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Cause and Effect In Business: How To Observe and Analyze

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In the business world, it’s imperative to understand cause and effect. So you can go about this by using observation and analysis.

The better you get at looking at what’s going on and thinking about why things are happening, the better decisions you can make in your daily business life.

You can look at the root cause of an issue. You can work your way through basic risk assessment. You can focus on systems thinking instead of just reactionary behaviours. And as an example of how things are interconnected, you can watch the stock market as an exercise.

All of these things will help your understanding of business cause and effect.

The Root Cause

When you do a root cause analysis, you just keep asking ‘why?’ until you find the core adjustment that you have to make to fix an issue. For example, you can think of a person who is overweight or underweight. The cause might be that they eat too much or too little.

But the root cause is going to be what makes them eat too much or too little. You can always fight against the behaviour symptoms, but by getting rid of a root cause, a solution will happen naturally. In the business sense, you’re always trying to find ways to fix problems at the roots.

Basic Risk Assessment

In any situation, there will always be a risk. However, in business, some activities are riskier than others. That’s why before you make any major decisions, you should always run through a risk assessment process.

In many companies, this is baked into a typical workflow. However, some companies don’t have this failsafe setup. If that’s the case, then each new project or decision will have an individualized assessment to obtain maximum efficiency.

Systems Thinking

Systems thinking can be tricky. But it also has a tremendous number of benefits. If you’re not thinking in terms of one simple event causing another simple event, but rather a collection of events causing each other, then you will come to a much better logical conclusion about any situation.

There are many complex and complicated systems in business financing, and knowing how they all work together will be crucial to success.

Watching the Stock Market

You can do one exercise to see how cause-and-effect work in business is to watch the stock market. You can see how news in the daily cycle of events affects stock prices. You can see how world events cause stocks to go up and down in value.

This is a great way for you to understand how a lot of different things in the business world are connected, that you wouldn’t usually think of offhand.