Profitability case framework approach

approaching a case Framework profitability analysis
New answer on Aug 18, 2020
3 Answers
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Anonymous A asked on May 07, 2017

Hi everyone!

I have a question regarding Profitability case framework. Currently I see two approaches:

1) Profit = Revenue - Cost, and then Market/Consumer/Competition/Company is covered behind either Revenue or Cost depending on the case.

2) 2 branches: External factors (Market, Consumer, Competition), Internal factors (Profit components and Company itself).

Please, kindly clarify which approach is best and why?

Many thanks in advance!

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Chris
Expert
updated an answer on May 08, 2017
Ex-BCG Consultant / Interviewed 100+ applicants at BCG / Received offers from McK (US) and BCG (DE)

Hi Anonymous!

Both are valid approaches. As a rule of thumb,
1) is more suitable for a quantitative assessment (e.g. "By how much has profit declined?"), while
2) seems like a good approach for a qualitative question (e.g. "Why has profit declined?")

As in all driver trees, the order of levels is not fixed and should be adjusted based on the question and situation at hand.

Hope this helps!

Chris.

(edited)

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Anonymous replied on May 09, 2017

Hi,

I think there is no single rule to choose which one might the best option.

If you are dealing with market entry case, then you could talk about for the following:

1)Profitability

2)Company/Product

3)Industry

4)Competition

All of those will be valid areas to look into since you might want to analyze how each can affect your potential goal.

In a more specific case where the client already entered into business and there is a profitability issue, you might want to breakdown as Internal/External or still use a combination of the factors I mentioned above.

The goal is to be flexible on any case and not force fit any pre-designed framework but be quick and flexible enough to create one on the spot. That's how it sounds authentic. Also there are many cases where you can't simply use any of the frameworks above (exception Profitability) like:

-Why are the number of giraffes decrease in Australia?

-Why did the elevator wait time increased in client's office last year?

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Anonymous replied on Aug 18, 2020

Dear A,

There are different ways to structure the profitability case. But I see here the most clear IMHO is first approach, where you can segment Revenues and Costs

There are 3 typical ways on how you can structure the revenues and segment them:

1. by customers,

2. by products

3. by geographical markets

Regarding the costs you may structure them either in the fixed and variable cost, or may also structure them by different kinds of cost - like personell cost, material cost, etc. The other way to look about it is to structure the cost along value chain.

So, depending on the case you might use different approaches and segment your revenues and cost side.

Recently I've uploaded a profitability case “Deep Water rescue” (available in English & German) here on Preplounge:
https://www.preplounge.com/en/management-consulting-cases/candidate-led-usual-style/advanced/deep-water-rescue-206

I used similar cases when I was interviewing candidates on my own in Central Europe (Germany & DACH Region), Eastern Europe (Ukraine & Russia) as well as Middle East (Dubai, KSA, Lebanon, and Qatar). So, this case is very advanced and could be typically used in the 2nd or 3rd interview rounds by the leading consulting firms.

Try, whether you can crack it.

Best,
​André

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