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Soft Skill: Analytic Reasoning

Introduction

As you embark on your journey through college and start contemplating your future career, it’s crucial to recognise the significance of soft skills. Among these, analytical reasoning stands out as one of the most vital. Regardless of your chosen field, the ability to think analytically and critically can significantly impact your career success and personal growth.

What is Analytical Reasoning?

Conclusion

Types of Analytical Reasoning

Why Analytical Reasoning is Crucial for Your Career

Developing Your Analytical Reasoning Skills

Learning Objectives

Using Bloom's Taxonomy, the learning objectives for this activity, which reinforces analytic reasoning as a soft skill, can be categorised as follows:

By following these learning objectives, you will develop a comprehensive understanding of effective negotiation techniques and how to apply them in professional email communication.

Creating

Evaluating

Understanding

Analysing

Applying

Remembering

By following these learning objectives, you will develop a comprehensive understanding of investment analysis and how to apply analytic reasoning to evaluate and optimise a portfolio.

Soft Skill: Activity

This activity will help you develop your analytic reasoning skills by evaluating the performance of a fictional investment portfolio and making recommendations based on your analysis.

Expected Outcome

Document and Review

Formulate Recommendations

Analyse and Interpret Data

Calculate Key Metrics

Read the Scenario

Preparation

Preparation (2 minutes):

1

Familiarise yourself with the key terms:

Return on Investment (ROI)

Risk

Asset Allocation

Diversification

Read the Scenario (3 minutes):

2

Stock A: Purchased at £50, Current Value: £60, Quantity: 100 sharesStock B: Purchased at £100, Current Value: £90, Quantity: 50 sharesBond C: Purchased at £1,000, Current Value: £1,020, Quantity: 10 bondsBond D: Purchased at £500, Current Value: £450, Quantity: 20 bonds

Imagine you manage a fictional investment portfolio with the following assets and performance data:

Calculate Key Metrics (10 minutes):

3

Return on Investment (ROI) for Each Asset:Use the formula: ROI = (Current Value - Purchase Price) / Purchase Price * 100%Total Portfolio Value:Sum = the current values of all assets.Overall Portfolio ROI:Calculate the total purchase cost and the total current value to find the overall ROI.Risk Assessment:Evaluate the performance of stocks and bonds. Identify which assets have underperformed and analyse potential reasons (e.g. market trends, company performance, economic conditions).

Analyse and Interpret Data (10 minutes):

4

Evaluate Portfolio Performance:Compare the ROI of individual assets. Identify which assets performed well and which did not.Analyse the reasons behind the performance of each asset. Consider market conditions, asset-specific factors, and overall portfolio diversification.Diversification and Risk:Assess how well-diversified the portfolio is. Consider the mix of stocks and bonds and how it impacts overall risk.

Formulate Recommendations (5 minutes):

5

Based on your analysis, recommend actions to optimise the portfolio. Consider whether to buy, sell, or hold each asset. Provide justification for each recommendation based on your ROI calculations and risk assessment.

Document and Review (5 minutes):

6

Write a brief summary of your findings and recommendations. Include:ROI calculations for each asset.Total portfolio value and overall ROI.Analysis of performance and risk.Recommendations for portfolio adjustments.Reflect on the analysis process and consider any improvements for future evaluations.

Model answers

Now that you have had a go at answering the emails using the notes provided, click next to see the model answers.

Expected Outcome:

By completing this activity, you will enhance your ability to use analytic reasoning to assess investment performance, evaluate risk, and make informed recommendations for optimising an investment portfolio.

Preparation (2 minutes):

2

Explanation

Scenario Recap:Stock A: Purchased at £50, Current Value: £60, Quantity: 100 sharesStock B: Purchased at £100, Current Value: £90, Quantity: 50 sharesBond C: Purchased at £1,000, Current Value: £1,020, Quantity: 10 bondsBond D: Purchased at £500, Current Value: £450, Quantity: 20 bonds

Calculate Key Metrics (10 minutes):

3

Return on Investment (ROI) for Each Asset:Stock A:Purchase Price: £50Current Value: £60ROI = [(60 - 50) / 50] * 100% = [10 / 50] * 100% = 20%Stock B:Purchase Price: £100Current Value: £90ROI = [(90 - 100) / 100] * 100% = [-10 / 100] * 100% = -10%Bond C:Purchase Price: £1,000Current Value: £1,020ROI = [(1,020 - 1,000) / 1,000] * 100% = [20 / 1,000] * 100% = 2%Bond D:Purchase Price: £500Current Value: £450ROI = [(450 - 500) / 500] * 100% = [-50 / 500] * 100% = -10%

Total Portfolio Value:Stock A:Current Value: £60 * 100 = £6,000Stock B:Current Value: £90 * 50 = £4,500Bond C:Current Value: £1,020 * 10 = £10,200Bond D:Current Value: £450 * 20 = £9,000Total Portfolio Value:£6,000 + £4,500 + £10,200 + £9,000 = £29,700Total Purchase Cost:Stock A:Purchase Price: £50 * 100 = £5,000Stock B:Purchase Price: £100 * 50 = £5,000Bond C:Purchase Price: £1,000 * 10 = £10,00Bond D:Purchase Price: £500 * 20 = £10,000

Total Purchase Cost:£5,000 + £5,000 + £10,000 + £10,000 = £30,000Overall Portfolio ROI:ROI = [(Total Portfolio Value - Total Purchase Cost) / Total Purchase Cost] * 100%ROI = [29,700 - 30,000) / 30,000] * 100% = [-300 / 30,000] * 100% = -1%

Analyse and Interpret Data (10 minutes):

4

Evaluate Portfolio Performance:Stock A has performed well with a 20% ROI.Stock B has underperformed with a -10% ROI.Bond C has a modest 2% ROI.Bond D has underperformed with a -10% ROI.Diversification and Risk:The portfolio has both stocks and bonds, which provides a level of diversification. However, there is a notable underperformance in stocks and bonds with -10% ROI, which is impacting overall performance.

Formulate Recommendations (5 minutes):

5

Stock A: Continue holding or consider increasing investment as it has shown a strong positive ROI.Stock B: Reevaluate its prospects. If no signs of improvement are evident, consider selling to reallocate to better-performing assets.Bond C: Maintain or consider increasing investment as it shows stable positive ROI.Bond D: Reassess. Given its -10% ROI and possible reasons for the drop, consider selling or replacing with bonds showing better performance.

Document and Review (5 minutes):

6

Summary:Stock A performed excellently with a 20% ROI.Stock B and Bond D have underperformed with -10% ROI.Bond C showed a modest gain of 2%.Overall, the portfolio has a slight loss of -1% ROI, indicating a need for adjustment in asset allocation.

Well done!

You have completed this soft skills activity. We hope you have enjoyed the programme and picked up some new skills and information!

You now have a comprehensive analysis of the investment portfolio, including calculations, performance evaluation, and actionable recommendations to optimise the portfolio based on your findings.

To develop your analytical reasoning skills, focus on building strong critical thinking abilities. Practise breaking down complex information into smaller, manageable parts and analysing them systematically. Enhance your quantitative reasoning by improving your proficiency in mathematical and statistical methods. Develop your qualitative reasoning by engaging in discussions, reading diverse perspectives, and analysing case studies. Collaboration is key, so work on your communication skills to effectively convey your analyses and insights to others. Practise decision-making by evaluating various scenarios, considering potential outcomes, and selecting the most logical course of action. Lastly, seek opportunities to apply your analytical reasoning skills in real-world scenarios, such as internships, projects, or extracurricular activities, to gain hands-on experience and improve your abilities.

Identify key metrics used in investment analysis (e.g. ROI, total portfolio value, purchase cost).

  • Differentiate between the performance of different assets based on their ROI.
  • Analyse the impact of individual asset performance on the overall portfolio.

  • Formulate recommendations for adjusting the investment portfolio based on the performance analysis.
  • Design an optimised investment strategy that addresses current weaknesses and leverages strengths in the portfolio.

There are various forms of analytical reasoning, each playing a crucial role in different contexts. Deductive reasoning involves drawing specific conclusions from general principles or premises. Inductive reasoning focuses on making generalisations based on specific observations or evidence. Quantitative reasoning involves the application of mathematical and statistical techniques to analyse numerical data and trends. Qualitative reasoning deals with understanding and interpreting non-numerical data, such as behaviours, opinions, or social trends.

  • Explain the significance of return on investment (ROI) in evaluating asset performance.
  • Summarise the calculation process for total portfolio value and total purchase cost.

Analytical reasoning is a foundational soft skill that underpins your ability to succeed in any career. By developing your deductive, inductive, quantitative, and qualitative reasoning skills, you will be better equipped to build relationships, advance in your career, enhance productivity, and foster innovation. Start honing your analytical reasoning skills now, and you’ll set yourself up for a successful and fulfilling professional journey.

  • Calculate the ROI for various assets and the overall portfolio.
  • Apply these calculations to assess the performance of investments.

  • Assess the overall portfolio performance and the effectiveness of the current investment strategy.
  • Critique the investment performance and identify areas for improvement or reallocation.

Effective analytical reasoning plays a fundamental role in building relationships, career advancement, performance, productivity, adaptability, and innovation. Strong analytical reasoning helps build trust and rapport with colleagues, clients, and stakeholders by demonstrating reliability and competence in understanding complex issues. It enhances career advancement opportunities, as employers value individuals who can analyse situations thoroughly and make well-informed decisions. Analytical reasoning boosts performance and productivity by enabling more accurate assessments and efficient resolution of issues, minimising errors and misjudgments. Additionally, the ability to think analytically enhances adaptability and innovation, as it requires individuals to critically evaluate existing paradigms and explore new approaches or solutions.

Return on Investment (ROI) for Each Asset:Stock A:Purchase Price: £50Current Value: £60ROI = [(60 - 50) / 50] * 100% = [10 / 50] * 100% = 20%Stock B:Purchase Price: £100Current Value: £90ROI = [(90 - 100) / 100] * 100% = [-10 / 100] * 100% = -10%Bond C:Purchase Price: £1,000`Current Value: £1,020ROI = [(1,020 - 1,000) / 1,000] * 100% = [20 / 1,000] * 100% = 2%Bond D:Purchase Price: £500Current Value: £450ROI = [(450 - 500) / 500] * 100% = [-50 / 500] * 100% = -10%Total Portfolio Value:Stock A:Current Value: £60 * 100 = £6,000Stock B:Current Value: £90 * 50 = £4,500Bond C:Current Value: £1,020 * 10 = £10,200Bond D:Current Value: £450 * 20 = £9,000Total Portfolio Value:£6,000 + £4,500 + £10,200 + £9,000 = £29,700

Total Purchase Cost:Stock A:Purchase Price: £50 * 100 = £5,000Stock B:Purchase Price: £100 * 50 = £5,000Bond C:Purchase Price: £1,000 * 10 = £10,00Bond D:Purchase Price: £500 * 20 = £10,000Total Purchase Cost:£5,000 + £5,000 + £10,000 + £10,000 = £30,000Overall Portfolio ROI:ROI = [(Total Portfolio Value - Total Purchase Cost) / Total Purchase Cost] * 100%ROI = [29,700 - 30,000) / 30,000] * 100% = [-300 / 30,000] * 100% = -1%

Analytical reasoning is the ability to evaluate information, identify patterns, and logically break down complex problems into manageable parts. It involves critical thinking, problem-solving, and decision-making skills. Effective analytical reasoning requires a clear understanding of the data at hand, the ability to draw logical conclusions, and the capability to apply structured thinking to derive solutions or make decisions.