Root Cause Analysis

Root cause analysis (RCA) is a problem-solving approach that identifies the fundamental reason behind any problem or situation. It helps to arrive at an optimum solution by bridging the cause-and-effect relationship for an event.

It is a systematic application of various analytical tools and techniques to correlate and answer the following three questions:

• What is the Key Problem Area (KPA)?
• Why did it occur?
• How to resolve it?

• Root cause analysis (RCA) is a process used to determine the underlying factors responsible for an adverse event.
• It helps the analyst team derive a meaningful conclusion by finding the fundamental cause of an issue and coming up with corrective actions to fix it.
• It is a widely used mechanism in business, economics, finance, science, engineering, healthcare, IT, research, etc.
• It involves the application of different tools and techniques to recognize and address the hidden source of a problem.
• Commonly used Root Cause Analysis tools are 5 Whys, Fishbone Analysis, Pareto Chart, Fault Tree Analysis, Scatter Plot diagram, and Failure Mode and Effective Analysis.

Root Cause Analysis refers to finding the crux of a problem. It is used as an umbrella term to refer to various tools and techniques applied to solve the problem. This approach is applied across different industries, from healthcare and software to environment and manufacturing.

It is one of the popular methods among scientists and engineers to resolve various technical issues. At the same time, IT professionals commonly apply it to narrow down the source of a bug while coding.

In business, it is one of the most critical aspects of quality control in any organization.  It helps identify the core problems in the products, processes, systems, and financial performances. Recognizing the exact cause assists in designing measures to eliminate the loopholes at the right time. Note that there are three possible causes behind any issue: physical, organizational, and human.

One of the extensively used root cause analysis tools is the 5 Whys. Here, the analyst or the team leader raises the question "Why the situation occurred?" And then, in the course of deeper investigation, a sequence of Whys is put forward for the team to find the answers. This continues until the base cause or primary reason is discovered.

Note that there is no limit to asking the Whys in this method. It can even go beyond five questions, depending on the case. Let us understand this concept through an example.

The finance manager of ABC Ltd. found that the cost of manufacturing the products rose by almost 15% in a given year. Therefore, he decided to adopt the RCA method to find the loopholes and reasons behind the high cost. The finance manager raised the following questions under the 5 Whys technique:

• Why did the cost of production upsurge by 15%?
• Why did the raw material become expensive?
• Why didn't we switch to other suppliers?

While discussing the answers to the above questions, he found that the production cost soared due to the increase in raw material price. In turn, the raw material became expensive because of its shortage and high prices of fuel.

Also, the company didn't switch to the alternative suppliers due to the benefit of the extended credit period offered by the old suppliers. However, in the long run, the company has the potential to find new suppliers who allow similar privileges.

As evident from the example, the Root Cause Analysis involves identifying a problem and performing a detailed diagnosis. Here, the emphasis is on diagnosis as it helps pinpoint the exact reason for the issue and discover and implement its solution.

Below mentioned are some of the steps to be followed in preparing an RCA Analysis Report:

1. Identifying and describing the problem: RCA begins with finding the Key Problem Area (KPA) and preparing a detailed description of the problem statements and the events.
2. Stating the chronology: Next is arranging the sequence of the events in the order of their occurrence.
3. Collecting information: This step is crucial for investigating the problem area. It involves gathering quantitative and qualitative data on pre-event conditions and post-event situations.
4. Ascertaining and differentiating casual factors: The analyst then figures out all the possible causal factors responsible for the problem or event's occurrence. Even the past RCAs can provide essential input at this stage.
5. Casual graphing: After listing the identified reasons, these are charted in a graphical format. This helps to visualize the comprehensive information, eliminate possible causes, and conclude the issue's root cause. 
6. Determining and implementing the corrective action: Finally, when we are aware of the principal cause, the analyst can chalk out and impose the best possible measures to fix the problem.

Below mentioned are some of the tools used:

• Pareto Chart - Pareto analysis contends that 20% of factors contribute to 80% of the problems. The Pareto chart is created using the frequency and the causes of the problems. It is a bar chart with a line graph. The bar represents the frequency of the issues that occur, while the graph represents the cumulative percentage of the same.
• 5 Why's - It refers to asking questions concerning the problem till the key reason for it is unearthed. It starts with the primary query that "Why the problem took place?" Then, it is followed by multiple questions until the reason behind the event is detected.
• Fishbone Diagram - The Ishikawa fishbone diagram figures out the subsequent sub-causes of the original problem, along with the primary source of it. Thus, it helps identify and group possible causes of an issue by relating the cause with its effect.
• Scatter Plot Diagram - Scatter plot diagram is a tool that graphically and systematically presents the numerical data to establish a correlation between two variables for predicting results.
• Flowchart - It is again a form of visual tool that helps an analyst represent and study the different steps involved in a business process. This helps in locating the problem area and its source.
• Fault Tree Analysis - Under this analysis technique, the problem or event is stated on the top-most place of a flowchart. It then sub-divides into multiple minor issues, leading to further classification and finally reaching the base problem.
• Failure Mode and Effective Analysis (FMEA) - It is a method applied to decode the reasons for the possible failure of a particular product or process. Besides, it also ascertains the multi-dimensional impact of such an unsuccessful event.

Example #1

Suppose the sales manager at XYZ company needs to figure out the reason for the sales performance gap of a particular team in the recent quarter. She decides to conduct the Root Cause Analysis on the sales team’s performance.

She goes through the data of the past six months to understand the trend of the sales and creates the fishbone diagram for the same. The sub-causes include:

• Inefficient sales team and team-leader
• High targets
• Demotivated sales executives
• High level of competition

The purpose was "How to reduce the sales gap?" On examining the information so acquired, she found that the root cause is the team leader's inefficiency in motivating the sales executives and providing unrealistic targets to them.

Moreover, the team leader pressured the team with penalties and offended them in other ways. This resulted in a demoralized, non-performing, and inefficient team. In turn, the demotivated sales team were ineffective in convincing the customers. They took no interest in understanding the customer's requirements. Thus, the unsatisfied customers moved to the competitors.

Therefore, the prominent solution so derived is to counsel or replace the team leader. And also, motivate the team members by training them and fostering a supportive work environment.

Example #2

Let us now take an example from the healthcare sector. An article published in the American Association of Retired Persons (AARP) website discusses the primary factors responsible for the rising cases of autoimmune diseases in the older adults nowadays.

The article analyzes the medical conditions of four geriatric patients (59-77 years). While the symptoms observed by all the four were strikingly different, the root cause was identified as the weakened immune system.

The medical practitioners found more than 100 conditions where the patient's immune system attacks the body’s healthy tissues. Such conditions were classified as autoimmune diseases. It included Crohn's disease, rheumatoid arthritis, type 1 diabetes, celiac disease, among others.

All the patients had the same problem where their weakened immune system adversely affected their body parts. Further investigation revealed that the weakened immune system was the result of changes in lifestyles and the environment.

Root cause analysis is applied to various areas for business improvement. This includes risk management, product development, process enhancement, marketing team efficiency, quality control, etc. It facilitates the use of multiple tools or techniques like Fishbone analysis, 5 Whys, and Event analysis to suit the different situations. In addition, it helps the analysts to frame a systematic future course of action for dealing with similar issues or circumstances.

RCA is a permanent fix to a problem since it identifies and treats the source of an issue. As a robust problem-solving mechanism, it undertakes the prevention steps rather than curative measures. Therefore, it is a means of constant improvement and perfection for any organization.

Moreover, in ascertaining the root cause of a significant problem, the team comes across the various related issues and even their solutions. This ensures the company runs its processes and systems smoothly without any interruptions.

Root Cause Analysis is just an assumption of the possible causes based on the available information. It is identical to the hit and trial method or experimentation. Therefore, the results may not be accurate each time.

Even for the complicated events, identifying the fundamental cause isn't enough. Other parameters are equally important to find an optimum solution. Furthermore, it is a time-consuming and effort-consuming process for an organization.

Since it is a time-consuming process, its application is limited in a situation of crisis or where quick problem-solving is required. Besides, RCA is likely to be subject to bias and prone to human errors.

One of the significant limitations is that Root Cause Analysis is used chiefly for resolving issues, while its application to the positive outcomes is often neglected. Analyzing the reasons behind the successful events can immensely benefit the organization and simultaneously ensure the future success.

This has been a guide to Root Cause Analysis (RCA) with definitions and examples. Here we discuss the Root Cause Analysis tools, steps, & how it works along with its advantages and disadvantages. You can learn more about accounting from the following articles -

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