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Framework for choosing between investments

Anonymous A asked on Aug 05, 2019 - 2 answers

Hey Everyone,

So I have a bit of a conundrum on a neat, possibly MECE, approach to a problem such as: Given investment A or B, or given we do A and we want to move to B, what factors should we consider.

My idea would be as following (of course this is far from rigid, just a skeleton for ideas). The three very high-level buckets would be, and the inner buckets:

  • The stakeholders:
    • Who are the customers? What are their preferences (eg, A or B)? Etc.
    • The company? Are we failing to satisfy these preferences? Would the new investment be better? Etc.
    • (Maybe) Can the current staff/capabilities support the investment (eg, would A or B be easier to fit)?
  • The finance:
    • Can we afford this?
    • NPV or profit/BEP etcetera. (for one or both)
  • The how and implementation risks
    • Fit
    • Competitor response
    • Trends in the industry
    • Would the stakeholders be happy etcetera.

What do you think?

I look forward to your feedback.

A

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Vlad replied on Aug 05, 2019
McKinsey / Accenture / Got all BIG3 offers / More than 300 real MBB cases / Harvard Business School
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Hi,

One thing you are missing is the objective. Is it NPV? Certain profit? BEP? From your structure, it seems you have not clarified the objective (what means success for the client and how he will measure it) and thus your structure may be completely invalid (or valid)

Best!

Dear Vlad, thank you. I think I left it a bit general as I guess I would clarify the objective at the start and choose the most suited financial indicator that answer the original question. So if it were profit I'd have a further branching tackling costs, revenues as QxPrice? Is that a good approach? — Anonymous on Aug 05, 2019 (edited)

Leif
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replied on Aug 06, 2019
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Hi there,

Overall this is a pretty good structure and the three high-level buckets make a lot of sense. If I want to be very picky, here are a few thoughts (all minor things though):

  • Consider re-arranging certain elements of your framework so that it appear more MECE. For example, the question "can we afford this" under Finance could also fall under sub-bullet 3 under The Stakeholder. Not a huge deal because this confusion can be easily resolved if you explain well verbally.
  • Consider further breaking down some of the issues in your current framework. For example, you can potentially break down sub-bullet 2 and 3 under The Stakeholders into more concrete stuff.
  • Consider how you would add more issues or customize some existing issues based on what exactly A and B are.

Again, I would say that you have a good skeleton. Just make sure that you tailor it to the specific situation when you actually use it during a case.

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