Causal loop diagrams – also known as systems thinking diagrams – are used to visualize complex, interdependent issues. A causal loop diagram (CLD) is an illustration that visualizes how variables in a system are causally interrelated.
Understanding causal loop diagram
Think of causal loop diagrams as sentences constructed with key variables from the system (the “nouns”) that indicate the relationships between them via links (the “verbs”).
When multiple loops are linked together, one can formulate a concise story about the issue or problem at hand.
Put differently, causal loop diagrams holistically model dynamic systems and map how variables such as processes, issues, and factors are interconnected.
Diagrams can be used to identify the feedback structures of a system or its low and high leverage points.
They also reveal the system’s natural constraints which can then be used to set more realistic expectations for change management.
The three core elements of a causal loop diagram
For the sake of this article, consider a theoretical HR team responsible for total quality management (TQM) implementation.
Employees were initially enthusiastic about TQM and demand for training was high and there were even several early successes reported from some teams.
Over time, however, interest in the TQM approach started to wane and some initiatives produced diminishing returns
To find out what happened, the organization creates a causal loop diagram comprised of three main elements.
1 – The variables
As we touched on earlier, these are the processes, issues, and factors that vary over time and are related to the issue.
In our example, the team identifies four variables:
“TQM activities”.
“Demand for TQM training”.
“Perceived threat” (of the new initiative), and
“Resistance from middle managers”.
2 – Links and labels that show the interconnectedness
In a causal loop diagram, links are represented by arrows that connect two variables.
If variable A moves in the same direction as variable B, the link is labeled with an “s”. If variable A moves in the opposite direction to variable B, the link is labeled with an “o”.
The team in our example noticed that an increase in TQM activities also increased the demand for TQM training (and vice versa).
To represent this relationship, they draw two links between the variables with each denoted by an “s” to create a causal loop.
When resistance from middle managers increased, however, the number of TQM activities decreased (and vice versa).
The team also noticed that when TQM activities increased, the perceived threat of the new initiative increased.
These relationships are labeled as such.
The team now has two causal loops that tell the story of how TQM training, TQM activities, the perceived threat of a new initiative, and middle management resistance are related.
3 – The sign of the loop
In systems thinking, labels denote what sort of behavior the loop will produce.
To that end, there are two types of loops:
Reinforcing loops – where a change in one direction is compounded by more change.
Balancing loops – where a change in one direction is countered by a change in the opposite direction.
To determine which type the TQM team has, they count the number of “o’s” for each loop.
When there are an even number of “o’s” or if none are present, the loop is reinforcing.
Balancing loops, on the other hand, have an odd number of “o’s”.
Returning to our example, the first causal loop created (“TQM training) is a reinforcing loop and is labeled with an “R”.
The second causal loop (“Resistance from middle managers”) has one “o” link and is thus a balancing loop. That is, it seeks to “balance” the increase in TQM activities.
Key takeaways:
A causal loop diagram (CLD) is an illustration that visualizes how variables in a system are causally interrelated.
Causal loop diagrams can be used to identify the feedback structures of a system or its low and high leverage points. They also reveal the system’s natural constraints which can be incorporated into change management expectations.
All causal loop diagrams are characterized by three core elements: variables, links between variables with labels that show interconnectedness, and the sign of the loop that denotes what sort of behavior the system will produce.
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Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
