Brainstorming decreasing costs

Hi there,

FC and VC is a pretty elementary way of doing it and it doesn't do anything to "impress" the interviewer. industry/business context, the company context, and the situationally/problem context. Only then can you create an appropriately tailored cost breakdown. As an interviewer I really don't care that you know how to split into FC and VC. What I care about is that you've correctly identified the major costs!

In general, for determining cost issues, you need to break down the problem into a tree/root-cause analysis and ask the highest level (but specific) questions first! In this way, you essentially move down the tree.

How do you identify where to look? Well, you need to look into whichever of the following 5 make the most sense based on where you are:

1. What's the biggest? (i.e. largest piece of the pie...most likely to change the end result)
2. What's changing the most? (I.e. could be driving the most and most likely to be fixable)
3. What's the easiest to answer/eliminate? (i.e. quick win. Yes/No type of question that eliminates a lot of other things)
4. What's the most different? (differences between companies, business units, products, geographies etc....difference = oopportunity)
5. What's the most likely? (self-explanatory)

I feel you're on the right track where it's not about a "better" way but the most "relevant" way. Fixed vs. variable is meaingful if the unit economics are meaningful, it could be direct vs. indirect costs especially for a manufacturing business, or procured vs. in-house costs where there is a large supply chain, etc. 

To go deeper, the technique I like to use is to explore both the unit cost of the cost item as well as the unit volume. It's allows you to be MECE while also taking a more "first principles" approach. Let's take an airline business, most candidates will identify fuel cost to be a major cost item and often offer a hypothesis that oil prices have gone up. A more meaingful answer could be to explore what else could be impact the unit cost of fuel - e.g., poor contract management (you're over paying), supply chain issue with supplier, hedging loss, adverse mix based on location of refuelling, etc. On the other hand, unit voume could be impacted by fleet mix where your newer more fuel efficient aircraft get grounded, poor fuel management by the pilot, operational inefficiency in terms of routing or at the airport, etc.