Cost component in a strategy case

Hello Henk,

Here are my thoughts:

1) I think the 3C model is a good starting point to structure the whole problem

2) However, within the Company bucket you can further structure in to include Profitability, Operational feasibility, etc.

3) Within Profitability, you can touch upon Revenues and Costs

4) And finally under costs, you can talk about the different costs that you had initially planned to capture.

The takeaway here is that it is great to have a certain level of detail in your work, however, you need to make sure that it falls in the right place in the context of the wider problem that you have to solve.

Feel free to reach out to me directly if you have any further questions!

All the best!

Rushabh

You need to analyze the cost competitiveness of the port. There's no way around it. The interviewer may state that it is not relevant, but I don't see howcome you can ignore this. 

I suggest you look into demand (based on hinterland for example), considering different revenue streams (liquids, containers, etc), prices (to get to revenue), capex requirements and costs (you need to know if your costs can be competitive vs. alternatives).

Hello!

No, you are thinking about it right! Costs are going to be always a huge component of any case that involves a decision making trade off. 

Bear in mind that there is no one correct way to solve a case, but many, and many “frameworks” can be adequate. 

Hope it helps!

Cheers, 

Clara

Hi Henk Baarsjes,

This is indeed an interesting question which is probably relevant for a lot of users, thus I am happy to provide my perspective on it:

• I think the 3C framework may not be sufficient for a strategic business question (and CraftingCases may not be a good resource to learn how to approach consulting case studies either). As you already indicated, besides potentially sociodemographic factors such as the creation of new jobs to the region, the profitability of building the port should be the focus area for the entrepreneur. You may still accompany the economic assessment with considerations about non-financial factors or associated risks and how to mitigate them, but the 3C framework would not cater to those aspects at all.
• Still, the goal of the exercise you described may not necessarily be to calculate the costs, but rather to develop a conceptual framework for analyzing the key factors that should be considered in the decision-making process.

In case you want a more detailed discussion on how to approach consulting case studies like a consultant, please feel free to contact me directly.

Best,

Hagen

Hi there, 

I think this is a great question!

For a distinctive answer, you'd need to clarify with the interviewer what is meant by ‘should’. Does the decision to build a port hinge on profit or is this rather an investment that is required to unlock other revenue streams? If building a port is meant to generate profit on its own, then it would be critical to do a financial assessment of the business, where an overview of the costs would be as important as an overview of the revenues. 

Don't think so much in terms of what does this type of structure require, but rather what does the question require. 

Best,

Cristian

I think costs should be mentioned. You could structure at a high-level as : The entrepreneur should build the port if:

1. There is significant value in building a port
2. The entrepreneur can capture that value as profit

With cost being in that second macro-bucket.

The question is prioritising where you go within the time you have on the case. Imagine you are advising this client. You have 1 week before you need to deliver some output. What is more impactful?: a slide with detailed costings of port build or a slide detailing the potential revenue opportunity of the port?

This is something you could clarify at the start of the case, to understand where the entrepreneur wants to focus on and what their goal is (I have assumed it is profit in my structure above).

Hi there,

There's various ways of approaching this, depending on the objective. Here's the two extremes:

• Target figure: If the question is related to specific quantitative success criteria, such as specific ROI, your framework should reflect a mathematical formula whereby you have a capital branch (investment) and an operating profit branch (revenue/cost). As you go deeper in your structure and create subbranches, the endpoint will always be a figure. Lastly, you'll be able to crunch the numbers and work out the mathematical answer. You can choose to call this “Financial Analysis" and combine with a “Non-financial” analysis. However, it's ultimately very numbers driven and this is where you will need a detailed cost bucket as part of the equation.
• No target figure: If you're not actually going for a specific quantitative assessment, you can go in many different directions. If you have different options for investment, for example, you could assess pros/cons for each. Those buckets can then be filled with all kinds of financial/non-financial drivers to make them comparable. If you only have this one investment option with no financial success criteria, you have to establish the non-financial success criteria first to make a targeted assessment of the situation. In that case it's unlikely that you will need a detailed cost bucket because you will be focusing on other things.

Hope this helps a bit. Best of luck!

Moritz

Obviously, you have to consider the investment needed to build the port and the cost to operate it. 

I think the question was about the specific link between the entrepreneur and the port itself.