How to structure a framework for investment cases? (go or no-go decision)

Framework Investment
Recent activity on Mar 27, 2018
3 Answers
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Anonymous A asked on Mar 27, 2018


Hello,

I would like to take your suggestions on how to structure a framework for investment (go or no-go decision) cases?

Let's say the client is a beverage company and wants to determine whether they should invest in 1 distribution center or 5 distribution centers. I would normally construct my structure as the following:

1) Market Landscape
-Market size/ growth trends for beverage industry
-Competitor analysis (key players, market share, how do they distribute their products)
-Customer analysis (key segments, where are they located)

2) Financial projections for each alternative
-Rev/ cost projections
-Upfront investment cost
-Breakeven

3) Operational Impact
-Hiring/ training new labor force
-Operational complexity bcs of increase in the scope

4) Strategic Issues
-Opportunity cost
-Loss of focus
-Integration issues

Thank you very much.

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B
Expert
replied on Mar 27, 2018
NOT AVAILABLE

Hey anonymous,

This framework seems quite interesting for approaching such problem, I would add two dimensions throughout your points:

1) include regulations and other barriers to entry/expansion

3) analysis on key capabilities (production, distribution, transportation, management, HR)

Best

Bruno

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Vlad
Expert
Content Creator
replied on Mar 27, 2018
McKinsey / Accenture Alum / Got all BIG3 offers / Harvard Business School

Hi,

At the beginning of the case, I would ask the clarifying question: Why is the company thinking about this investment now. What is the objective?

If it is the case of the demand growth, I would start same as you with the market and trying to estimate the demand

If it is the case of operational efficiency - I would start with the the analysis of the current operations and the operations in both of the options, rather than the market. For that purpose, I would go through the value chain: Production / transportation / DC / Retail and check how are the new options different in operations from the current ops.

Best

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Anonymous B on Jul 06, 2020

Hello Vlad, thank you for your interesting answer. If the case is a Go/No-Go case and the objective is to be profitable, would this structure be suitable for this case : examine internal factors to see if the investment could be profitable, 1 - if so : 1.1 I examine the operational aspect to see if it would be possible for our client to achieve the calculated profitability. 1.2 Carry out a market analysis (size of the market, market growth, competitors...) to see if we can position ourselves on the market to see if we can expect the revenues and costs considered in point 1.1. 2 - If not : I will deepen the value chain (benchmarking with competitors, brainstorming ideas, ...) and try to reduce costs or increase revenues, in order to make the investment profitable. More generally, is it acceptable to lay out a structure that contains different steps and different possible paths depending on the case? Thank you, Strategically

Francesco
Expert
Content Creator
replied on Mar 27, 2018
#1 Expert for Coaching Sessions (3.700+) | 1.300+ Reviews with 100% Recommendation Rate | Ex BCG | 8+ Years of Coaching

Hi Anonymous,

I agree with Vlad that there is a Step 0 missing in the framework: you should clarify the goal as first thing. As an additional element, besides those mentioned by Bruno, I would also consider which level of synergies/cannibalization are there with your current business when computing the effect on revenues and/or costs, according to your objective.

Best,
Francesco

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