Management Consulting Approach to Problem Solving

1. 1 How to solve problems like management consultants Practical guide with case studies & real life examples

2. 2 In business you have to make a lot of important decisions Time and again you will come across problems that are seeming unsolvable. In many cases you don’t even know how to approach them…

3. 3 In business you have to make a lot of important decisions Luckily, there are a lot of nice management consulting tools, techniques and frameworks that will help you solve every day problems.

4. 4 We will go through cases studies that will show you how to apply those techniques in real life situations Estimate the cost of wedding How to decide when you can retire? How to lose weight and get in shape How to choose the right boyfriend How to decide whether you rent or buy a houseHow to set personal KPIs Is it worth doing an MBA? How to analyze what happens with your time

5. 5 We will go through cases studies that will show you how to apply those techniques in real life situations What makes more sense Uber or owing a car How long will it take you to finish the presentation? How to find a new girlfriend? Does it make sense to learn fast readingWhy your flat is so dirty? How to do more works?

6. 6 This presentation will help you solve problems on the level of top management consultants

7. 7 How to solve problems like management consultants $190 $19 What you will see in this presentation is a part of my online course where you can find case studies showing analyses along with detailed calculations in Excel Click here to check my course

8. 8 How the presentation is organized

9. 9 Management consulting techniques and frameworks come in handy both at work as well as in private life. In this course you will see examples from both

10. 10 Intermediate techniques and frameworks Advanced techniques and frameworks Basic techniques and frameworks

11. 11 Basic tools used by Management Consultants

12. 12 In this section we will discuss the basic tools, techniques and framework used by Management Consultants Bottom-up approach Top-down approach Backward logic Compounded effect Issue Tree Priorities Benchmarks 80/20 rule Opportunity Tree KPIs and business drivers Theory of constraints and bottlenecks

13. 13 Case studies overview

14. 14 We will help Tomasz estimate the costs of the wedding

15. 15 We will help Lucas estimate how much his colleagues earn in the other department. For that we will use the top-down approach

16. 16 We will help Peter decide at what age he can retire using his own savings. For that we will use backward reasoning

17. 17 He will help John find out the main reasons why his flat is so dirty. For that we will use the issue tree

18. 18 We will also help Ann decide whether it makes sense or not to take the course for fast reading and what could be the benefit of that

19. 19 We will help Kate to lose weight. We will use the low hanging fruit approach to map all the potential solutions and pick the easiest ones.

20. 20 We will help Tom get in shape by using the SMART goal framework. He has only 9 months to achieve his goals

21. 21 We will help Giuseppe to define the personal KPIs that will help him make sure that he is increasing his chances of being happy

22. 22 Bottom-up approach

23. 23 …the one you will for sure use is bottom-up approach where you go from single (typical) consumer to market research  First you should imagine the typical users  Then you should try to guess his consumption level  By estimating the number of typical users you and their consumption level you get the rough size of the market

24. 24 …sometimes it makes sense to divide markets in segments and estimate them separately (i.e. average and typical users, women and man, people in different age groups or segmentation by lifestyle) Segment A Segment B

25. 25 …lets do a simple example. Imagine that you want to make an application for franchised restaurants  You pick the sample group / area you want to estimate i.e. city (here Warsaw)  You count the number of all restaurants in the area  For the chosen area you count the franchising restaurants  You check the population of the whole country – here Poland  Assuming similar density as in Warsaw you scale up the number of franchised restaurants

26. 26 …to make you better at this method imagine you want to sell home made dog food….. First you have to estimate how many dogs they are…..  First you should pick your sample – can be your friends or neighbors  Next step is to calculate how many dogs they have  Once you have the number also calculate how many households they are in the sample  It is now enough to know how many households there are in the country  And assuming similar proportion as in your sample you scale up the number of dogs +

27. 27 …with the number of dogs you just have to estimate the number of food eaten per year by average dog…..and you get to the size of the food market  We have the number of dogs in the whole country. Now we have to get from here to the dog food  This requires us to estimate additionally how much food would average dog eat per year  In this way using annual average consumption per dog and the estimated number of dogs we are able to estimate how much food is eaten every year in the country +

28. 28 Lets sum up the bottom-up approach Bottom-up approach enables you to estimate within one minutes the indicative size of the market It is very good for the B2C markets For better estimation you should segment customers and increase the sample size

29. 29 Check the YoutTube movie for the solution to the case study Click to go to the YouTube Movie

30. 30 Estimating the costs of a wedding – Introduction

31. 31 Imagine that you have to estimate the costs of the wedding to help Tomasz plan his wedding. Use for that the bottom-up approach

32. 32 Imagine that you have to estimate using bottom-up approach the costs of the wedding. A few information we have 200 guests 40% will need a hotel 20% of them have kids. There will be a band and entertainment for kids

33. 33 Estimating the costs of a wedding – Solution

34. 34 Just as a reminder you have to estimate using bottom-up approach the costs of the wedding 200 guests 40% will need a hotel 20% of them have kids. There will be a band and entertainment for kids

35. 35 First let’s think about what kind of cost positions you have Food & Drinks Hotel Clothes (bride and the groom) The band The place / venue Flowers Entertainers for the kids Church costs Other costs

36. 36 First let’s divide the cost into 2 groups: fixed and depending on the number of guests Food & Drinks Hotel Clothes (bride and the groom) The band The place / venue Flowers Entertainers for the kids Church costs Other costs

37. 37 Let’s see how we can estimate the costs of food & drinks, hotel, place / venue # guests Cost of food & drinks per 1 guest Food & drinks costs Hotel costs x # of rooms needed Cost per 1 room x# of guests per 1 room # of guest requiring hotel % of guest requiring hotel ÷x # sq m (space) Cost per 1 sq m Place venue costs xSpace per 1 guest x

38. 38 Let’s see how we can estimate the costs of entertainment and flower costs # guests Cost of food & drinks per 1 guest Food & drinks costs Entertainment costs x # of kids Cost per 1 kid x# of kids per 1 guest # of guests with kids % of guests with kids xx # of vases Cost per 1 vase Flower costs x # of guests per 1 vase ÷

39. 39 After we have calculated every cost position we have to sum them up to get the total cost of the wedding Food & drinks costs Hotel costs Cost depending on the # of guests Entertainment costs Flower Costs Place / venue costs + Clothes (bride and the groom) The band Other costs Church costs Fixed costs Total cost of the wedding + +

40. 40 Top-down approach

41. 41 When to use top-down approach? You know the size of the whole market You are interested in a specific segment of the market Segment is big enough You are thinking about niche strategy or low cost strategy (market re-segmenting)

42. 42 For a change lets see how it would work with top-down approach  You use the total market size to get to the size of the segment in which you are interested  You have to use some sort of sample measure  By applying the result from the sample you can get to the size of the segment in which you are interested

43. 43 … let’s use the top-down approach to estimate the market for science fiction books sold in Poland….  You use the total number of books sold in your country  Then you go to the bookstore that belongs to the biggest chain of bookstore and check what percentage of the shelves are take by science fiction books  If you use this proportion to the whole market you should get the rough estimation of the science fiction book segment

44. 44 Check the YoutTube movie showing more details Click to go to the YouTube Movie

45. 45 Average salaries in other department – Introduction

46. 46 Imagine that Lukas would like to know how much his colleagues in the other department earn. Use the top-down approach

47. 47 Imagine that Lukas would like to know how much his colleagues in the other department earn In total they cost EUR 101 K per month There are 20 Business Analysts, 2 Associates and 1 Manager Associate costs 50% more than Business Analyst The manager costs 50% more than Associate

48. 48 Average salaries in other department – Solution

49. 49 Just as a reminder you would like to know how much hiscolleagues in the other department earn In total they cost EUR 101 K per month There are 20 Business Analysts, 2 Associates and 1 Manager Associate costs 50% more than Business Analyst The manager costs 50% more than Associate

50. 50 Let’s start with the things we know now Business Analyst Salary + Associate Salary = Total SalariesManager Salary20x 2x + Manager Salary Associate Salary1.5x= Associate Salary Business Analyst Salary 1.5x= 1.5x= 1.5x Business Analyst Salary Business Analyst Salary 2.25x= Business Analyst Salary +20x 2x Business Analyst Salary 1.5x + Business Analyst Salary 2.25x = Total Salaries

51. 51 From this we can calculate the salary of a Business Analyst Business Analyst Salary +20x 2x Business Analyst Salary 1.5x + Business Analyst Salary 2.25x = Total Salaries Business Analyst Salary +20x 3x Business Analyst Salary + Business Analyst Salary 2.25x = Total Salaries Business Analyst Salary 25.25x = Total Salaries Business Analyst Salary 25.25x = EUR 101 000 Business Analyst Salary = EUR 4 000

52. 52 And use it to calculate the rest of the salaries Business Analyst Salary = EUR 4 000 Associate Salary Business Analyst Salary 1.5x= = EUR 6 000 Manager Salary Business Analyst Salary 2.25x= = EUR 9 000

53. 53 Backward reasoning

54. 54 Imagine that you were supposed to say how much you have to spend to create a company that has revenue of $ 100 M dollar Imagine that you were supposed to say how much you have to spend to create a company that has revenue of $ 100 M dollar

55. 55 You could use for that the so called backward reasoning CC: Flickr; Cycle Track

56. 56 Imagine that you were supposed to say how much you have to spend to create a company that has revenue of $ 100 M dollar Total Costs $ 400 M Cost of 1 lead $ 2 K # of leads 200 K ÷ % Conversion 10% x # of customers 20 K Average revenue per customer $ 5 K Revenues $ 100 M x

58. 58 When can you retire – Introduction

59. 59 Try to estimate at what age can Peter retire using his own savings. To estimate the age of retirement use the backward reasoning

60. 60 Try to estimate at what age you can Peter retire using his own savings Life expectancy for man is 80 years old. Peter is currently 30 Peter currently earns 120 K. His current annual costs are 50 K His annual costs after retiring will be 50 K Peter has 1 M in savings

61. 61 When can you retire – Solution

62. 62 Just as a reminder we were to estimate at what age can Peter retire using his own savings. We were to use the backward reasoning for that

63. 63 Just as a reminder you were supposed to estimate at what age you can retire using your own savings You are expected to live up to 80 years old. Peter is currently 30 Peter currently earns 120 K. His current annual costs are 50 K His annual costs after retiring will be 50 K Peter has 1 M in savings

64. 64 Let’s see how the 2 options compare 42,5 41,1 1,4 Age of retiring - no passive income Age of retiring - with passive income Difference At what age you can retire In years

65. 65 Compound effect

66. 66 There are 2 types of compounding effect Time related Operations related  Even if the growth is small applied over long period of time gives big end-results  A lot of small changes in many areas may produce a big end-results # of customers Average revenue per customer Revenues x +15% +20% +38% = 2,6 x StartStart x (1+10%)^10

67. 67 How to solve problems like management consultants $190 $19 For more details and to see all the analyses in Excel go to my online course Click here to check my course

68. 68 Create Issue tree

69. 69 Issue tree - general Area of analysis Area 1 Problem 1 Problem 2 Possible Reason 1 Possible Reason 2 Possible Reason 3 Possible Reason 4 Possible reasonsSuspected problems Analysis to be performed Analysis 1 Analysis 2 Analysis 3 Analysis 4

70. 70 Issue tree in Logistics – examples

71. 71 Issue tree - general Area of analysis Area 1 Problem 1 Problem 2 Possible Reason 1 Possible Reason 2 Possible Reason 3 Possible Reason 4 Possible reasonsSuspected problems Analysis to be performed Analysis 1 Analysis 2 Analysis 3 Analysis 4

72. 72 Issue tree – example – chicken meat producer Area of analysis Transport High costs of transport per ton of goods Big level of waste and breakage in transport Possible reasonsSuspected problems Analysis to be performed Analysis of correlation between type of packaging and percentage of damaged Analysis of time spent on the way and kilometers covered in that time Analysis of designed routes, their length and the influence of possible changes Analysis of fuel usage and kilometers covered by vehicles Analysis of load carried on the way back Badly designed routes Too big fuel usage No shipments on the way back Low usage of resources Badly designed method of packaging which makes the product prone to damage Speed not adjusted to the product Badly organized work and schedule of deliveries Limitation on delivery time of finished goods Analysis of level of overtime, daily organization of drivers work Analysis of Clients’ preferences on delivery time

73. 73 Issue tree in Retail – examples

74. 74 When you are talking about retail you should have a look a the following areas Retail chain development Product Range / Category Range Management Pricing Logistic / Supply Chain Expansion model In-store process HR especially trainings

75. 75 Below you can see example of issue tree in Retail Chain Development Area of analysis Retail chain development Low growth in sales Decreasing EBITDA of new stores Possible reasonsSuspected problems Analysis to be performed Analysis of rents vs comparable competition Salaries growth vs rotation – comparison with competition Analyze the change in sales after opening new stores / on-line introduction Analysis of number of openings vs availability of new places Low LFL due to cannibalization (online, new stores in old locations) Few new openings in locations Increasing rents due not proper usage of purchasing power Growing salaries to keep low rotation High cost of building new stores No support from the shopping malls Not optimized formats, expensive fixtures Analysis of contracts with shopping malls Analysis of cost per 1 sq. m, number of fixtures, cost per fixtures

76. 76 Issue tree – example – chicken meat producer Area of analysis Product Range Management Low margin on Category A Low margin on Category B Possible reasonsSuspected problems Analysis to be performed Analysis of whom we buy from Category B and the whole value chain Analysis of planning and allocation process Analyze of number of suppliers and their share in sales vs market Analysis of Private Labels potential – benchmarks and potential supplier Too many supplier of Category A that undermines your purchasing power Lack of Private Labels Usage of middlemen instead of direct suppliers Improper planning and allocation by stores High inventory cost Improper planning and allocation by stores Non-responsive supply chain Analysis of planning and allocation process Analysis of lead times, deliverability on- time, level of breakage

77. 77 Issue tree for John's flat – Introduction

78. 78 Imagine that you would have to create an issue tree for John’s flat. What kind of problem he has and what could be the reasons for that

79. 79 Issue tree for John's flat – Solution

80. 80 Just as a reminder you had to create an issue tree for John’s flat. You were to guess what kind of problem he has and what could be the reasons for that

81. 81 Below you can see example of issue tree for analyzing the John’s flat Area of analysis The flat There is a clutter / mess The space is too small Possible reasonsSuspected problems Analysis to be performed Map the layout against the activity of John Measure the height of furniture and estimate what space is not used Check where he put things. Check whether he has dedicated space for every thing Analyze the frequency of cleaning He doesn’t put the things in a dedicated space He doesn’t clean often enough The layout is not practical He has too low furniture which have low capacity He spends too much time for cleaning and maintaining He has too many open furniture that collect more dust His technique, tools of cleaning are not optimal Analyze the furniture he has at his flat Analyze the techniques and tools used along with labor intensity He has too many things that are not used Analyze what percentage of clothes, gadgets, dishes etc. he uses

82. 82 Priorities

83. 83 Priorities  FCFS – First Come First Served (FIFO)  LCFS – Last Come First Served (LIFO)  Due Date  SOT – Shortest Operating Time

84. 84 What you do depending on the rules you use? FCFS  Write 1 blog post  Analyze sales results  Send email  Read 4 articles  Pay for cable TV Task When it came Deadline Time needed for completion In minutes  01.04  01.04  02.04  02.04  03.04  10.04  04.04  09.04  11.04  04.04  120  30  2  25  4 1 2 3 4 5 LCFS 5 4 3 2 1 Deadline 4 1 3 5 2 SOT 5 4 1 3 2

85. 85 Benchmarks

86. 86

87. 87 Why you need benchmarks?

88. 88 There are 2 types of benchmarks Internal External  Based on previous execution  Extremely comparable  Very reliable  Detailed – can be put for each and every activity  Based on some external source (i.e. reports)  Not that easily comparable  They to be treated with caution  Only for chosen amount of activities  Can give you food for drastic improvements - by analyzing them you can find totally different method of working

89. 89 By comparing your results and benchmarks you can decide what to improve, work on Internal  Salary  Speed of typing  Speed of analyzing Excel Area Unit Current result  K USD  words/ minute  minute  5  40  15 4 39 10 External 7 80 12  Your salary went up in comparison with your previous one but you are still below the market  Your typing speed has improved slightly yet you are far below the speed achieved by others  You not only improved your speed of analyzing but also are better than others  Makes sense to teach others how to do it Conclusions

90. 90 Check the YoutTube movie for more details Click to go to the YouTube Movie

91. 91 Applying 80/20 rule in practice

92. 92 80/20

93. 93 What does 80/20 mean in practice  Concentrate only on the big items  Concentrate on the big customers  Analyze the most typical cases  Concentrate on the most frequently occurring problems  Analyze problems with big impact  Your analyses should have only 20% of the variable that generate 80% of the impact  Start with subjects where you see the biggest difference between actual results and benchmarks

94. 94 Here are 3 examples of using 80/20 rules  Learning Visual Basic for Excel  Checking competitors  Salsa course Area  Learn only the 5 most used items that will take only 20% of full course and will be used by in you in 80% cases  You check only 20% of competitors that sales add-up to 80% of the market  Go through 20% of the course to learn the moves and the figures used in 80% of cases Description

95. 95 Low hanging fruits

96. 96

97. 97 Get the low hanging fruits first. By low hanging fruits we mean things with big impact and easy to accomplish

98. 98 Resources needed Impact SmallBig High Low  Things with big impact that require little work 1 How to find low hanging fruits?  Easy but with low impact 3  Things with big impact yet expensive, time consuming 2 No

99. 99 How to lose weight – Introduction

100. 100 Imagine that you want to help Kate lose weight. Use the low hanging fruit approach to map all the potential solutions. First list activities

101. 101 How to lose weight – List of potential activities

102. 102 Just as a reminder you were supposed to help Kate lose weight. The first step is to list all potential activities that can help her achieve the goal

103. 103 Let’s first list all potential ideas Cut down on sweets by 50% Buy special meal kit / box diet Run 2 times a week for 30 minutes Walk every day 15 K steps Hire personal trainer / coach Measure calories intake Do intermittent fasting Stop eating carbs / carbohydrates Eat 2 kg of vegetables every day Give up sweet beverages Start drinking green tea Drink 4 liters of water every day 15 minutes of daily exercises Plastic surgery

104. 104 1 Now try to map all ideas on the low hanging fruit matrix 2 4 3 Impact High Low Difficulty level LowHigh

105. 105 How to lose weight – Solution

106. 106 Just as a reminder you were supposed to help Kate lose weight. We have the list let’s try to put the on the map and identify low hanging fruits

107. 107 Let’s first list all potential ideas Cut down on sweets by 50% Buy special meal kit / box diet Run 2 times a week for 30 minutes Walk every day 15 K steps Hire personal trainer / coach Measure calories intake Do Intermittent fasting Stop eating carbs / carbohydrates Eat 2 kg of vegetables every day Give up sweet beverages Start drinking green tea Drink 4 liters of water every day 15 minutes of daily exercises Plastic surgery

108. 108 1 Let’s map all ideas on the low hanging fruits matrix 2 4 3 Impact High Low Difficulty level LowHigh Cut down on sweets by 50% Buy special meal kit / box diet Run 2 times a week for 30 minutes Walk every day 15 K steps Eat 2 kg of vegetables every day Start drinking green tea 15 minutes of daily exercises Hire personal trainer / coach Measure calories intake Do Intermittent fasting Stop eating carbs / carbohydrates Give up sweet beverages Drink 4 liters of water every day Plastic surgery

109. 109 Set SMART goals

110. 110 S M A R T Specific – target a specific area for improvement Measurable – it has to be quantifiable; you have to have a way of measuring it Assignable – it says who will do it Realistic – it can be delivered Time-related – it says when it has do be delivered / by which dates The SMAR formula translates to 5 rules you should use when defining the goals

111. 111 Goals for ordinary tasks Goals for skills  Avoid vague tasks  Always for projects set deliverables, dates and responsible persons  Merge the task with the goal on the to-do list and set the right pace to a achieve the goal within the defined time  Set goals for improving your skills  Set goals for learning new things  Set goals for making the repetitive things faster and better SMART goals should be set for the task but also for skills

112. 112 Imagine that you want to write a book. Let’s translate it into task with SMART goals Imagine that you want to write a book Define the size of the book and deadline Divided into small tasks Make the tasks SMART Set the pace and execute  200 pages  1 page = 800 characters  Time= 1 year  Write pages  Write 1 page every day  Measure every week completion rate against the target (1 page/day=7 pages/week)  If necessary act to keep the pace

113. 113 By comparing your results and benchmarks you can decide what to improve, work on Internal  Learn Spanish  Speed of typing Area Unit Current result  Level  words/ minute  0  40 n/a 39 External Intermediate 80  Sing-in the course  Listen to Spanish TV 30 minutes every day  Enroll into a on-line course  Devote 15 minutes every day to training Target  Intermediate in 2 years  Achieve 60 words/minute In 3 months Actions

114. 114 Map your skills, experience, skills and set goals where you want to be  Sales projects Experience  1 # of projects Current Target  4 Industry Current Target  Marketing projects  2  6  Supply chain projects  2  2  Production projects  3  3  HR projects  0  1  Excel Skills Lowest Level Highest level  Negotiation  English  Optimizing production  Setting up on-line marketing campaigns

115. 115 Opportunity tree

116. 116 Opportunity tree Gross Margin Sales % Gross Margin % Front Margin % Back Margin # of transactions ATV Traffic % conversion  YouTube  Ads on instagram  Affiliation with bloggers  Guest blogging Opportunities  Long form / Short form  Reduction of delivery methods  No account  Emailing for people abandoning cart  Upselling and Cross selling  Free delivery for higher tickets  Introduction of new categories  Reducing number of suppliers  Finding new suppliers  Renegotiation

117. 117 Cost drivers

118. 118 Cost drivers are causing the cost to go or down Cost of a Udemy course Slide preparation Recording and editing # of slides Cost of 1 hour # of hours per 1 slide # of lectures Cost of 1 hour # of minutes per 1 lecture

119. 119 KPIs and business drivers

120. 120 To understand and analyze business you have to identify the drivers / KPIs that a key for specific business and translate it into a model in Excel # transactions Average revenue per transaction Total revenuex % Fee of the marketplace Average transaction value Total searches % conversion x x Total Costs Total margin - Rent People Cost of traffic Ratio of visitors to searches Average cost of 1 visit + x Development

121. 121 Imagine that you have to estimate typical family spending's. You can take into account countless number of factors…..

122. 122 …or you can limit yourself to the most important ones i.e. number of kids, size of house, main repetitive spending like food.

123. 123 To measure the selected factors you have to use some sort of KPIs Spending per 1 person per month per category # of people in average family Average size of the house in sq. m Average rent per sq. m

124. 124 Personal KPIs – Introduction

125. 125 Let’s imagine that you have to define the personal KPIs for Giuseppe that will help him make sure that he is increasing his chances of being happy

126. 126 A few information about Giuseppe Giuseppe has a girlfriend He works as a business analyst His family, health and friends are important to him He also wants to get more financially sound

127. 127 To define KPIs I would recommend following a very simple sequence of actions Define what areas matter for you Identify drivers Define output KPIs Define input KPIs Set targets for KPIs

128. 128 Personal KPIs – Solution

129. 129 Just as a reminder you were helping Giuseppe define his personal KPIs that will help him make sure that he is increasing his chances of being happy

130. 130 Just as a reminder what we know about Giuseppe Giuseppe has a girlfriend He works as a business analyst His family, health and friends are important to him He also wants to get more financially sound

131. 131 KPIs help you manage the drivers of your business model Define what areas matter for you Identify drivers Define output KPIs Define input KPIs Set targets for KPIs  Relationships  Family  Health  Work  Financial well-being  Pastime / Hobby

132. 132 Let’s look how we can define KPIS for the relationship Relationship Time spend with his girlfriend (Laura) Area Drivers Output KPI Input KPI Laura’s happiness level  # of times they see each other during the week  # of times he propose to see her during the week  Average # of Laura’s smiles per meeting  # of times she says something nice during the week  # of small gifts given to Laura  # of times he propose to see her during the week  # of times he organizes a nice date (cooking, cinema, restaurant visit) during the week

133. 133 Let’s look how we can define KPIs for the family Family Time spend with his family Area Drivers Output KPI Input KPI Family’s happiness level  # of times they see each other during the week  # of times he accepts invitation from his mother  # of complaints from his mother during the week  # of times he accepts invitation from his mother  # of times he calls his mother  # of times he praises his mother about her food

134. 134 Let’s look how we can define KPIS for the health Health Be in shape Area Drivers Output KPI Input KPI Have no illnesses  His weight  The size of his muscles  # of times he runs a week  # of times he visits the gym  Average number of kcal per day consumed  # of illnesses he is suffering from during specific week  Average sleep per day  Average number of kcal per day consumed  Vegetables as a % of his food intake  Alcohol consumption per week

135. 135 Let’s look how we can define KPIS for the work Work His salary Area Drivers Output KPI Input KPI Doing interesting new things  His salary  % salary increase over the year  Additional income per month  # of networking meetings per month – internal  # of networking meetings per month – external  Money invested in additional businesses  CVs / resume sent to other firms  # days during the month during which he did interesting things  # of networking meetings per month – internal  Quality of his work from 1 to 10 – measured by people who work with him  # of praises he got during the month  # of attempts to get into interesting projects per month

136. 136 Let’s look how we can define KPIS for the financial well-being Financial well-being His net value Area Drivers Output KPI Input KPI Generate positive CF  Net value in EUR  % of his salary not spent during the month  Additional money invested  Additional income generated  Cash flow generated during the month  Positive cash flow generated during the month as % of his salary  % of his salary not spent during the month  Additional income generated

137. 137 Total cost of ownership

138. 138  All the cost related to owning or using a specific item / thing  It will also include the cost of lost opportunity i.e. money not earned due to spending time on repairing the thing Total cost of ownership = Let’s start with a short definition

139. 139  Cost of buying a car  Insurance  Fuel  Cost of maintenance including repairs & parts  Time wasted on maintenance, parking etc.  Other i.e. parking tickets, traffic ticket etc. Let’s compare the cost of owing a car and using a rideshare / taxi / cab service  Cost of rideshares

140. 140 Rent or buy an apartment / flat – Introduction

141. 141 Let’s imagine that Peter is considering 2 choice: buying an apartment or renting it. Let’s use the total cost of ownership to see what makes sense.

142. 142 Let’s have a look at the information that Peter has Buying the apartment would require EUR 150 K Renting cost EUR 600 per month Interest rate is 3%, inflation 2%, Wage increase is 5% Peter currently earns EUR 30 per hour

143. 143 To see the case studies along with analyses in Excel check my online course. Below a link to the course Estimating the costs of a wedding Guessing the average salaries in other department Estimating when you can retire Estimating what could be the impact of mastering new skills Defining issue tree in practice How to lose weight How to get into shape Deciding what makes more sense to buy or to rent an apartment? Click here to check my course

144. 144 Intermediate tools used by Management Consultants

145. 145 In this section we will discuss the intermediate tools, techniques and frameworks used by Management Consultants Rankings Scenario Analysis Representative element analysis Decision Tree Analysis Critical Chain Theory of constraints and bottlenecks Lean Manufacturing

147. 147 Intermediate tools – Case studies overview

148. 148 We will help Maria pick the ideal guy / boyfriend. For this try we will use a specific ranking which will take into account 4 criteria

149. 149 We will also analyze whether it makes more sense to buy a car or to use Uber. For that we will use scenario analyses

150. 150 We will help George decide whether it makes sense to go to USA for MBA

151. 151 We will help Adam and Eva pick the best size of the house for their family. They have currently 1 kid but may have more. We will try to pick the optimal solution.

152. 152 We will help Jorge become more efficient. We will do that using the Overall Labor Efficiency Framework and estimate how much he can improve his situation

153. 153 We will help Ivan who wants to improve the work of his team. In this case we will use the bottleneck framework

154. 154 We will help Adrian, who is currently single, find a new girlfriend using the decomposition analysis.

155. 155 Rankings – introduction

156. 156 Quite often you have options that you want to somehow compare and rank them Option 1 Option 3 Option 4 Option 5

157. 157 Thanks to the ranking you not only give points but you can sort them from the most wanted to the least desired Option 5 Option 3 Option 1 Option 4

158. 158 You may use ranking for many things Pick the best option from available options Create priorities for further actions Rank people / team members Rank business ideas Motivate Create benchmarks

159. 159 Rankings are done in 5 steps Create criteria and weights for the ranking Gather data Calculate the points and create the ranking Pick the preferred option  At least 3-4 criteria, preferably independent  Every criteria should have a weight – not all criteria have to have the same importance  For defined options gather data on the criteria so you are able to calculate the points for every criteria and option  Define the rule / function that assigns points for every criteria  Calculate the score for every option- criteria  Using weights calculate the total score  Use the total score to rank the options  You can use additional criteria  Using the ranking and additional criteria you can pick the preferred option Define options  You have to define all options that you will be choosing from

161. 161 How to chose the right boyfriend – Introduction

162. 162 Let’s imagine that you were to help Maria pick the ideal guy / boyfriend. For this try to use rankings

163. 163 There are a few things that we know about Maria She has 4 potential candidates She wants her boyfriend to be nice, intelligent, good looking From her perspective his earnings and assets matter She is not sure about importance of specific criteria

164. 164 How to chose the right boyfriend – Solution

165. 165 Just as a reminder you were to help Maria pick the ideal guy / boyfriend. For this try to use rankings

166. 166 Let’s summarize the results of our ranking 8 0 6 10 4 6 4 63 6 4 46 5 10 10 0 5 10 15 20 25 30 35 Alejandro Santiago Jose Pablo Inteligence Being nice Financial situation Attractivness

167. 167 Scenario Analysis – Introduction

168. 168 Future is pretty difficult to figure out. You don’t know what will happen. In those cases it is a good idea to consider a few different scenarios

169. 169 Future is pretty difficult to figure out. You don’t know what will happen. In this cases it is a good idea to consider a few different scenarios

170. 170 Imagine that you are ice cream producer and you have to decide how much ice-cream to produce for the next day without knowing what will be the weather. Therefore, you have to consider different scenarios Scenario 1 Scenario 2 Scenario 3 100 70 30

171. 171 The scenario analysis consists of 5 steps Define the thing (goal function) you want to analyze Define which drivers are the least certain Define the scenarios Define your behavior / policy Check the goal function for every policy  You should be analyzing the things that are threatened by different scenarios and are important for your business  It can be profit, NPV from new investment, inventory you should have etc.  It is good to define 3-5 different scenarios  In every scenario the main drivers will have different value  You should assign certain probability to every scenario  Scenarios do not depend on you but your behavior does.  You can define a policy / behavior that helps you in a specific situation  Concentrate on drivers that have big impact and big volatility  The aim of this step is to pick the right policy, given the scenarios and their policy  The best policy is the one that gives you highest benefits (highest goal function)

172. 172 Car vs Uber – Introduction

173. 173 Let’s imagine that you were to decided whether it makes more sense to buy a car or to use Uber

174. 174 We will consider 3 scenarios Consider 3 scenarios In scenario 1 you use the car just to get to work In scenario 2 you use it also for buying and visiting friends In scenario 3 you also travel on weekends

175. 175 Let’s see what is the difference for # of days during which you use the car during the month Scenario 1 - just to get to work  20 Average # of km per day covered  50 Scenario 2 - work, shopping, friends  26  70 Scenario 3 - work, shopping, friends, weekends  30  90 % probability of scenario  50%  30%  20%

176. 176 A few hints on what costs you should take into consideration for the own car option Purchasing of the car & financing Maintenance Insurance Fuel Parking Other costs i.e. traffic tickets

177. 177 Representative element analysis – Introduction

178. 178 In many cases there are a lot of options that you can consider. For simplicity you want to limit the options and get down to 1-5 representative elements

179. 179 There are usually 2 main ways to use representative element analysis Average 3 options

180. 180 Thanks to representative element analysis you can achieve a lot of interesting things Compare different solutions and decide which is better Compare different offers and decide which is better Find optimal solution Create benchmarks Plan & Forecast Do the segmentation

181. 181 Decision Tree Analysis

182. 182 Quite often you have to make important decision faced with uncertainty. In those situation it is very useful to apply the so called decision tree

183. 183 Let’s have a look at example. You are to build a chocolate factory. You have to decide on the size of it. Big Factory (Invest $50 M) What factory you should build? Small Factory (Invest $30 M) Big Demand (EBITDA= $100 M) Small Demand (EBITDA= $20 M) Big Demand (EBITDA= $50 M) Small Demand (EBITDA= $30 M)  50 Outcome In M USD  -30  20 60% 40% 60% 40%  0

184. 184 Once you have the outcomes for each and every option it is time to calculate the expected value for both decisions Expected Value = Outcome 1 x Probability of Outcome 1 + Outcome 2 x Probability of Outcome 2 Expected Value for Big Factor = 50 x 60% + - 30 x 40% 18= Expected Value for Big Factor = 20 x 60% + 0 x 40% 12=

185. 185 Once you have the outcomes for each and every option it is time to calculate the expected value for both decisions Big Factory (Invest $50 M) What factory you should build? Small Factory (Invest $30 M) Big Demand (EBITDA= $100 M) Small Demand (EBITDA= $20 M) Big Demand (EBITDA= $50 M) Small Demand (EBITDA= $30 M)  50 Outcome In M USD  -30  20 60% 40% 60% 40%  0 18 12

187. 187 How big house should we build – Introduction

188. 188 Let’s imagine that you have to help Adam and Eva pick the best size of the house for their family. They have currently 1 kid but will have more. Pick the optimal solution.

189. 189 A few information about Adam and Eva They may have in total 2 or 3 kids They will have 2 kids with probability 60% Small house costs EUR 150 K Big house costs EUR 250 K

190. 190 If the house is too big or too small they will have cover additional costs Big House (Invest EUR 250 K) How big house should they build Small House (Invest EUR 150 K) 2 kids 3 kids 2 kids 3 kids  0 Renting additional space In K EUR  0  0 60% 40% 60% 40%  151  50 Not used space In K EUR  0  0  0

191. 191 How big house should we build – Solution

192. 192 Just as a reminder you were to help Adam and Eva pick the best size of the house for their family. They have currently 1 kid but will have more. Pick the optimal solution.

193. 193 If the house is too big or too small they will have cover additional costs Big House (Invest EUR 250 K) How big house should they build Small House (Invest EUR 150 K) 2 kids 3 kids 2 kids 3 kids  0 Renting additional space In K EUR  0  0 60% 40% 60% 40%  151  50 Not used space In K EUR  0  0  0

194. 194 Let’s see what is we get after the calculation in Excel Big House (Invest EUR 250 K) How big house should they build Small House (Invest EUR 150 K) 2 kids 3 kids 2 kids 3 kids  0 Renting additional space In K EUR  0  0 60% 40% 60% 40%  151  50 Not used space In K EUR  0  0  0 -280 -210

195. 195 OLE

196. 196 Overall Labour Efficiency how much work there is in the work ? Workday Time that you can devote Time left for real workLack of work 100% 54% OLE = 100 % 54 % x x 98% Work 98% 37% No work due to organizational issues Movement 70% Work well done 70 % Liczba dostępnych godzin lalka Stawka Godzinna Dodatkowe przychody

197. 197 Removing bottlenecks

198. 198 Bottlenecks are dangerous as their hurt the efficiency of the whole system

199. 199 What is the throughput of every system and where is the bottleneck? Example 1 7 5 7 Example 2 5 10 20 Example 3 5 5 3 x Stage capacity

200. 200 The are 4 rules that you should follow when it comes to bottlenecks  Identify what is the bottleneck  Increase its throughput by lowering the time needed for everything that goes through the bottleneck  Add new resources to bottleneck  Adjust everything to the bottleneck – so it works at the same pace

203. 203 Content marketing agency – Introduction

204. 204 Your friend Ivan works in a content marketing agency and wants to improve the work of his team. Help him using the bottleneck framework

205. 205 A few things about Ivan team He manages 4 people Every person specializes only in 1 area You measure your success in number of posts produced

206. 206 Below you can see the production capacity for each and every stage. 1 person works on 1 stage only Research topics for a post Write a post Create illustration Edit and modify post, add illustration and schedule 20 7 10 # of post that can be done in a week by 1 person xx 5

207. 207 Content marketing agency – Solution

208. 208 Your friend Ivan works in a content marketing agency and wants to improve the work of his team. Help him using the bottleneck framework

209. 209 Just as a reminder a few information about the content marketing agency He manages 4 people Every person specializes only in 1 area You measure your success in number of posts produced

210. 210 Let’s see how we could increase production of posts Research topics for a post Write a post Create illustration Edit and modify post, add illustration and schedule 20 5 7 10 # of post that can be done in a week by 1 person  Speed up the writing process (faster typing, better tools, shortcuts for the most popular words) xx 20 8 7 10 10 9 10 10  Make the researcher do also par time writing and making illustration  We have almost doubled the production of post with the same resources  The same principles would apply if all the activities were done only by you – in this case it would mean that you should not do too much research and illustration but rather improve the typing speed and match the number of illustration and researches to your capacity in writing  If you have no impact on the process (you are one of the guys above just doing his own part and your boss does not want to listen to you then simply do less – identify the bottleneck and adjust your speed to his speed.  On the other hand if you are the bottleneck then speed up because the whole team depends on you.

211. 211 Critical Chain

212. 212 One of the biggest problem for efficiency is the so called Parkinson’s Law – Work expand so as to fill the time available for its completion

213. 213 People when asked to evaluate the time certain things will take build in buffers A B C A + B + C A + B + C A B C Central buffer Declared time Buffer time Real execution

215. 215 Simulation analysis – Introduction

216. 216 Future is pretty difficult to figure out. You can use scenario analysis or you check ALL the potential options and see which is optimal

217. 217 Imagine for a second that you have a small bakery trying to decide what is the optimal number of cakes that you should bake. You want to use simulations to find out

218. 218 For the producer of cakes that at the same time can bake from 1 to 10 cakes using the simulation to find optimal production batch would entail calculating the costs for all options

219. 219 There are plenty of things you can do thanks to simulations Find optimal solutions Carry out sensitivity analysis Plan & Forecast Test the boundaries of the system Find weak spots …..

220. 220 Decomposition analysis – Introduction

221. 221 Revenue Growth Decomposition analysis shows you what are the components, driving forces behind certain phenomena. Imagine for a second that we are analyzing revenue growth of a FMCG company

222. 222 We would like to break it down to following components. This decomposition helps us see how we managed to grow the revenues New customers New products Increased sales in existing customers and products Others Increased price

223. 223 Decomposition analysis helps you achieve a lot of goals Pick the biggest contributor You will know what to focus on to get the required effect Check to what extent you were dealing with one-offs Create a business model based on drivers and KPIs Forecast / Plan the future results Evaluate the business / business unit

224. 224 How to find a new girlfriend – Introduction

225. 225 Adrian is single again and wants to understand better what is the best way to pickup girls. Have a look at his history and help him

226. 226 A few things about Adrian. As a first task create a framework to analyze the history He wants to understand the drivers of historical successes Adrian wants to know what he should do to be more successful Use the decomposition analysis to help him

227. 227 How to find a new girlfriend – Decomposition framework

228. 228 Let’s have a look at the general framework % conversion rate Probability that you will convert her into a potential girlfriend # of Potential Candidates per opportunity # of opportunities Probability that she will give her phone number # of Potential Candidates x x # of Potential Girlfriends x Driving KPI Output KPIs

229. 229 Feasibility analysis – Introduction

230. 230 In feasibility analysis you want to check whether something is possible or what are the limitations that you have to consider

231. 231 In feasibility analysis you are given the goal you have to achieve. Now you need either to find the limitation or alternative ways to reach that goal Limitation 1 Limitation 2 Goal Limitation 3 Limitation 4 Way to achieve the goal 1 Way to achieve the goal 2 Way to achieve the goal 3 Way to achieve the goal 4 Limitation 1 Limitation 2 Limitation 3 Limitation 4

232. 232 There are plenty of things you can do with feasibility analysis Identify the limitation you have to remove to achieve the goal Pick the most interesting way to achieve the set goal Check what are the limitation behind alternative ways to achieve the goal Find directions in which you can to develop your company Build a strategy for a business unit

233. 233 How to increase the net profit by 10% – Introduction

234. 234 Imagine that you supporting a beauty saloon chain in Easter Europe in their attempt to increase net profit 50 location in Easter Europe They mainly do manicure They are looking for ways to increase profit by 10%

235. 235 There are number of ways in which you can increase the profit by 10% Get new customers Convince existing ones to come more often Upsell and cross-sell customers during their visit Introduce new product Increase prices

236. 236 How to increase the net profit by 10% – Solution

237. 237 Imagine that you supporting a beauty saloon chain in Easter Europe in their attempt to increase net profit 50 location in Easter Europe They mainly do manicure They are looking for ways to increase profit by 10%

238. 238 Option 1 – Increase price Description Required change to increase net margin by 10% Commodity is a basic good used in commerce that is interchangeable with other commodities of the same type  We increase the price for manicure for all customers  Current price is 25 USD per visit  5% increase of the price Option 2 – Increase Frequency  We increase the frequency of visiting our beauty shop  Currently, an average customer does 1.4 visit per customer  Increase from 1.4 to 1.6 visit per customer Option 3 – Increase Customer Base  We increase customer bases size – acquire new customers  Currently, we have 60 K of customers per shop  Increase customer base from 60 K to 68 K Option 4 – New product  We introduce new product  Currently we do not sell any additional product  We need 36% of our customer to buy the new product

239. 239 Sensitivity analysis – Introduction

240. 240 Once you come up with an optimal solution you want to see how sensitive it is to small changes in underlying assumptions. The solution can be pretty stable…. Current Solution - 7% Current Solution - 5% Current Solution - 2% Current Solution - 1% Current Solution Current Solution +1% Current Solution +2% Current Solution +5% Current Solution +7%

241. 241 … or the contrary very volatile Current Solution - 7% Current Solution - 5% Current Solution - 2% Current Solution - 1% Current Solution Current Solution +1% Current Solution +2% Current Solution +5% Current Solution +7%

242. 242 You want to carry out a sensitivity analysis for many reasons Volatility means risks You want to prepare for the risk / hedge against the risk In some cases you may want to choose less sensitive option Sensitivity analysis is basis for managing a portfolio of projects Sensitivity analysis helps you manage expectations

243. 243 To see the full case studies along with analysis in Excel check my online course. Below a link to the course How to chose the right boyfriend – how to chose rankings in practice Car vs Uber – what is cheaper, scenario analysis How much is MBA worth – scenario analysis Estimate how long will it take to prepare the presentation? How big house should you build – decision tree example How to improve your efficiency using OEE analysis How to remove bottlenecks in practices – content marketing agency case study How to get a girlfriend – picking the optimal method Click here to check my course

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