Correlation and causation.

The cock crows early morning as the sun rises. This is a case of correlation rather than causation. Causation is wrongly presuming that the sun rises because the cock crows or the other way around.

Just because two or more things happen around the same time or in sequence does not mean that one causes the other.

Many times we attribute our circumstances to random events, things, and people. In problem solving we need to identify the real root causes. Addressing the root cause will often solve the problem.

A popular problem solving approach which was popularized by Toyota is called the 5 why analysis. It involves asking “why” five times to identify root causes.

For instance let’s say you have a small business which is struggling to generate cash. Asking why five times may reveal the following:

  1. Cash is low because sales are low. Why?
  2. Sales are low because we have few customers. Why?
  3. We have few customers because we don’t have a dedicated sales team? Why?
  4. We don’t have a dedicated  sales team because we didn’t hire more people? Why?
  5. We didn’t hire more people because we were spending too much on administration.

At this point a thorough cost analysis and rationalisation maybe called for. The extra savings generated can be used to recruit sales agents. To minimize payroll the agents can be put on straight commission such that they only get paid when they make a sale.
Understanding correlation and causation can mean the difference between failure and success.

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