The Boston Matrix Analysis Market Share & Market Grawth

(Also called the BCG Matrix, the Growth-Share
Matrix and Portfolio Analysis)
Focusing effort to give the greatest returns

If you enjoy vivid visual metaphors for business, then you'll love the Boston Matrix!
Also called the BCG Matrix, it provides a useful way of screening the opportunities open to you, and helps you think about where you can best allocate your resources to maximize profit in the future.

Understanding the Model

Market Share and Market Growth

To understand the Boston Matrix you need to understand how market share and market growth interrelate.

Market share is the percentage of the total market that is being serviced by your company, measured either in revenue terms or unit volume terms. The higher your market share, the higher the proportion of the market you control.

The Boston Matrix assumes that if you enjoy a high market share you will be making money. (This assumption is based on the idea that you will have been in the market long enough to have learned how to be profitable, and will be enjoying scale economies that give you an advantage).

The question it asks is, "Should you be investing additional resources into a particular product line just because it is making you money?" The answer is, "not necessarily."

This is where market growth comes into play. Market growth is used as a measure of a market's attractiveness. Markets experiencing high growth are ones where the total market is expanding, meaning that it’s relatively easy for businesses to grow their profits, even if their market share remains stable.
By contrast, competition in low growth markets is often bitter, and while you might have high market share now, it may be hard to retain that market share without aggressive discounting.  This makes low growth markets less attractive.

Note: The origin of the Boston Matrix lies with the Boston Consulting Group in the early 1970s. It was devised as a clear and simple method for helping corporations decide which parts of their business they should allocate their available cash to. Following the credit crunch, this is newly important in some sectors because of the limited availability of credit. However, the Boston Matrix is also a good tool for thinking about where to apply other finite resources: people, time and equipment.

Understanding the Matrix

The Boston Matrix categorizes opportunities into four groups, shown on axes of Market Growth and Market Share:

Drawn using SmartDraw. Click for free download.

These groups are explained below:

Dogs: Low Market Share / Low Market Growth
In these areas, your market presence is weak, so it's going to take a lot of hard work to get noticed. You won't enjoy the scale economies of the larger players, so it's going to be difficult to make a profit. And because market growth is low, it's going to take a lot of hard work to improve the situation.

Cash Cows:
High Market Share / Low Market Growth
Here, you're well-established, so it's easy to get attention and exploit new opportunities. However it's only worth expending a certain amount of effort, because the market isn't growing and your opportunities are limited.

Stars:
High Market Share / High Market Growth
Here you're well-established, and growth is exciting! These are fantastic opportunities, and you should work hard to realize them.

Question Marks (Problem Child):
Low Market Share / High Market Growth
These are the opportunities no one knows what to do with. They aren't generating much revenue right now because you don't have a large market share. But, they are in high growth markets so the potential to make money is there.

Question Marks might become Stars and eventual Cash Cows, but they could just as easily absorb effort with little return. These opportunities need serious thought as to whether increased investment is warranted.

How to Use The Tool:

To use the Boston Matrix to look at your opportunities, first download our free worksheet and then use the following steps:

Step One: Plot your products on the worksheet according to their market share and marke growth.

Step Two: Classify them into one of the four categories. If a product seems to fall right on one of the lines, take a hard look at the situation and rely on past performance to help you decide which side you will place it.

Tip 1: There’s nothing “magical” about the position of the lines between the quadrants. There may be very little real difference, for example, between a Problem Child with a market share of 49%, and a Star with a market share of 51%. It’s also not necessarily true that the line should run through the 50% position. As ever, use your common sense. Tip 2: A similar (and equally powerful) tool is the Action Priority Matrix, which helps you pick projects which legitimately give you the quickest and highest value returns. By using the BCG Matrix and Action Priority Matrix together, you get the best of both worlds!

Step Three: Determine what you will do with each product/product line. There are typically four different strategies to apply:

• Build Market Share: Make further investments (for example, to maintain Star status, or to turn a Question Mark into a Star.)
• Hold: Maintain the status quo (do nothing)
• Harvest: Reduce the investment (enjoy positive cash flow and maximize profits from a Star or a Cash Cow)
• Divest: For example, get rid of the Dogs, and use the capital you receive to invest in Stars and Question Marks.

Tip 3: From a personal perspective, you can evaluate the opportunities open to you by substituting the dimension of "Market Share" with one of "Professional Skills". Plot the options open to you on the personal version of the BCG Matrix, and take action appropriately. Tip 4: A similar (and equally powerful) tool is the Action Priority Matrix, which helps you pick projects which legitimately give you the quickest and highest value returns. By using the BCG Matrix and Action Priority Matrix together, you get the best of both worlds!

Key Points

The Boston Matrix is an effective tool for quickly assessing the options open to you, both on a corporate and personal basis.

With its easily understood classification into "Dogs", "Cash Cows", "Question Marks" and "Stars", it helps you quickly and simply screen the opportunities open to you, and helps you think about how you can make the most of them.

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The Ansoff Matrix Understanding the risks of different options

(Also known as the Product/Market Expansion Grid)

Successful businesspeople spend a lot of time thinking about how they can increase profits. They’ll typically have hundreds of ideas about things they could do, including developing new products, opening up new markets and new channels, and launching new marketing campaigns.
In the same way, people within organizations often have many different ideas about how they want to progress their careers. Perhaps they want to develop new skills, move into new roles, and even work in new industries.
That’s great! But, if this describes you, which of these ideas should you choose? And why?
This is where you can use a strategic approach, such as the Ansoff Matrix, to start screening your options, so that you can narrow these down and choose the ones that best suit your situation.

Understanding the Tool

The Ansoff Matrix was first published in the Harvard Business Review in 1957, and has given generations of marketers and business leaders a quick and simple way of thinking about growth.
Sometimes called the Product/Market Expansion Grid, the matrix (see Figure 1 below) shows four ways that businesses can grow, and helps people think about the risks associated with each option.

Drawn using SmartDraw. Click for free download.

The Matrix essentially shows the risk that a particular strategy will expose you to, the idea being that each time you move into a new quadrant (horizontally or vertically) you increase risk.

The Corporate Ansoff Matrix

Looking at it from a business perspective, the low risk option is to stay with your existing product in your existing market: you know the product works, and the market holds few surprises for you.
However, you expose yourself to a whole new level of risk by either moving into a new market with an existing product, or developing a new product for an existing market. The new market may turn out to have radically different needs and dynamics than you thought, and the new product may just not be commercially successful.

And by moving two quadrants and targeting a new market with a new product, you increase your risk to yet another level!

Personal Ansoff

Looking at this idea from a personal perspective, just staying where you are is often a low risk option.

Switching to a new role in the same company or industry, or changing to a similar job in a new industry is a high-risk option. And switching to a new role in a new industry has an even higher level of risk!

This is shown in Figure 2, below.

Tip 1: Interpret this according to your circumstances. For example, an accountant may find it easy to switch from one industry to another. But a salesman doing this may lose contacts that would take years to rebuild. Tip 2: Don't be too scared by risk – if you manage it correctly (for example, by researching carefully, making contingency plans, building appropriate skills, and suchlike), then it can be well worth taking quite large risks.

How to Use the Tool

Use of the tool is straightforward:

1. Start by downloading either our free Corporate Ansoff or Personal Ansoff worksheet. Then plot the approaches you're considering on the matrix. The table below helps you think about how you might classify different approaches.

Market Development Here, you’re targeting new markets, or new areas of the market. You’re trying to sell more of the same things to different people. Here you might: Target different geographical markets at home or abroad Use different sales channels, such as online or direct sales if you are currently selling through the trade Target different groups of people, perhaps with different age, gender or demographic profiles from your normal customers.

Diversification This strategy is risky: There’s often little scope for using existing expertise or for achieving economies of scale, because you are trying to sell completely different products or services to different customers The main advantage of diversification is that, should one business suffer from adverse circumstances, the other may not be affected.

Market Penetration With this approach, you’re trying to sell more of the same things to the same people. Here you might: Advertise, to encourage more people within your existing market to choose your product, or to use more of it Introduce a loyalty scheme Launch price or other special offer promotions Increase your sales force activities, or Buy a competitor company (particularly in mature markets)

Product Development Here, you’re selling more things to the same people. Here you might: Extend your product by producing different variants, or packaging existing products it in new ways Develop related products or services (for example, a domestic plumbing company might add a tiling service – after all, if customers who want a new kitchen plumbed in are quite likely to need tiling as well!) In a service industry, shorten your time to market, or improve customer service or quality.

2. Manage risk appropriately. For example, if you're switching from one quadrant to another, make sure that:
   
   • You research the move carefully.
   • You build the capabilities needed to succeed in the new quadrant.
   • You've got plenty of resources to cover a possible lean period while you're learning how to sell the new product, and are learning what makes the new market “tick”.
   • You have firstly thought through what you have to do if things don't work out, and that failure won't "break" you.

Tip:
Some marketers use a nine-box grid for a more sophisticated analysis. This adds "modified" products between existing and new ones (for example, a different flavor of your existing pasta sauce rather than launching a soup), and "expanded" markets between existing and new ones (for example, opening another store in a nearby town, rather than going into online sales).

This is useful as it shows the difference between product extension and true product development, and also between market expansion and venturing into genuinely new markets (see Figure 3). However, be careful of the three "options" in grey, as they involve trying to do two things at once without the one benefit of a true diversification strategy (escaping a downturn in one product market).

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The Marketing Mix and 4 Ps product positioning

Understanding how to position your market offering

What is marketing? The definition that many marketers learn as they start out in the industry is:

Putting the right product in the right place, at the right price, at the right time.

It's simple! You just need to create a product that a particularly group of people want, put it on sale some place that those same people visit regularly, and price it at a level which matches the value they feel they get out of it; and do all that at a time they want to buy. Then you've got it made!

There's a lot of truth in this idea. However, a lot of hard work needs to go into finding out what customers want, and identifying where they do their shopping. Then you need to figure out how to produce the item at a price that represents value to them, and get it all to come together at the critical time.

But if you get just one element wrong, it can spell disaster. You could be left promoting a car with amazing fuel-economy in a country where fuel is very cheap; or publishing a textbook after the start of the new school year, or selling an item at a price that's too high – or too low – to attract the people you're targeting.

The marketing mix is a good place to start when you are thinking through your plans for a product or service, and it helps you avoid these kinds of mistake.

Understanding the Tool

The marketing mix and the 4 Ps of marketing are often used as synonyms for each other. In fact, they are not necessarily the same thing.

"Marketing mix" is a general phrase used to describe the different kinds of choices organizations have to make in the whole process of bringing a product or service to market. The 4 Ps is one way - probably the best-known way - of defining the marketing mix, and was first expressed in 1960 by E J McCarthy.

The 4Ps are:

• Product (or Service)
• Place
• Price
• Promotion

A good way to understand the 4 Ps is by the questions that you need to ask to define you marketing mix. Here are some questions that will help you understand and define each of the four elements:

Product/Service

• What does the customer want from the product/service? What needs does it satisfy?
• What features does it have to meet these needs?
  
  • Are there any features you've missed out?
  • Are you including costly features that the customer won't actually use?
• How and where will the customer use it?
• What does it look like? How will customers experience it?
• What size(s), color(s), and so on, should it be?
• What is it to be called?
• How is it branded?
• How is it differentiated versus your competitors?
• What is the most it can cost to provide, and still be sold sufficiently profitably? (See also Price, below).

Place

• Where do buyers look for your product or service?
• If they look in a store, what kind? A specialist boutique or in a supermarket, or both? Or online? Or direct, via a catalogue?
• How can you access the right distribution channels?
• Do you need to use a sales force? Or attend trade fairs? Or make online submissions? Or send samples to catalogue companies?
• What do you competitors do, and how can you learn from that and/or differentiate?

Price

• What is the value of the product or service to the buyer?
• Are there established price points for products or services in this area?
• Is the customer price sensitive? Will a small decrease in price gain you extra market share? Or will a small increase be indiscernible, and so gain you extra profit margin?
• What discounts should be offered to trade customers, or to other specific segments of your market?
• How will your price compare with your competitors?

Promotion

• Where and when can you get across your marketing messages to your target market?
• Will you reach your audience by advertising in the press, or on TV, or radio, or on billboards? By using direct marketing mailshot? Through PR? On the Internet?
• When is the best time to promote? Is there seasonality in the market? Are there any wider environmental issues that suggest or dictate the timing of your market launch, or the timing of subsequent promotions?
• How do your competitors do their promotions? And how does that influence your choice of promotional activity?

The 4Ps model is just one of many marketing mix lists that have been developed over the years. And, whilst the questions we have listed above are key, they are just a subset of the detailed probing that may be required to optimize your marketing mix.

Amongst the other marketing mix models have been developed over the years is Boom and Bitner's 7Ps, sometimes called the extended marketing mix, which include the first 4 Ps, plus people, processes and physical layout decisions.

Another marketing mix approach is Lauterborn's 4Cs, which presents the elements of the marketing mix from the buyer's, rather than the seller's, perspective. It is made up of Customer needs and wants (the equivalent of product), Cost (price), Convenience (place) and Communication (promotion). In this article, we focus on the 4Ps model as it is the most well-recognized, and contains the core elements of a good marketing mix.

Using the 4Ps Marketing Mix Model

The marketing mix model can be used to help you decide how to take a new offer to market. It can also be used to test your existing marketing strategy. Whether you are considering a new or existing offer, follow the steps below help you define and improve your marketing mix.

1. Start by identifying the product or service that you want to analyze.
   
2. Now go through and answers the 4Ps questions - as defined in detail above.
   
3. Try asking "why" and "what if" questions too, to challenge your offer. For example, ask why your target audience needs a particular feature. What if you drop your price by 5%? What if you offer more colors? Why sell through wholesalers rather than direct channels? What if you improve PR rather than rely on TV advertising?

Tip: Check through your answers to make sure they are based on sound knowledge and facts. If there are doubts about your assumptions, identify any market research, or facts and figures that you may need to gather.

4. Once you have a well-defined marketing mix, try "testing" the overall offer from the customer's perspective, by asking customer focused questions:
   
   1. Does it meet their needs? (product)
   2. Will they find it where they shop? (place)
   3. Will they consider it's priced favorably? (price)
   4. And will the marketing communications reach them? (promotion)
      
5. Keep on asking questions and making changes to your mix until you are satisfied that you have optimized your marketing mix, given the information and facts and figures you have available.
   
6. Review you marketing mix regularly, as some elements will need to change as the product or service, and its market, grow, mature and adapt in an ever-changing competitive environment.

Key points:

The marketing mix helps you define the marketing elements for successfully positioning your market offer.

One of the best known models is the Four Ps, which helps you define your marketing options in terms of product, place, price and promotion. Use the model when you are planning a new venture, or evaluating an existing offer, to optimize the impact with your target market.

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PEST Analysis Framework in problem solving

PEST Analysis

Understanding "Big Picture" Forces of Change
(Also known as PESTLE, PESTEL, PESTLIED, STEEPLE and SLEPT Analysis)

PEST Analysis is a simple, useful and widely-used tool that helps you understand the "big picture" of your Political, Economic, Socio-Cultural and Technological environment. As such, it is used by business leaders worldwide to build their vision of the future.

It is important for these reasons:

• First, by making effective use of PEST Analysis, you ensure that what you are doing is aligned positively with the powerful forces of change that are affecting our world. By taking advantage of change, you are much more likely to be successful than if your activities oppose it.
• Second, good use of PEST Analysis helps you avoid taking action that is doomed to failure from the outset, for reasons beyond your control.
• Third, PEST is useful when you start operating in a new country or region. Use of PEST helps you break free of unconscious assumptions, and helps you quickly adapt to the realities of the new environment.

How to Use the Tool:

PEST is a simple mnemonic standing for Political, Economic, Socio-Cultural and Technological.
To use this tool, follow this three stage process:

1. Brainstorm the relevant factors that apply to you.
2. Identify the information that applies to these factors.
3. Draw conclusions from this information.

Download our free worksheet to record your analysis.

Tip:The important point is to move from the second step to the third step: it is sterile just to describe factors without thinking through what they mean. However, be careful not to assume that your analysis is perfect: use it as a starting point, and test your conclusions against the reality you experience.

The following factors may help as a starting point for brainstorming (but make sure you include other factors that may be appropriate to your situation):
Political:

• Government type and stability.
• Freedom of press, rule of law and levels of bureaucracy and corruption.
• Regulation and de-regulation trends.
• Social and employment legislation.
• Tax policy, and trade and tariff controls.
• Environmental and consumer-protection legislation.
• Likely changes in the political environment.

Economic:

• Stage of business cycle.
• Current and project economic growth, inflation and interest rates.
• Unemployment and labor supply.
• Labor costs.
• Levels of disposable income and income distribution.
• Impact of globalization.
• Likely impact of technological or other change on the economy.
• Likely changes in the economic environment.

Socio-Cultural:

• Population growth rate and age profile.
• Population health, education and social mobility, and attitudes to these.
• Population employment patterns, job market freedom and attitudes to work.
• Press attitudes, public opinion, social attitudes and social taboos.
• Lifestyle choices and attitudes to these.
• Socio-cultural changes.

Technological Environment:

• Impact of emerging technologies.
• Impact of Internet, reduction in communications costs and increased remote working.
• Research and development activity.
• Impact of technology transfer.

These are shown in Figure 1 below:
Figure 1: PEST Analysis

Drawn using SmartDraw. Click for free download.

Other forms of PEST - PESTLE, PESTLIED, STEEPLE and SLEPT: Some people prefer to use different flavors of PEST Analysis, using other factors for different situations. The variants are: PESTLE/PESTEL: Political, Economic, Sociological, Technological, Legal, Environmental. PESTLIED: Political, Economic, Social, Technological, Legal, International, Environmental, Demographic. STEEPLE: Social/Demographic, Technological, Economic, Environmental, Political, Legal, Ethical. SLEPT: Social, Legal, Economic, Political, Technological. Choose the flavor that most suits you!

Example:

We’re going to avoid giving an example here, because of the huge potential for causing offense: few societies seem perfect to outsiders, and there are few things as irritating as having an outsider criticize one's own country...
However, a broad principle is that things that make activity more difficult for people or organizations raise the cost of doing business: business is either stopped altogether, or costs more as people spend time and money circumventing difficulties. The higher the cost of doing business in a region, the more project profitability is squeezed or eliminated. And given that businesspeople normally have at least some level of intelligence, businesses and projects that could otherwise operate are never launched - meaning that less economic activity takes place. (The lower the amount of economic activity, the poorer and less capable societies tend to be.)
Another broad principle is wherever there is rapid or major change in an area, there are likely to be new opportunities and threats that arise. Smart people and companies will take advantage of the opportunities and manage the threats.
And do remember that few situations are perfect: it is up to us to make the most of the situation in which we find ourselves.

Key Points:

PEST Analysis is a useful tool for understanding the “big picture” of the environment in which you are operating, and the opportunities and threats that lie within it. By understanding your environment, you can take advantage of the opportunities and minimize the threats.

PEST is a mnemonic standing for Political, Economic, Social and Technological. These headings are used firstly to brainstorm the characteristics of a country or region and, from this, draw conclusions as to the significant forces of change operating within it.
This provides the context within which more detailed planning can take place to take full advantage of the opportunities that present themselves.

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SWOT Analysis in Problem Solving

Discover New Opportunities.
Manage and Eliminate Threats.

SWOT Analysis is a powerful technique for understanding your Strengths and Weaknesses, and for looking at the Opportunities and Threats you face.

	Learn how to use SWOT Analysis, with James Manktelow & Amy Carlson.

Used in a business context, it helps you carve a sustainable niche in your market. Used in a personal context, it helps you develop your career in a way that takes best advantage of your talents, abilities and opportunities. Click here for Business SWOT Analysis, and here for Personal SWOT Analysis.

Business SWOT Analysis

What makes SWOT particularly powerful is that, with a little thought, it can help you uncover opportunities that you are well placed to exploit. And by understanding the weaknesses of your business, you can manage and eliminate threats that would otherwise catch you unawares.

More than this, by looking at yourself and your competitors using the SWOT framework, you can start to craft a strategy that helps you distinguish yourself from your competitors, so that you can compete successfully in your market.

How to Use the Tool

To carry out a SWOT Analysis, start by downloading our free template. Then answer the following questions:

Strengths:

• What advantages does your company have?
• What do you do better than anyone else?
• What unique or lowest-cost resources do you have access to?
• What do people in your market see as your strengths?
• What factors mean that you "get the sale"?

Consider this from an internal perspective, and from the point of view of your customers and people in your market. Be realistic: It's far too easy to fall prey to "not invented here syndrome". (If you are having any difficulty with this, try writing down a list of your characteristics. Some of these will hopefully be strengths!)

In looking at your strengths, think about them in relation to your competitors - for example, if all your competitors provide high quality products, then a high quality production process is not a strength in the market, it is a necessity.

Tip:For help finding your company's Unique Selling Proposition (USP) or crafting your competitive edge, read our USP Analysis article.

Weaknesses:

• What could you improve?
• What should you avoid?
• What are people in your market likely to see as weaknesses?
• What factors lose you sales?

Again, consider this from an internal and external basis: Do other people seem to perceive weaknesses that you do not see? Are your competitors doing any better than you? It is best to be realistic now, and face any unpleasant truths as soon as possible.
Opportunities:

• Where are the good opportunities facing you?
• What are the interesting trends you are aware of?

Useful opportunities can come from such things as:

• Changes in technology and markets on both a broad and narrow scale.
• Changes in government policy related to your field.
• Changes in social patterns, population profiles, lifestyle changes.
• Local events.

A useful approach for looking at opportunities is to look at your strengths and ask yourself whether these open up any opportunities.

Alternatively, look at your weaknesses and ask yourself whether you could create opportunities by eliminating them.

Threats:

• What obstacles do you face?
• What is your competition doing that you should be worried about?
• Are the required specifications for your job, products or services changing?
• Is changing technology threatening your position?
• Do you have bad debt or cash-flow problems?
• Could any of your weaknesses seriously threaten your business?

Carrying out this analysis will often be illuminating – both in terms of pointing out what needs to be done, and in putting problems into perspective.
Strengths and weaknesses are often internal to your organization. Opportunities and threats often relate to external factors. For this reason the SWOT Analysis is sometimes called Internal-External Analysis and the SWOT Matrix is sometimes called an IE Matrix Analysis Tool.
You can also apply SWOT Analysis to your competitors. As you do this, you'll start to see how and where you should compete against them.

Tip 1:Make sure you visit our next article 'PEST Analysis' - this tool is useful for understanding the 'big picture' of the environment you are operating in and will help you identify the opportunities and threats within it.

Tip 2:SWOT can be used in two ways – as a simple icebreaker helping people get together and "kick off" strategy formulation, or in a more sophisticated way as a serious strategy tool. If you're using it as a serious tool, make sure you're rigorous in the way you apply it:

• Only accept precise, verifiable statements ("Cost advantage of US$10/ton in sourcing raw material x", rather than "Good value for money").
• Ruthlessly prune long lists of factors, and prioritize factors so that you spend your time thinking about the most significant factors.
• Make sure that options generated are carried through to later stages in the strategy formation process.
• Apply it at the right level – for example, at product or product line level, rather than at the much vaguer whole company level.
• Supplement it with other option-generation tools – none is likely to be completely comprehensive.

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Risk Analysis & Risk Management for problem solving

Risk Analysis & Risk Management

Evaluating and Managing the Risks You Face

Almost everything we do in today's business world involves a risk of some kind: customer habits change, new competitors appear, factors outside your control could delay your project. But formal risk analysis and risk management can help you to assess these risks and decide what actions to take to minimize disruptions to your plans. They will also help you to decide whether the strategies you could use to control risk are cost-effective.

How to use the tool:

Here we define risk as 'the perceived extent of possible loss'. Different people will have different views of the impact of a particular risk – what may be a small risk for one person may destroy the livelihood of someone else.

One way of putting figures to risk is to calculate a value for it as:

risk = probability of event x cost of event

Doing this allows you to compare risks objectively. We use this approach formally in decision making with Decision Trees.

To carry out a risk analysis, follow these steps:

1. Identify Threats:

The first stage of a risk analysis is to identify threats facing you. Threats may be:

• Human - from individuals or organizations, illness, death, etc.
• Operational - from disruption to supplies and operations, loss of access to essential assets, failures in distribution, etc.
• Reputational - from loss of business partner or employee confidence, or damage to reputation in the market.
• Procedural - from failures of accountability, internal systems and controls, organization, fraud, etc.
• Project - risks of cost over-runs, jobs taking too long, of insufficient product or service quality, etc.
• Financial - from business failure, stock market, interest rates, unemployment, etc.
• Technical - from advances in technology, technical failure, etc.
• Natural - threats from weather, natural disaster, accident, disease, etc.
• Political - from changes in tax regimes, public opinion, government policy, foreign influence, etc.
• Others - Porter's Five Forces analysis may help you identify other risks.

This analysis of threat is important because it is so easy to overlook important threats. One way of trying to capture them all is to use a number of different approaches:

• Firstly, run through a list such as the one above, to see if any apply
• Secondly, think through the systems, organizations or structures you operate, and analyze risks to any part of those
• See if you can see any vulnerabilities within these systems or structures
• Ask other people, who might have different perspectives.

2. Estimate Risk:

Once you have identified the threats you face, the next step is to work out the likelihood of the threat being realized and to assess its impact.

One approach to this is to make your best estimate of the probability of the event occurring, and to multiply this by the amount it will cost you to set things right if it happens. This gives you a value for the risk.

3. Managing Risk:

Once you have worked out the value of risks you face, you can start to look at ways of managing them. When you are doing this, it is important to choose cost effective approaches - in most cases, there is no point in spending more to eliminating a risk than the cost of the event if it occurs. Often, it may be better to accept the risk than to use excessive resources to eliminate it.

Risk may be managed in a number of ways:

• By using existing assets:
  Here existing resources can be used to counter risk. This may involve improvements to existing methods and systems, changes in responsibilities, improvements to accountability and internal controls, etc.
• By contingency planning:
  You may decide to accept a risk, but choose to develop a plan to minimize its effects if it happens. A good contingency plan will allow you to take action immediately, with the minimum of project control if you find yourself in a crisis management situation. Contingency plans also form a key part of Business Continuity Planning (BCP) or Business Continuity management (BCM).
• By investing in new resources:
  Your risk analysis should give you the basis for deciding whether to bring in additional resources to counter the risk. This can also include insuring the risk: Here you pay someone else to carry part of the risk - this is particularly important where the risk is so great as to threaten your or your organization's solvency.

4. Reviews:

Once you have carried out a risk analysis and management exercise, it may be worth carrying out regular reviews. These might involve formal reviews of the risk analysis, or may involve testing systems and plans appropriately.

Key points:

Risk analysis allows you to examine the risks that you or your organization face. It is based on a structured approach to thinking through threats, followed by an evaluation of the probability and cost of events occurring.

As such, it forms the basis for risk management and crisis prevention. Here the emphasis is on cost effectiveness. Risk management involves adapting the use of existing resources, contingency planning and good use of new resources.

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Flow Charts for problem solving

Flow Charts

Understanding and Communicating How a Process WorksRelated variants: Process Maps and Process Flow Diagrams

Flow charts are easy-to-understand diagrams showing how steps in a process fit together. This makes them useful tools for communicating how processes work, and for clearly documenting how a particular job is done. Furthermore, the act of mapping a process out in flow chart format helps you clarify your understanding of the process, and helps you think about where the process can be improved.

A flow chart can therefore be used to:

• Define and analyze processes;
• Build a step-by-step picture of the process for analysis, discussion, or communication; and
• Define, standardize or find areas for improvement in a process

Also, by conveying the information or processes in a step-by-step flow, you can then concentrate more intently on each individual step, without feeling overwhelmed by the bigger picture.

How to Use the Tool:

Most flow charts are made up of three main types of symbol:

• Elongated circles, which signify the start or end of a process;

• Rectangles, which show instructions or actions; and

• Diamonds, which show decisions that must be made

Within each symbol, write down what the symbol represents. This could be the start or finish of the process, the action to be taken, or the decision to be made.

Symbols are connected one to the other by arrows, showing the flow of the process.

Tip: There are many other flowchart symbols that can also be used. However, remember that an important use of flow charts is in communication: If you use obscure symbols that only part of your audience understands, there’s a good chance that your communication will fail. As ever, keep things simple!

To draw the flow chart, brainstorming process tasks (explore brainstorming here), and list them in the order they occur. Ask questions such as "What really happens next in the process?" and "Does a decision need to be made before the next step?" or “What approvals are required before moving on to the next task?"

Start the flow chart by drawing the elongated circle shape, and labeling it "Start".

Then move to the first action or question, and draw a rectangle or diamond appropriately. Write the action or question down, and draw an arrow from the start symbol to this shape.

Work through your whole process, showing actions and decisions appropriately in the order they occur, and linking these together using arrows to show the flow of the process. Where a decision needs to be made, draw arrows leaving the decision diamond for each possible outcome, and label them with the outcome. And remember to show the end of the process using an elongated circle labeled "Finish".

Finally, challenge your flow chart. Work from step to step asking yourself if you have correctly represented the sequence of actions and decisions involved in the process.

And then (if you're looking to improve the process) look at the steps identified and think about whether work is duplicated, whether other steps should be involved, and whether the right people are doing the right jobs.

Tip: Flow charts can quickly become so complicated that you can't show them on one piece of paper. This is where you can use "connectors" (shown as numbered circles) where the flow moves off one page, and where it moves onto another. By using the same number for the off-page connector and the on-page connector, you show that the flow is moving from one page to the next.

Example:

The example below shows part of a simple flow chart which helps receptionists route incoming phone calls to the correct department in a company:

Drawn using SmartDraw. Click for free download.

Key Points:

Flow charts are simple diagrams that map out a process so that it can easily be communicated to other people.

To draw a flowchart, brainstorm the tasks and decisions made during a process, and write them down in order.

Then map these out in flow chart format using appropriate symbols for the start and end of a process, for actions to be taken and for decisions to be made.

Finally, challenge your flow chart to make sure that it's an accurate representation of the process, and that that it represents the most efficient way of doing the job.

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Appreciation Inquiry for problem solving

Appreciative Enquiry

Solving Problems by Looking at What's Going Right

Imagine that your organization's order book is full, and you're desperate to expand your business - but you just can't find the staff you need. What's worse, cash is tight, your recruitment budget is stretched to breaking point, and you strongly suspect that some of the approaches you're using just aren't working.

One approach here is to focus on the things that aren't working, and think about how you can fix them. This is the conventional approach to problem-solving. In many cases it's the right one to use. However in others, all it does is bring you up to the same bland level as everyone else.

Another approach is to shift to a positive perspective, look at the things that are working, and build on them. In some situations this can be very powerful because, by focusing on positives, you can build the unique strengths which bring real success.

This is the premise behind "Appreciative Inquiry", a method of problem solving that was pioneered by David Cooperrider of Case Western Reserve University in the mid 1980s.

To understand the basis of Appreciative Inquiry it is useful to look at the meaning of the two words in context.

• Appreciation means to recognize and value the contributions or attributes of things and people around us.
  
• Inquiry means to explore and discover, in the spirit of seeking to better understand, and being open to new possibilities.

When combined, this means that by appreciating what is good and valuable in the present situation, we can discover and learn about ways to effect positive change for the future.

Using Appreciative Inquiry: The 4D Approach

To apply Appreciative Inquiry to a problem solving situation, it’s important to focus on positives. A positive energy approach helps you build on your strengths, just as conventional problem-solving can help you manage or eliminate your weaknesses.

The first step of the process is to identify and describe the problem you're trying to solve. From there you go on to look at the issue in four phases: Discovery, Dream, Design and Deliver. This approach is described in the five steps below.

Tip 1: Appreciative Inquiry is often explained using four Ds: "Discovery", "Dream", "Design" and "Deliver"/"Destiny". We like to put a fifth D ("Define") in as the first step.

1. "Define" the Problem
Before you can analyze a situation, you need to define what it is you are looking at.

And, just as your decision to look at the positives will move you in a positive direction, defining your topic positively will help you look at its positive aspects. So, rather than seeking “Ways to Fix Recruitment Problems”, for example, you’ll choose “Ways to Accelerate Recruitment.” This subtle change in wording can have huge implications for what you focus on.

Also, make sure that your topic does not unduly constrain you: You want to explore many possibilities and avenues for change so keep your topic broad.

2. "Discovery" Phase
Here you need to look for the best of what has happened in the past, and what is currently working well. Involve as many people as sensibly possible, and design your questions to get people talking and telling stories about what they find is most valuable (or appreciated), and what works particularly well.

Using the example from the first stage, a good way to do this would be to get new recruits to interview one another, focusing on getting to the core of what they liked about the job before they joined, and what they've enjoyed about the organization since joining. In this situation, the following might be good discovery questions:

• When you think back to when you decided to join the company, what was the thing that most attracted you?
• Tell me a story about a time when you were very enthusiastic about your work.
• What do you think is most important for success at the company?
• Tell me about the time you felt proudest about the company.

Another approach to solving this problem could be to look at the different approaches you use to recruit people, and identify the ones that bring the greatest volume of good recruits.

When you’ve gathered enough raw information, you need to analyze the data and identify the factors that most contributed to the team or organization’s past successes. What is most valued? What did people find most motivating or fun? What instills the greatest pride? And so on.

3. "Dream" Phase
In this phase, you and your team dream of “what might be”. Think about how you can take the positives you identified in the Discovery phase, and reinforce them to build real strengths.

The way forward may be obvious from the results of the Discovery Phase. If it's not, a useful approach is to bring a diverse group of stakeholders together and brainstorm creative and innovative ideas of what the organization and team could accomplish.

In our example, you might choose to enhance and build the good points that everyone likes about the organization, and use this as a strong message to attract potential candidates during the recruitment process. You may also stop doing the things that aren't working, and use the money saved to reinforce the things that are.

Once you have agreed upon your dream or vision, you can take it to the Design phase.

4. "Design" Phase
Building on the Dream, this phase looks at the practicalities needed to support the vision. Here you start to drill down the types of systems, processes, and strategies that will enable the dream to be realized.

5. "Deliver" Phase
Sometimes called the Destiny phase, the last of the Ds is the implementation phase and it requires a great deal of planning and preparation. The key to successful delivery is ensuring that the Dream (vision) is the focal point. While the various parts of the team will typically have their own processes to complete, the overall result is a raft of changes that occur simultaneously throughout the organization, that all serve to support and sustain the dream.

Tip 2: The real strength of this technique comes from steps 1 and 2. Steps 3 to 5 are just standard implementation steps. If you have your own preferred approach for implementation, use this. Tip 3:In this article, we're looking at Appreciative Inquiry as a problem-solving technique. You can also use it powerfully either as an organizational strategy tool or for personal development. In these contexts, you can simply focus on what you do well, and divert your efforts towards this, and away from the things you're not good at.

Key Points

When faced with your next challenge or problem, take a step back and look at if from the standpoint of what is good and is currently working well. This positive perspective brings about a whole new set of positive solutions you and your team may not have previously discovered. Use this process to get your organization looking at itself in unique and positive ways.

The Deliver phase of the cycle is not so much an end but a place to start to re-evaluate and continue the process of Appreciative Inquiry to continuously improve. Once you embrace the idea of positive change you can apply the cycle over and over again to various aspects of your team or organization, and enjoy the positive outcomes that positive thinking brings.

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Affinity Diagrams technique and approach in Problem Solving

Organizing Ideas Into Common Themes

Is it ever a bad thing to have too many ideas?

Probably not, but if you've ever experienced information overload or struggled to know where to begin with a wealth of data you've been given, you may have wondered how you can use all of these ideas effectively. When there's lots of "stuff" coming at you, it is hard to sort through everything and organize the information in a way that makes sense and helps you make decisions.

Whether you're brainstorming ideas, trying to solve a problem or analyzing a situation, when you are dealing with lots of information from a variety of sources, you can end up spending a huge amount of time trying to assimilate all the little bits and pieces. Rather than letting the disjointed information get the better of you, you can use an affinity diagram to help you organize it.

Also called the KJ method, after its developer Kawakita Jiro (a Japanese anthropologist) an affinity diagram helps to synthesize large amounts of data by finding relationships between ideas. The information is then gradually structured from the bottom up into meaningful groups. From there you can clearly "see" what you have, and then begin your analysis or come to a decision.

Affinity diagrams can be used to:

• Draw out common themes from a large amount of information.
  
• Discover previously unseen connections between various ideas or information.
  
• Brainstorm root causes and solutions to a problem.

Because many decision-making exercises begin with brainstorming, this is one of the most common applications of affinity diagrams. After a brainstorming session there are usually pages of ideas. These won't have been censored or edited in any way, many of them will be very similar, and many will also be closely related to others in a variety of ways. What an affinity diagram does is start to group the ideas into themes.

From the chaos of the randomly generated ideas comes an insight into the common threads that link groups of them together. From there the solution or best idea often emerges quite naturally. This is why affinity diagrams are so powerful and why the Japanese Union of Scientists and Engineers consider them one of the "seven management tools."

Affinity diagrams are not the domain of brainstorming alone though. They can be used in any situation where:

• The solution is not readily apparent.
  
• You want to reach a consensus or decision and have a lot of variables to consider, concepts to discuss, ideas to connect, or opinions to incorporate.
  
• There is a large volume of information to sort through.

Here is a step-by-step guide to using affinity diagrams along with a simple example to show how the process works.

How to Use the Tool

1. Describe the problem or issue:

2. Generate ideas by brainstorming. Write each idea on a separate sticky note and put these on a wall or flip chart. Remember to:
   
   • Emphasize volume.
     
   • Suspend judgment.
     
   • Piggyback on other ideas.

3. Sort ideas into natural themes by asking:
   
   • What ideas are similar?
     
   • Is this idea connected to any of the others?
     
   
   If you're working in a team:
   
   • Separate into smaller groups of 3 to 4 people.
     
   • Sort the ideas IN SILENCE so that no one is influenced by anyone else's comments.
     
   • Keep moving the cards around until consensus is reached.

4. Create total group consensus:
   
   • Discuss the shared meaning of each of the sorted groups.
     
   • Continue until consensus is reached.
     
   • If some ideas do not fit into any theme, separate them as "stand-alone" ideas.
     
   • If some ideas fit into more than one theme, create a duplicate card and put it in the proper group.
     
   • Try to limit the total number of themes to between five and nine.
     
   
   
5. Create theme cards (also called affinity cards or header cards):
   
   • Create a short 3-5 word description for the relationship.
     
   • If you're working in a group, do this together, out loud.
     
   • Write this theme/header on a blank card and place at the top of the group it describes.
     
   • Create a "super-headers" where necessary to group themes.
     
   • Use a "sub-header" card where necessary as well.

Drawn using SmartDraw. Click for free download.

6. Continue to group the themes/headers until you have reached the broadest, but still meaningful, categories possible:
   
   • Draw lines connecting the super-headers, themes/headers, and sub-headers.
     
   • You'll end up with a hierarchical structure that shows, at a glance, where the relationships are.

Tip: Grouping ideas under headings, and then grouping headings under super-headers in an affinity diagram is a practical way of "chunking" information generated in brainstorming sessions, during process mapping, or even a planning exercise. Click here for more information on Chunking.

Key Points

Affinity diagrams are great tools for assimilating and understanding large amounts of information. When you work through the process of creating relationships and working backward from detailed information to broad themes, you get an insight you would not otherwise find.

The next time you are confronting a large amount of information or number of ideas and you feel overwhelmed at first glance, use the affinity diagram approach to discover all the hidden linkages. And when you cannot see the forest for the trees, an affinity diagram may be exactly what you need to get back in focus.

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Cause and Effect Diagrams in Problem Solving techniques

Identifying the Likely Causes of Problems
Related variants: Fish or Fishbone Diagrams, and Ishikawa Diagrams

Cause and Effect Diagrams help you to think through causes of a problem thoroughly. Their major benefit is that they push you to consider all possible causes of the problem, rather than just the ones that are most obvious.

The approach combines brainstorming with use of a type of concept map.

Cause and Effect Diagrams are also known as Fishbone Diagrams, because a completed diagram can look like the skeleton of a fish.

How to Use the Tool:

Follow these steps to solve a problem with a Cause and Effect Diagram:

1. Identify the problem:
   Write down the exact problem you face in detail. Where appropriate identify who is involved, what the problem is, and when and where it occurs. Write the problem in a box on the left hand side of a large sheet of paper. Draw a line across the paper horizontally from the box. This arrangement, looking like the head and spine of a fish, gives you space to develop ideas.
   
   
2. Work out the major factors involved:
   Next identify the factors that may contribute to the problem. Draw lines off the spine for each factor, and label it. These may be people involved with the problem, systems, equipment, materials, external forces, etc. Try to draw out as many possible factors as possible. If you are trying to solve the problem as part of a group, then this may be a good time for some brainstorming.
   
   Using the 'Fish bone' analogy, the factors you find can be thought of as the bones of the fish.

3. Identify possible causes:
   For each of the factors you considered in stage 2, brainstorm possible causes of the problem that may be related to the factor. Show these as smaller lines coming off the 'bones' of the fish. Where a cause is large or complex, then it may be best to break the it down into sub-causes. Show these as lines coming off each cause line.
   
4. Analyze your diagram:
   By this stage you should have a diagram showing all the possible causes of your problem that you can think of. Depending on the complexity and importance of the problem, you can now investigate the most likely causes further. This may involve setting up investigations, carrying out surveys, etc. These will be designed to test whether your assessments are correct.

Example:

The example below shows a Cause & Effect diagram drawn by a manager who is having trouble getting cooperation from a branch office:

Click here to view diagram

If the manager had not thought the problem through, he might have dealt with the problem by assuming that people were being difficult.

Instead he might think that the best approach is to arrange a meeting with the Branch Manager. This would allow him to brief the manager fully, and talk through any problems that he may be facing.

Key points:

Cause & Effect analysis (or Fishbone Analysis) provides a structured way to help you think through all possible causes of a problem. This helps you to carry out a thorough analysis of a situation.

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