Structuring profitability cases

Question

I've seen so far that we should avoid asking questions which could already lead to a solution while doing the background check, before coming up with a framework to structure the case. That being said, I wonder if in a profitability case is it ok to ask for costs and revenues' segmentations for the business, prior to lay down the appropriate structure i.e. profits = revenue - costs, revenues=volume*...

I'm afraid that could be seen as an initial approach in a unstructured way (not a best practice), althoug I think it could lead to a more directioned approach for the framework.

Answer 1

Dear Future Consultant,

At the beginning, it is tough to draw the line between the so called "initial questions" and the "structure." To master this skills would require practice, and what you have to ask on each side of the line will depend solely on the information the interviewer gives you and your preparation.

I agree with Francesco's initial approach and Dane's comments, but I would like to build on both comments and propose the following approach to any case, which also applies to a profitability case:

1) Rephrase the business problem, if you receive any numeric goals, try to do some math beforehand (e.g. "the client has hired us to increase revenues by 15% or US$ 100 MM)

2) Ask for secondary objectives, but not just ask but be proactive and state which could be some potential secondaries targets for the case (e.g., "There is an underlying goal I should be aware such as "increasing market share since the company's strategy ..... ")

3) Ask clarifying questions: This requires practice to "draw the line". Usually, I recommend not to ask more than 3 questions that are relevant or critical to understanding the business case. Nature will depend on the case, your preparation and, even, the interviewer personality. Some examples are: in which country the client operates? Which is the size and profitability of the customer? Can you explain to me more about the disease that this product is aiming to cure? How long will be the contract between the government and our client? ... etc.)

4) Lay down your structure: In a profitability, case do not stick only to revenues and cost, otherwise, you will never stand out from other candidates.

I hope this helps in your preparation,

Regards,

Hugo

Answer 2

Hi Anonymous,

I agree with Dane, in general before structuring you could ask two broad types of questions:

Clarify information provided by the interviewer (eg if i got it right, industry XYZ business model works so and so, is that correct?)
Clarify the specific goal you should achieve (eg which is the target in terms of profits the client wants to reach?)

Having said that, in general there are no minus if you also ask if we have information on the segmentation the client uses, but there are no major benefits compared to asking later on. Moreover, for few interviewers that may lead to think you are not very structured. For these reasons, I would rather ask for that information inside your structure rather than right at the beginning.

Hope this helps,

Francesco

Answer 3

Hi,

I agree with the provided answers. I would avoid taking the bet on diving into a segmentation before you explained your hypothesis / structure.

However I believe it's important to gain some background info before formulating your hypothesis, in order to make it accurate enough. I'm thinking questions like:

Industrywide problem?
- Allows to include or exclude external factors in the structuring
Any recent changes in the clients business? (orga structure, regulation, ...)
What exactly are they selling, doing, ... to make money?
- Make sure you feel 100% comfortable and understand the product/business before going to the structuring part

Hope this helps you!

Answer 4

By background check, you mean the initial few background questions asked after receiving the case prompt, right? If I am interpreting this correctly, my suggestion would be to stick to more general questions first: What are Profits, what are costs, what are revenues. Then, use this to structure out your profitability problem. Obviously, depending on what the prompt asks/directs you towards should guide your questions.

That being said, I would not ask for segments up front unless there was a clear statement in the prompt leading me to do so for two reasons: one, to avoid looking unstructured, and two, because it's too specific right off of the bat. It seems like a much safer option to lay out your structure, and then verbally explain the path you want to take and why.

Now, that's just my opinion, and there are many ways to structure a case correctly. However, by not asking for segments up front, you can present something in the cost/rev segments as a potential hypothesis.

Answer 5

Hi,

Good question! From my experience, 80% of mistakes in case take their roots from the beginning of the case process (Misunderstanding objective, misunderstanding the business model, and lack of a proper structure)

The short answer to your question: I don't ask any information about the costs in advance, but I want to know what are the revenue streams. This question makes much more sense. I have seen tens of cases where multiple revenue streams was an issue. And if you are good with the industries it's quite hard to mess up with the cost structure. So just split them into fixed and variable at this point.

Overall the process should be the following:

1) Ask clarifying questions:

- Clarify the business model (i.e. how the business works and what are the revenue streams / core products or business lines)

- Clarify the objective both in money terms and timeline (e.g. Our objective is to increase profits by 5M in 5 years). When you have a to select from several options in a case - clarify the selection criteria

- Clarify other possible limitations if you feel that it's necessary

2) Repeat the objective and most important business model factors

3) Now when you've identified the most important factors - take a minute to make a structure

Good luck!

Answer 6

Dear A,

There are different ways to structure the profitability case. As you already know, profitability is equal to revenues - 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

Answer 7

Hi,

There is always more that you can understand. For example, if you understand the goal as improving profits, there's so much more you can ask - do they have a % change target in mind, how long do we have to turn this around, do they prefer this to be done through raising revenue or cutting costs, etc.

I always write BOTMG at the bottom of my framework page to help myself think of things I'm missing in case I'm stuck.

This helps "trigger" you to consider questions around B = Business Model, O = Objective, T = Timing, M = Market, G = Geography.

However, you should never just say "so, what is their business model?" Obviously, ask questions that help you frame your hypothesis, understand the situation, and ultimately drive your case better.

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