Cost Reduction - Structure

How to Solve a Case Study – A Structured ApproachThis approach will allow you to crack any type of case study. Solving a case in a case interview is not very different from the approach a consultant uses in real life to solve clients' problems. You will need to:Develop an exhaustive structure that will guide you throughout the case interview efficiently. The structure ideally will tell you where to look for the solution to the problemDevelop a hypothesis early on and prioritize the information you need to gather. Apply the 80/20 rule to figure out which answer to what question will have the biggest impact on the case solution (80/20 rule or Pareto Principle);Gather data and know why you need the information and what conclusions can you draw which would ultimately help you get to the solutionIn a case interview, your only source for data is the Interviewer. Hence, it is important that you establish open bi-directional communication and obviously, your rapport with the interviewer is very important.Make sure you ask for only relevant information and ideally let the interviewer know why you need a particular piece of data, be as open and transparent in your thought process as possible, and think out loud to let the interviewer know your thinking process including your current hypothesis.The Interviewer will likely provide verbal information or charts based on your questions. *article-lock-trigger* How to Approach a Case Study in 4 Steps: The foundation for a successful case is set at the beginning so follow these steps religiously during your interview practice:1. Restate the question and make sure you understand the problem statement by confirming with the interviewerUnderstand the problem really well before structuring or asking for data. Do not simply repeat the question but rephrase it in such a way that it would avoid misunderstandings. This is important because in consulting, it is crucial to understand the needs of the customers.2. Clarify the goalsAsk specific questions to clarify goals. “So our objective is to increase the bottom line. Are there any other objectives I should know of?” If there is more than one objective, do not try to solve them all at once, instead, break the problem into pieces and solve one piece at a time. This will allow you to stay focused. 3. Write out your structureFirst, ask your interviewer for a minute to prepare your structure since this part is extremely important and determines whether you will succeed in solving the case. Don’t be afraid of the silence! Practice structuring the case! If you have a good structure that is Mutually Exclusive Collectively Exhaustive (MECE), you do not have to worry about running into dead ends because even if you do, you can dig down an alternative branch that will ultimately help you solve the case. Use an issue tree to help in customizing your structure. 4. Ask questions to understand the trends of the client, industry, and productAsk questions about the firm’s business model, the state of the competition and its substitutes, the firm’s position within the industry, and the product. Make sure to ask about changes (or deltas) [how/if things have changed]. Example categoriesWhat is the current situation of the clientWhat has changed from previous yearsWhat are the financial (& non-financial) predictions given the current situationClient:Don’t be afraid to ask questions about the business model. Even if you have graduated with a business degree, it is impossible to know a company's business model without investigating details. Thus, solving a case based on false assumptions is worse than asking a question you think you should know beforehand. Typically, you'd want to know:The size of the companyWhether it is profitable and growingHow a business transaction works within the companyHow is the product being produced and what are some crucial production steps?Industry:For cases where external factors are decisive (e.g. market entry), you may want to know:At which point of the lifecycle is the industry?What is its configuration?Who are the key players?Who are the suppliers?What is the client’s position relative to other firms?What has changed? Who has left the industry? Who has recently entered the market? Why? Have any of the competitors changed their pricing? What about buying behavior?Was there a change in regulations?What are the major substitute products?What are the future predictions about the market?(For a systematic view, see Porter’s Five Forces)Product:In some cases, the crux of the matter is the product. In these cases, you want to know:What exactly is the product? What does it do? What are its strengths/weaknesses? What is it mainly used for? Has there been a change in the way it is being used?What is the lifecycle of the product? Is it still in the development phase or about to become outdated?How is the brand/reputation?How do competitors’ products perform in comparison? What are their strengths/weaknesses?Who are the customers? How are they segmented? What do they need? Has the need changed recently (e.g. connectivity, “eco”, social)?What is the price of the product? How is the price compared to competitors?How is the product being promoted? Has a competitor recently changed its promotion activities?What are the distribution channels? Is the sales place where the customers are? Have new distribution channels emerged recently?What is the service (e.g. after-sales) like? How does it compare to competitors? Has there been a change?Closely related to the industry part: Are there any new technologies or products on the market?What does the product consist of? What are the parts and where are they sourced?(For a systematic view, see 4 Ps Framework) Case Interview Structure - Your Key Ability to Ace the Case StudyA key evaluation criterion is your ability to structure a case and being able to adapt the structure throughout the case. A good case structure is the most important part of the case. Based on your structure, you will need to interpret the new information and draw conclusions from it. Try to segment your information until you have isolated the problem. If the problem is not captured by your structure, you will likely not be able to solve the case. Remember to practice setting up a case structure during your interview preparation.What the Interviewer expects to seeAn excellent ability to communicate; i.e. stating the conclusion/result first and providing the reason why later on by applying the pyramid principleSolid and flexible problem-solving skills, which includes the ability to break a problem down into its parts, think qualitatively and quantitatively about the problem and refine your hypothesis according to new information and insightsCreativityBusiness judgment and logical reasoningThoughtful questionsIdentify the most likely and efficient solution and weigh up the pros and cons and the implementation potentialGenerate actionable recommendationsBeing considerate*box-open*Most candidates fail in case interviews because of their inability to set up a good and well-thought-through structure*box-close*Support conclusions with data analysisMake sure you focus on data that is relevant and important to answer the case problem. This will demonstrate to your interviewer that you don’t blindly note down everything. Thus, before analyzing anything, it would make sense to paraphrase in your head and write only relevant information. Make sure to take notes in a structured fashion. This will ensure that you will remember the relevant case information and have quick access to it even during a stressful interview. To summarize, before noting down and sharing the information with the interviewer, analyze it and determine its relevance. Finally, you should have a rough sheet only for doing calculations. After finishing your calculations make sure you transfer the result to the corresponding part of the structure on the other sheet. 4 Commandments to Ace Your Case Interview: In this section, we will go over what we call the 4 commandments of case cracking. The 4 commandments will help you get through almost any case in a structured and goal-oriented way.The 4 commandments:Listen & ClarifyPlan & HypothesizeThink & GatherStructure & Close1. Listen & ClarifyListen activelyFocus and concentrate!Write down EVERY piece of information, especially numerical dataPause, paraphrase the problem, and clarify all questionsExample: “So, if I understood you correctly…”Double-check on the objective: “Is reducing production costs our only goal in this case?”. Don’t be afraid to ask - make sure you understood the problem 100%2. Plan & HypothesizePlan the solution structure (roadmap)Ask for 1 minute to gather your thoughtsIdentify case type and corresponding frameworkDescribe and draw the framework you want to use for the interviewerIdeally, you should start with the problem you want to solve (e.g. "To assess the market size I will be trying to calculate the number of diapers sold in the US per year")Then lay out how you want to get there and where you will use assumptionsOrganize your notes (consultants are supposed to always be “client-ready”)List hypothesesAlways list a few possible hypotheses and set out with one of them (e.g. "Since you have mentioned that revenues are more or less flat, my hypothesis is that the problem is mostly driven by the cost side of the business. If it is ok with you I will start by analyzing this side of the Profit tree first.")Start with the corresponding branch of the frameworkRefine/rebuild hypothesis as you find out more3. Think & GatherThink out loudThe interviewer is interested but has no crystal ball. You have to tell him what you are thinkingSharing your thoughts allows the interviewer to interact. He will give you hints such as nodding if you are on the right trackIf you ever get stuck, the interviewer is in a better position to help you out since he knows where you are in your thought process*box-open*Thinking aloud is client-friendly!*box-close*Gather data the right wayALWAYS segment your data (e.g. using the ABC analysis)Proactively ask for relevant dataDon’t be too vague in your questions. ("Why are profits declining" is a bad question. "So, profits have been declining. Does the client have any data about recent changes in either the revenues or the cost position of the company?" is better)Quantify whenever possible ("By how much have revenues been declining?")Go for various trend data (this year vs. last years OR client vs. competition)Try to evaluate whether trends have been company-specific or industry-wide4. Structure & CloseStay structured throughout the caseAlways refer to the structure you have set up at the beginning of the caseRemember: be flexible with your structure as the case evolvesDon’t jump around framework branches without finishing analyzing a branch, always solve problems seriallyExplore branches of your issue tree and eliminate them when you reach a dead-endSummarize findings when switching major branches. This can also be done during the caseBe MECE!Close the case properlyAsk for 30 secs to a minute to gather your thoughts (try to draw them)Choose a recommendation and stand by it!For consulting projects, it is important to have a clear recommendationYour recommendation must be action-orientedYour interviewer will likely challenge your recommendation (either to see if you can handle pressure or to assess if you really believe in what you are saying): stand by your recommendation (obviously within reasonable limits)When communicating your solution, put the most interesting part first: first conclusion/recommendation then justificationDo not go over the analysis in your recommendation and focus on the important outcome ("Here is what you should do: [...] and this is why: [...]")People like 3: give the interviewer 3 reasonsCase Interviews are an important part of candidate assessment where communication, problem-solving ability, business judgment, and data interpretation skills are being evaluatedThey are more standardized and better to prepare for than you might think. How to successfully prepare for a case interview depends a lot on your willingness to PRACTICE. PrepLounge and most Case Interview resources recommend at least 30 case simulations before you go to your first real interviewYou need to get used to a structured approach of problem-solving that is similar to how a real-life engagement is approached Key takeaways:Follow the 4 CommandmentsGet a feeling and true understanding of the problem and the objectiveLay out an exhaustive, well-thought-through structureBuild an initial hypothesis and prioritize the different areasGather data based on your hypothesis and prioritiesEvaluate the data keeping in mind your problem and goalTrack down the root cause and the area which would have the biggest impactDevelop possible solutions, weigh them, and choose the best one. Make sure your solution is based on the data irrespective of whether it is positive or negative. Keep in mind that the best feasible solution is truly the best solution!Do you need more insightful tips on how to approach your case interview in management consulting? Read our comprehensive case interview guide that gives you tips for your case interview preparation, step-by-step explanations to solve the case, and lastly 13 valuable tips for your actual interview day.

Cost-benefit Analysis Are Used to Assess the Attractiveness of InvestmentsInvestments or single business cases need to be evaluated based on a certain set of criteria. Since financial performance is the key criterion in a case interview, you need to have an idea about future financial impacts. A key tool to assess this impact is the cost-benefit analysis, which is used to determine the net effect of potential revenues and costs. In the case of multiple options, this net effect can be considered as opportunity costs of an option.A thorough cost-benefit analysis of all available alternatives is the foundation of every decisionSolving a case is a lot about coming up with hypotheses and then testing your ideas. If you have several ideas, you have to base your decision on analysis. Cost-benefit analysis helps you evaluate your ideas with respect to 1) feasibility and 2) relative attractiveness (comparisons, benchmarking).*article-lock-trigger*The feasibility analysis covers quantitative and qualitative aspects:The quantitative aspect: Check the consequences of your decision quantitatively. E.g., determining the number of customers or prices, leading to the calculation of revenues and costs, and the corresponding profitability of the idea.Qualitative aspect: This might be more important in the final decision-making. E.g., the culture of the firm. Remember that even though it is more critical to quantify the business idea/decision in terms of profitability, you must not ignore the qualitative aspects, which often give insights about the implementation of decisions/ideas.Relative attractiveness is extremely crucial. Evaluate various options using a cost-benefit analysis, compare them all and pick the most attractive one in terms of financial benefits and risks (qualitative aspects).From a financial aspect, although it is usually neglected as it mathematically complicates the case solution, you can make your analysis more precise by applying the discounting concept to future income or cost streams. This is especially appropriate in the case of highly volatile streams that occur in the distant future. In such cases, the net present value as the output of your cost-benefit analysis is the best metric on to base your decision on.Apply the cost-benefit concept in every case, in which you need to make decisionsThe cost-benefit framework is the basic tool for valuation and M&A cases and you probably already apply it intuitively here. In addition, it works well for questions with a broad array of possible solutions. For example, “how can we achieve more revenue/growth”-questions, market entry cases, new product cases, among others. This way, you transform the question into a profitability case.Example: You have an ice-cream parlor and now you are looking for further revenue options.Among other options, one is to use an ice cream truck. Assume the truck is used during the summer season of about 5 months or 150 days. Key takeawaysUse a cost-benefit analysis as a framework to check feasibility and compare options.Use quantitative and qualitative cost-benefit analysis to show competency in both aspects.If you have time left, try to quantify qualitative data.