It really depends on the case objective and context. Just a couple of examples. What if the case was about:
- You profit being lower than planned - then you need to check whether it's the problem of planning or the problem of profits
- You profit being lower than competitors - then you have to analyze both in the 1st level of your structure.
For standard declining profits cases I would recommend the following approach:
1) Ask clarifying questions:
- Clarify the business model (i.e. how the business works and what are the revenue streams / core products or business lines). Why do you need to know the revenue streams? Because it's one of the most critical pieces in understanding the business model. An example is Oil&Gas with up-, mid- and down- streams that are completely different businesses.
- Clarify the objective both in money terms and timeline (e.g. Our objective is to increase profits by 5M in 5 years). When you have a to select from several options in a case - clarify the selection criteria
- Clarify other possible limitations if you feel that it's necessary
2) You make a classic profitability structure adapting it to the case. Sometimes cases are not that easy as just declining profits. For example, if the profits are lower than planned, it is either because we have problems with profits or we have problems with planning. Try to be MECE here.
3) While you do your structure you split the revenues first by the revenue streams (if you have multiple streams) and then into either:
- Price and quantity for the production companies. I also recommend to add proactively the 3rd boxn - the "Mix". Thus you show your business sense and demonstrate that you know the most common case traps. Pls note that the "mix" can be anything - geography, customer, product, etc.
- The number of customers and the average check for retail stores, restaurants, ets. You can further split the customers into traffic and conversion (if relevant, e.g. for a fashion store) and the avg check into the products and prices
3) Costs I would split into Fixed and Variable. VCs you can split futher into costs per unit and units sold
4) I would start the case by checking whether its increasing revenues, declining costs, or both - so that you could eliminate the part that is irrelevant.
Then you dig deeper into the new structure to understand the root causes