ISHIKAWA IT!
find the root cause of your problem
FISHBONE DIAGRAM
a fishbone diagram, also known as
ishikawa diagram or cause and effect diagram, is a tool
used to visualize all the potential causes of a problem to
discover the root causes. the fishbone diagram helps
one group these causes and provides a structure in
which to display them
ISHIKAWA DIAGRAM
a diagram that shows the causes of an event and is
often used in manufacturing and product development
to outline the different steps in a process, demonstrate
where quality control issues might arise and determine
which resources are required at specific times
named after kaoru ishikawa who first wrote about it
in the 1960s. it’s called a fishbone diagram because it
looks a bit like a fishbone
HOW TO USE THE DIAGRAM IN PROBLEM SOLVING
1 draw your diagram. draw the template or shape on
a paper, whiteboard, or draw it in your tool of choice
2 determine a clear problem statement. write this at the
top of your page or above where you’ll create your
picture. this ensures everyone has the same
understanding of what problem you’re addressing
3 choose the categories to use. categories are
explained more in-depth below. for our example, use
the categories of policies, procedures, people,
technology
4 identify possible causes to your problem within each
category. team members will brainstorm causes or
contributing factors that fit into each category. you
can either go category by category or simply come
up with ideas and decide which category they fit into
5 go a step deeper to identify sub-causes for each
category cause. if you determine that you can or
need to break something down to smaller points,
create branches from the main point
6 team members review the diagram to determine
most important areas of focus. if you’re going to take
this a step further to address the root cause, it helps
to identify where you’ll get the most value for your
effort. you can’t address all root causes at once, and
some will have better payoff than others. review the
diagram to assess where your team’s focus is best
placed
7 vote on which root-causes to address first. team
members place their votes on where the best places
to focus efforts are
8 agree on the top areas you’ll place your focus. now
that you’ve all voted, agree on the priority order
you’ll address these items. this may be one, two, or
three top prioritized areas
9 document your findings. capture your work and
document it. you may need to refer to it later and you
don’t want to lose the value you’ve gotten from the
exercise
ACCOUNTING BASICS
BASIC ACCOUNTING
 refers to the process of recording a company's
financial transactions. it involves analyzing,
summarizing, and reporting these transactions to
regulators, oversight agencies and tax collection
entities
 one of the key functions in almost all types of
business. it is typically performed by an accountant
or a bookkeeper at a small company, or by large
finance departments with dozens of employees at
larger companies
 without accounting, it would be impossible to
determine which products were successful, which
business decisions were effective and whether the
company is generating revenue or making a profit. it
would also be impossible to determine how much
taxes to pay, whether to buy or lease a property or
whether to merge with another company
components of basic accounting
SYSTEM OF RECORD-KEEPING
companies must have a rational approach to record-
keeping before they begin the accounting process. they
must set up accounts in which to store information.
accounts fall into the following classifications:
 assets: refer to resources or items that the company
owns. assets have future economic value that can be
measured and can be expressed in monetary terms.
examples of a company's assets include investments,
cash, inventory, accounts receivable, land, supplies,
equipment, buildings and vehicles
 liabilities: refer to the legal financial obligations or
debts that companies incur during business
operations. liabilities can be limited or unlimited. they
are settled over time through the transfer of
economic benefits such as money, services or goods
 equity (shareholder's equity): refers to the amount of
money that a company must return to its shareholders
after all its assets are liquidated and all its debt is paid
off. equity is calculated by subtracting a company's
total assets to its total liabilities
 expenses: refer to the costs of operations that
businesses incur to generate revenue. common
 expenses include employee wages, payments to
suppliers, equipment depreciation and factory leases
 revenue: refers to the income that a company
generates from its normal business operations. it
includes deductions and discounts for returned
products. revenue is the gross income figure from
which costs are subtracted to determine net income
ACCOUNTING EQUATION
the proposition that a company’s assets must be
equal to the sum of its liabilities and equity
LIMITATION OF THE ACCOUNTING EQUATION
although the balance sheet always balances out,
the accounting equation doesn't provide investors
information as to how well a company is performing.
instead, investors must interpret the numbers and decide
for themselves whether the company has too many or
too few liabilities, not enough assets, or perhaps too
many assets, or is financing the company properly to
ensure long term growth
TRANSACTIONS
the accountant is responsible for generating a
number of business transactions, while others are
forwarded to the accountant from other departments of
a company. some crucial business transactions include:
 sales: transactions in which products/services are
transferred from buyers to sellers for cash or credit
 purchases: transactions that businesses require in
order to obtain materials and services necessary to
accomplish their goals
 receipts: transactions that refer to a company getting
paid for providing services or goods to customers
 employee’s compensation: requires information
about the number of hours that employees spent at
paid labor, which is then used to generate tax
deductions, gross wage information and other
deductions, which result in net pay to employees
DEBITS AND CREDITS
business transactions are events that have a
monetary impact on the financial statements of an
organization. when accounting for these transactions,
we record numbers in two accounts, where the debit
column is on the left and the credit column is on the right
a debit is an accounting entry that either increases
an asset or expense account or decreases a liability or
equity account. it is positioned to the left in an
accounting entry
a credit is an accounting entry that either increases
a liability or equity account or decreases an asset or
expense account. it is positioned to the right in an
accounting entry.
account increased by decreased by
ASSETS DEBIT CREDIT
EXPENSES DEBIT CREDIT
LIABILITIES CREDIT DEBIT
EQUITY CREDIT DEBIT
REVENUE CREDIT DEBIT
REPORTING
once all the company's transactions related to an
accounting period have been completed, the
accountant consolidates the information stored in the
accounts and sort it into three documents that are
collectively called financial statements. these statements
include:
 income statement: contains information about the
company's revenues and deducts all expenses
incurred to determine the net profit or loss for the
reporting period. it measures the ability of a company
to expand its customer base and operate in an
efficient manner
 balance sheet: this document contains information
about a company's assets, liabilities and equity as of
the end of the reporting period. it shows the financial
position of an organization as of a point in time and is
carefully reviewed to determine an organization's
ability to pay its bills
 statement of cash flows: this document contains
information about the uses and sources of cash
during the reporting period. it's especially useful when
the amount of net income that appears on the
income statement is different from the net change in
cash during the reporting period
FINANCIAL ANALYSIS
FINANCIAL ANALYSIS
the process of evaluating businesses, projects,
budgets, and other finance-related transactions to
determine their performance and suitability
typically used to analyze whether an entity is stable,
solvent, liquid, or profitable enough to warrant a
monetary investment
 if conducted internally, financial analysis can help ratio. companies like to have at least a 1:1 ratio here, but
managers make future business decisions or review firms with less than that may be okay because it means
historical trends for past successes they turn their inventories over quickly

if conducted externally, financial analysis can help  EARNINGS PER SHARE (EPS)
investors choose the best possible investment when buying a stock, you participate in the future
opportunities earnings (or risk of loss) of the company. earnings per
share (eps) measures net income earned on each share
types of financial analysis of a company's common stock. the company's analysts
FUNDAMENTAL ANALYSIS TECHNICAL ANALYSIS divide its net income by the weighted average number
uses ratios and financial assumes a security's value of common shares outstanding during the year
statement data to is already determined by
determine the intrinsic its price, and it focuses if a company has zero or negative earnings (i.e. a
value of a security instead on trends in value loss) then earnings per share will also be zero or negative
over time
uses ratios gathered from uses statistical trends  PRICE – EARNINGS RATIO (P/E)
data within the financial gathered from trading called p/e for short, this ratio reflects investors'
statements, such as a activity, such as moving assessments of those future earnings. you determine the
company's earnings per averages (ma) share price of the company's stock and divide it by eps
share (eps), to determine to obtain the p/e ratio
the business's value
if, for example, a company closed trading at 46.51 a
financial ratios share and eps for the past 12 months averaged 4.90, then
 WORKING CAPITAL RATIO the p/e ratio would be 9.49. investors would have to
represents a company's ability to pay its current spend 9.49 for every generated dollar of annual earnings
liabilities with its current assets. working capital is an
important measure of financial health  note: if a company has zero or negative earnings, the
since creditors can measure a company's ability to pay p/e ratio will no longer make sense, and will often
off its debts within a year appear as n/a for not applicable. even so, investors
have been willing to pay more than 20 times the eps
it represents the difference between a firm’s current for certain stocks if hunch that future growth in
assets and current liabilities. the challenge can be earnings will give them an adequate return on their
determining the proper category for the vast array of investment
assets and liabilities on a corporate balance sheet and
deciphering the overall health of a firm in meeting its  DEBT – EQUITY RATIO
short-term commitments calculated by adding outstanding long and short-
term debt, and dividing it by the book value of
assessing the health of a company in which you want shareholders' equity
to invest involves understanding its liquidity—how easily
that company can turn assets into cash to pay short-term let's say xyz has about 3.1 million worth of loans and
obligations. the working capital ratio is calculated by had shareholders' equity of 13.3 million. that works out to
dividing current assets by current liabilities a modest ratio of 0.23, which is acceptable under most
circumstances. however, like all other ratios, the metric
so, if xyz corp. has current assets of 8 million, and must be analyzed in terms of industry norms and
current liabilities of 4 million, that's a 2:1 ratio—pretty company-specific requirements
sound. but if two similar companies each had 2:1 ratio,
but one had more cash among its current assets, that firm  RETURN ON EQUITY
would be better able to pay off its debts quicker than the common shareholders want to know how profitable
other their capital is in the businesses they invest it in. return on
equity is calculated by taking the firm's net earnings
 QUICK RATIO (after taxes), subtracting preferred dividends, and
also called the acid test, this ratio subtracts dividing the result by common equity dollars in the
inventories from current assets, before dividing that figure company
into liabilities. the idea is to show how well current liabilities
are covered by cash and by items with a ready cash let's say net earnings are 1.3 million and preferred
value. inventory, on the other hand, takes time to sell and dividends are 300,000. take that and divide it by the 8
convert into liquid assets million in common equity. that gives a roe of 12.5%. the
higher the roe, the better the company is at generating
if xyz has 8 million in current assets minus 2 million in profits
inventories over 4 million in current liabilities, that is a 1.5:1
 RAISING CAPITAL
CAPITAL
refers to financial assets, including funds that are held
in an account, that are used to build wealth in your
business. note that materials that are consumed or used
as part of a process are not capital
think of capital as investments that generate wealth
and can be sold off. a brand name or software can be
considered capital as much as a piece of manufacturing
equipment since these all generate wealth and can be
sold off as assets. equipment is still capital, even though it
depreciates in value
raising capital essentially means getting the money
you need to grow your business from investors. raising
capital is another way of talking about financing your
business. you can raise capital through investors, or you
can take out debts, like loans or credit cards, to finance
your business venture
HOW CAPITAL IS USED
 capital is used by companies to pay for the ongoing
production of goods and services in order to create
profit
 companies use their capital to invest in all kinds of
things for the purpose of creating value. labor and
building expansions are two common areas of
capital allocation
 by investing capital, a business or individual seeks to
earn a higher return than the capital's costs.
STARTUP CAPITAL
the term startup capital refers to the money raised by
a new company in order to meet its initial costs
entrepreneurs who want to raise startup capital have
to create a solid business plan or build a prototype in
order to sell the idea
startup capital may be provided by venture
capitalists, angel investors, banks, or other financial
institutions and is often a large sum of money that covers
any or all of the company's major initial costs such as
inventory, licenses, office space, and product
development
types of capital
1 DEBT CAPITAL
a business can acquire capital by borrowing. this is
debt capital, and it can be obtained through private or
government sources. for established companies, this
most often means borrowing from banks and other
financial institutions or issuing bonds. for small businesses
starting on a shoestring, sources of capital may include
friends and family, online lenders, credit card companies,
and federal loan programs
like individuals, businesses must have an active credit
history to obtain debt capital. debt capital requires
regular repayment with interest. the interest rates vary
depending on the type of capital obtained and the
borrower’s credit history
2 EQUITY CAPITAL
can come in several forms. typically, distinctions are
made between private equity, public equity, and real
estate equity
private and public equity will usually be structured in
the form of shares of stock in the company. the only
distinction here is that public equity is raised by listing the
company's shares on a stock exchange while private
equity is raised among a closed group of investors
when an individual investor buys shares of stock, he
or she is providing equity capital to a company. the
biggest splashes in the world of raising equity capital
come, of course, when a company launches an initial
public offering (ipo)
a company's working capital is its liquid capital assets
available for fulfilling daily obligations. working capital
measures a company's short-term liquidity. more
specifically, it represents its ability to cover its debts,
accounts payable, and other obligations that are due
within one year
 note: working capital is defined as current assets
minus its current liabilities. a company that has more
liabilities than assets could soon run short of working
capital
3 TRADING CAPITAL
any business needs a substantial amount of capital in
order to operate and create profitable returns. balance
sheet analysis is central to the review and assessment of
business capital
trading capital is a term used by brokerages and
other financial institutions that place a large number of
trades on a daily basis. trading capital is the amount of
money allotted to an individual or the firm to buy and sell
various securities
investors may attempt to add to their trading capital
by employing a variety of trade optimization methods.
these methods attempt to make the best use of capital
by determining the ideal percentage of funds to invest
with each trade
ways to raise capital
1 BOOTSTRAPPING
the self-funding of your company through stretching
resources and finances. in short, you're starting your
company with just the money and assets you currently
have. this is often the ideal choice as it gives you full
control of your business, forces you to produce efficiently
and carries no debt or obligation to a third party
 bootstrapping should always be the first option.
unfortunately, most young entrepreneurs don’t have
much in assets or money, and if your idea is complex
enough, you'll need to bring in outside sources of capital
2 FAMILY DONATIONS
family donations come from just that, your friends and
family. because of this, they don’t have the paperwork
requirements of the other debt-funding outlets, and they
are usually your first option outside of yourself
3 GOVERNMENT GRANTS
these grants typically involve strict criteria, but do not
have to be paid back or require a loss of controlling
stake. they are, however, difficult to receive and require
an extensive application process. grants are few and far
between and often industry-specific—think clean
energy, sustainability, biomedical research and nonprofit
4 BUSINESS LOANS
business loans are a more traditional debt-based
funding route. government-backed loans come with low
interest rates but have strict requirements.
personal loans require good credit, higher interest
rates and can be difficult for startups with no track record
to qualify for. if you go this route, shop around and
compare prices beforehand
5 CROWDFUNDING
the pooling of money from many individuals through
either an organization or website to support the startup
cost of a specific project or company
contributions may take on the form of donations as
well as trading equity or tangible rewards (i.e.,
merchandise, exclusives, and memorabilia) for capital. if
you go the rewards-based route, you also retain much
more control of your business
6 ANGEL INVESTORS
angel investors are high-wealth individuals who
provide startup capital to entrepreneurs in exchange for
a percentage of equity in the company
this “seed” money is almost always out of pocket and
ranges from a few thousand to a couple hundred
thousand or more. angels typically take on a mentor or
advisor roles in the company as well, so it's important that
they're knowledgeable about your industry.
7 VENTURE CAPITALISTS
venture capitalists, like angel investors, exchange
startup capital for equity. venture capitalists do not pay
out of pocket but rather invest other people’s money in
the form of private equity, pensions, etc. because of this,
they generally take on high-risk, high-reward companies,
like young technology startups, in hopes of them being
sold or reaching an ipo. they also take on much more
equity in the company along with influencing important
business decisions
8 GET CREATIVE
there are plenty of unorthodox ways to fund your
venture, like partnering with an established company
and trading exclusiveness or first rights for capital.
one can also use other projects to pay for your new
startup like creating websites, blogs and other outlets that
drive advertising revenue. some entrepreneurs have
successfully pitched reality tv shows and use both the
money and exposure to initiate their business. remember:
investors are looking to make money and if you can
potentially turn a profit, they will eventually listen
ETHICS & SOCIAL RESPONSIBILITY
ETHICS
ethics comes from the greek word: ethos; moral
character. ethics means knowing the difference
between right and wrong and continuing to do the right
thing. ethical decisions can be based on your
conscience or based on principle. in either case,
individuals make their own decisions according to the
laws of the land or according to their core beliefs
SOCIAL RESPONSIBILITY
social responsibility is an ethical theory in which
individuals are accountable for fulfilling their civic duty,
and the actions of an individual must benefit the whole
of society. there must be a balance between economic
growth and the welfare of society and the environment.
if this equilibrium is maintained, then social responsibility is
accomplished.
the theory of social responsibility is built on a system of
ethics, in which decisions and actions must be ethically
validated before proceeding. if the action or decision
causes harm to society or the environment, then it would
be socially irresponsible
BUSINESS ETHICS
for most businesses, the ultimate goal is to bring in
revenue and be the best in their industry. however,
achieving these goals at all costs is not always ethical
every business needs to have and uphold business
ethics. business ethics are how companies conduct
themselves in their practices and policies. companies
that have failed in this area have been subject to losing
customers and bad publicity
a business is responsible not only for treating its
employees and customers well, but also for keeping up
its end of the bargain with society at large. some of a
business' responsibilities to society include minimizing
environmental impact, donating money to the needy
and recalling dangerous products. social responsibility is
an important part of business ethics
problems with responsibility and business ethics
sometimes occur when a business must weigh these
responsibilities against its responsibility to shareholders
ISSUES OF SOCIAL RESPONSIBILITY AND ETHICAL BEHAVIOR
by: andrew button, bizfluent.com
ISSUE: LAW AND SOCIAL RESPONSIBILITY
corporations are legally responsible for looking after
shareholder profits. at the same time, they are socially
responsible for minimizing socially damaging business
decisions
ethical business leaders therefore face the challenge
of making a profit without forcing society to foot the bill
ISSUE: EXTERNALITIES
externalities are business costs that society pays for.
when a business pollutes a river, for example, the local
sanitation department is responsible for cleaning up the
mess that the business made
ethical business leaders have a social responsibility to
avoid behavior that results in a drain on society's
resources
ISSUE: SHAREHOLDER PRESSURE
many shareholders do not have a strong
understanding of the companies behind their stock
certificates. these shareholders may demand increased
performance from managers, thus creating a pressure on
management to cut corners in ethics
to avoid such situations, management must speak
openly with shareholders, explaining in detail why legal
and ethical shortcuts have consequences that outweigh
the value of a short-term profit
ISSUE: SHRINKING GOVERNMENT PRESENCE
in many countries, governments have turned a blind
eye to corporate malfeasance. in situations where a
government does not regulate business ethics, it is the
responsibility of management to set their own standards
this can be a difficult challenge for managers, who
are trained to put economic profit first and foremost in
their minds
ISSUE: LABOR MARKETS
corporate executives are expected to minimize
costs. indeed, this is part of their mandate: cost
minimization is a logical corollary of profit maximization.
however, problems begin to arise when companies start
laying off massive numbers of employees in an attempt
to cut costs quickly and rapidly
this drives unemployment up and creates a massive
drain on social assistance programs. it is the responsibility
of managers to keep these sorts of things in mind when
making decisions
CORPORATE SOCIAL RESPONSIBILITY (CSR)
refers to the approach that an organization takes in
balancing its responsibilities toward different stakeholders
when making legal, economical, ethical, and social
decisions
consumers and other groups consider not only the
quality and price of a company’s products but also its
character
if too many groups see a company as a poor
corporate citizen, it will have a harder time attracting
qualified employees, finding investors, and selling its
products
ISSUES OF HONESTY AND INTEGRITY
 conflicts of interest
 conflicts of loyalty
 bribes versus gifts
there are four general and specific ways that
companies can join their efforts between business ethics
and social responsibility:
1 environmental efforts
2 philanthropy
3 ethical labor practices
4 volunteering
“a chef put two frogs in a pot of warm soup water.
the first frog smelled the onions, recognized the danger,
and immediately jumped out. the second frog hesitated:
the water felt good, and he decided to stay and relax for
a minute. after all, he could always jump out when things
got too hot. as the water got hotter, however, the frog
adapted to it, hardly noticing the change. before long,
of course, he was the main ingredient in frog-leg soup.
THE MORAL OF THE STORY
do not sit around in an ethically toxic environment
and lose your integrity a little at a time; get out before the
water gets too hot and your options have evaporated