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Creating a Flexible 
Strategy Using Causal 
Diagrams 
www.luxoft.com
Overview 
www.luxoft.com
Agenda 
 What is Causal Loop Diagram ? 
 How it can help you ? 
 How to construct CLD ? 
 Examples of how it helped to improve strategy ? 
 Simulation tool 
www.luxoft.com
What is Causal Loop Diagram 
www.luxoft.com
History 
 The use of nodes and arrows to construct directed graph models of 
cause and effect dates back to the invention of path analysis by 
Sewall Wright in 1918 
 Popularized in System Dynamics. Methodology and mathematical modeling 
technique for framing, understanding, and discussing complex issues and problems. 
 The first formal use of Causal Loop Diagrams was explained by Dr. Dennis 
Meadows at a conference for educators 
www.luxoft.com
Why to use 
that ? 
www.luxoft.com
Helps to see the whole 
www.luxoft.com 
How our system is 
working so that we 
have drop in 
productivity ? 
My concern is 
productivity ? How 
to fix that ? 
YOUR CLIENT YOU
Measure your concerns qualitatively 
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Productivity drop? 
Is it subjective ? 
I see drops in rate 
of # completed 
tasks and # labor 
costs are growing 
YOUR CLIENT YOU
Align understanding of systems 
www.luxoft.com 
In general I see 
that system is 
working this way 
I would add some 
more variables to 
that 
YOUR CLIENT YOU
Empathize 
www.luxoft.com 
Yes, we can. Lets 
think how we can 
improve your 
strategy to minimize 
risks 
Unfortunately we 
have to cut 
salaries 
YOUR CLIENT YOU
Discover self-reinforcement loops 
www.luxoft.com 
My fear is that by 
cutting salaries you 
will balance total 
costs for short time 
Thanks, I see that 
potential staff turnover 
will increase total cost 
again 
YOUR CLIENT YOU
Pro-actively improve your system 
www.luxoft.com 
My fear is that by 
cutting salaries you 
will balance total 
costs for short time 
Thanks, I see that 
potential staff turnover 
will increase total cost 
again 
YOUR CLIENT YOU
Key elements 
www.luxoft.com
Capture potential variables 
We have to increase 
number of cost cutting 
initiatives because 
some budget pressures 
YOUR CLIENT 
www.luxoft.com 
Cost cutting 
initiatives 
Total Costs 
(budget) 
Salary rate
Find relation between concerns 
www.luxoft.com 
Cost cutting 
initiatives 
Total Costs 
(budget) 
Salary rate
Polarity in relations 
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Cost cutting 
initiatives 
Total Costs 
(budget) 
- 
Salary rate 
+ 
+
Balanced loops 
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Cost cutting 
initiatives 
Total Costs 
(budget) 
- 
Salary rate 
+ 
+ 
B 
Reduce 
Total Costs
Further elaboration 
www.luxoft.com 
YOU 
Cost 
cutting 
initiatives 
Total 
Costs 
(budget) 
- 
Salary 
rate 
+ 
+ 
B 
Reduce 
Total Costs 
I feel something 
wrong with that
Self-reinforcement loops 
www.luxoft.com 
Cost cutting 
initiatives 
Total Costs 
(budget) 
- 
Salary rate 
+ 
+ 
B 
Reduce 
Total Costs 
Motivation 
to change 
R 
job 
- 
Stuff 
turnover 
+ 
- 
Workforce 
Knowledge 
Productivity 
+ 
-
Delayed effect 
www.luxoft.com 
Cost cutting 
initiatives 
Total Costs 
(budget) 
- 
Salary rate 
+ 
+ 
B 
Reduce 
Total Costs 
Motivation 
to change 
R 
job 
- 
Stuff 
turnover 
+ 
- 
Workforce 
Knowledge 
Productivity 
+ 
-
Update you strategy 
www.luxoft.com 
Cost cutting 
initiatives 
Total 
Costs 
(budget) 
- 
Salary 
rate 
+ 
+ 
B 
Reduce 
Total Costs 
Motivation to 
change job 
- 
R 
Stuff 
turnover 
+ 
- 
Workforce 
Knowledge 
Productivity 
+ 
- 
Launch 
motivational 
program 
Test 
Knowledgebase 
Reduce load
Examples 
www.luxoft.com
Example #1 
 Helped Project Manger to show stakeholders many side-effects of selected 
strategy 
 Client abandoned strategy with reducing salary 
 Client changed development strategy to focus only on critical business 
www.luxoft.com
Example #2 
 Helped Agile Consultant to show an importance of slack time for 
learning 
 Client updated marketing strategy to less aggressive 
www.luxoft.com
Example #3 
 Helped to show 
how new marketing 
initiative would 
influence company 
performance 
 Client improved 
annual strategy to 
focus on service 
quality, not number 
of subscribers 
www.luxoft.com
Software 
simulations 
www.luxoft.com
http://vensim.com/ 
www.luxoft.com
www.luxoft.com 
Vyacheslav Moskalenko 
Luxoft Agile Practice 
Luxoft Agile Coach 
Kiev, Ukraine 
Member of Scrum Alliance, 
Certified Scrum Master 
Certified Scrum Professional 
Member of ICAgile, 
Certified ICAgile Coach 
Member of scrum.org, 
Professional Scrum Master

More Related Content

Creating a flexible strategy using causal diagrams

  • 1. Creating a Flexible Strategy Using Causal Diagrams www.luxoft.com
  • 3. Agenda What is Causal Loop Diagram ? How it can help you ? How to construct CLD ? Examples of how it helped to improve strategy ? Simulation tool www.luxoft.com
  • 4. What is Causal Loop Diagram www.luxoft.com
  • 5. History The use of nodes and arrows to construct directed graph models of cause and effect dates back to the invention of path analysis by Sewall Wright in 1918 Popularized in System Dynamics. Methodology and mathematical modeling technique for framing, understanding, and discussing complex issues and problems. The first formal use of Causal Loop Diagrams was explained by Dr. Dennis Meadows at a conference for educators www.luxoft.com
  • 6. Why to use that ? www.luxoft.com
  • 7. Helps to see the whole www.luxoft.com How our system is working so that we have drop in productivity ? My concern is productivity ? How to fix that ? YOUR CLIENT YOU
  • 8. Measure your concerns qualitatively www.luxoft.com Productivity drop? Is it subjective ? I see drops in rate of # completed tasks and # labor costs are growing YOUR CLIENT YOU
  • 9. Align understanding of systems www.luxoft.com In general I see that system is working this way I would add some more variables to that YOUR CLIENT YOU
  • 10. Empathize www.luxoft.com Yes, we can. Lets think how we can improve your strategy to minimize risks Unfortunately we have to cut salaries YOUR CLIENT YOU
  • 11. Discover self-reinforcement loops www.luxoft.com My fear is that by cutting salaries you will balance total costs for short time Thanks, I see that potential staff turnover will increase total cost again YOUR CLIENT YOU
  • 12. Pro-actively improve your system www.luxoft.com My fear is that by cutting salaries you will balance total costs for short time Thanks, I see that potential staff turnover will increase total cost again YOUR CLIENT YOU
  • 14. Capture potential variables We have to increase number of cost cutting initiatives because some budget pressures YOUR CLIENT www.luxoft.com Cost cutting initiatives Total Costs (budget) Salary rate
  • 15. Find relation between concerns www.luxoft.com Cost cutting initiatives Total Costs (budget) Salary rate
  • 16. Polarity in relations www.luxoft.com Cost cutting initiatives Total Costs (budget) - Salary rate + +
  • 17. Balanced loops www.luxoft.com Cost cutting initiatives Total Costs (budget) - Salary rate + + B Reduce Total Costs
  • 18. Further elaboration www.luxoft.com YOU Cost cutting initiatives Total Costs (budget) - Salary rate + + B Reduce Total Costs I feel something wrong with that
  • 19. Self-reinforcement loops www.luxoft.com Cost cutting initiatives Total Costs (budget) - Salary rate + + B Reduce Total Costs Motivation to change R job - Stuff turnover + - Workforce Knowledge Productivity + -
  • 20. Delayed effect www.luxoft.com Cost cutting initiatives Total Costs (budget) - Salary rate + + B Reduce Total Costs Motivation to change R job - Stuff turnover + - Workforce Knowledge Productivity + -
  • 21. Update you strategy www.luxoft.com Cost cutting initiatives Total Costs (budget) - Salary rate + + B Reduce Total Costs Motivation to change job - R Stuff turnover + - Workforce Knowledge Productivity + - Launch motivational program Test Knowledgebase Reduce load
  • 23. Example #1 Helped Project Manger to show stakeholders many side-effects of selected strategy Client abandoned strategy with reducing salary Client changed development strategy to focus only on critical business www.luxoft.com
  • 24. Example #2 Helped Agile Consultant to show an importance of slack time for learning Client updated marketing strategy to less aggressive www.luxoft.com
  • 25. Example #3 Helped to show how new marketing initiative would influence company performance Client improved annual strategy to focus on service quality, not number of subscribers www.luxoft.com
  • 28. www.luxoft.com Vyacheslav Moskalenko Luxoft Agile Practice Luxoft Agile Coach Kiev, Ukraine Member of Scrum Alliance, Certified Scrum Master Certified Scrum Professional Member of ICAgile, Certified ICAgile Coach Member of scrum.org, Professional Scrum Master

Editor's Notes

  • #5: How using different salary initiatives influencing worker performance and costs. When strategy is to control labour costs by forcing down pay rates. We can a imagine an initial period in which costs were drifting slowly upwards for some reason. This motivated a wish to make intervention in order to contain costs; as indicated in the figure, cutting pay rates has a rapid and direct controlling effect on labour costs. This initiative has balanced total costs. However, longer term effects are also seen to arise. For example, low pay can increase staff turnover as workers are increasingly motivated to look for - and take - other employment opportunities. This reduces the stock of knowledge that the workforce has to draw on to achieve its tasks and therefore also has the potential to reduce productivity (loop R1). Similarly, low pay rates can reduce the quality of staff that a company can attract and recruit. This reduces the quality of the work done, increases the need to re-work poorly executed tasks and so increases labour costs (Loop R2). Finally, undiscovered poor quality work can increase costs, either because customers return poor quality goods for reimbursement or because there are health and safety consequences resulting in financial compensation (to take a high profile example of the latter, the use of cheaper labour may well be complicit in the safety questions being asked about the UK rail infrastructure). The result of all of these effects is that cutting pay rates can backfire, producing a response that is qualitatively the opposite of that expected as one or more of the reinforcing loops dominates the system behaviour.
  • #15: This can be done in telephone mode and paper This can be done on whiteboard with your client and collegues
  • #29: 亠亟舒于仍 亠弍 舒从舒亢 仗仂 仗仂亞舒仄仄 DB 从仂仂仂亶 舒弍仂舒 仆舒 亠从亳亶 仄仂仄亠仆