason for the performance of an organisation and how to improve the company’s performance.
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