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

Anonymous A


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 replied on 03/27/2018
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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

Vlad replied on 03/27/2018
McKinsey / Accenture / Got all BIG3 offers / More than 300 real MBB cases / 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

Francesco replied on 03/27/2018
Ex BCG | MBB Specialist | #1 Expert for coaching sessions (1300+) and recommendation rate (100%)

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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