Root Cause Analysis: Identifying Contributing Factors

This is part 2 of our series on Root Cause Analysis, previous segments are available in our archives.

The first step in root cause analysis is to identify all the factors that contributed to the change in question. There are two major types of contributing factors for business changes:

  • Internal. These are actions you have taken that have resulted in changes, within your business. Examples include new product launches, product updates and marketing campaign changes.
  • External. These are things that happen to you, regardless if you want them to or not. Examples include competitive price changes, shifts in user behavior and natural disasters.

Our goal is to enumerate every possible factor, of both types, that might have contributed to the change we are analyzing. The more comprehensive we are at this stage, the more likely we identify the root cause.

Let us return to our example of Sean’s Snowshoes, a retail store chain which saw a dip in revenue on January 21st. We want to find the root cause of that dip, so to start we’ll assemble a list of all the Internal and External factors that might have contributed:

  • January 21st: We started a new marketing campaign. (Internal)
  • January 20th: Construction started at some of our largest stores. (External)
  • January 20th: One of our major marketing campaigns ended. (Internal)
  • January 19th: We started a new online coupon promotion. (Internal)
  • January 18th: A massive snowstorm hits all of our locations. (External)
  • January 17th: New managers hired at Stores #421, #439 and #456. (Internal)
  • January 10th: The competition lowered their prices in select locations. (External)

An important trap to avoid is to assume that the contributing factors had to happen at the same time as the change. For example, since the revenue dropped on January 21st, our first instinct might be to identify everything that happened on January 21st. However, it is likely the real factors (and the root cause itself) happened before that drop in revenue. Contributing factors can happen days, weeks and even months before the change in question based on the chain of events they trigger.

Note that every factor has a date (or time) associated with it so that we can build a timeline of events leading up to (and following) the change event. In fact, if your list of potential factors is short enough you should do that right now! Unfortunately, in real world events the list will likely be far too long and you will first need to narrow it down.

Tomorrow we’ll talk about how to rank factors based on their likelihood of contributing to the change and in doing so narrow down the list.

Do you do root cause analysis in your business? Outlier is a product designed to help! Outlier helps you understand the root causes of major changes in your business, especially changes that are unexpected. If you’re interested in seeing a demo, schedule a time to talk to us.

 

Quote of the Day: “Eliminate all other factors, and the one which remains must be the truth.” Sherlock Holmes (Arthur Conan Doyle) – The Sign of the Four