MBB Unconventional Case: Coral Reefs

i

A good answer here will require making several observations and synthesizing them and realizing that a clear conclusion is not actually possible from this given data

• First observation is that there has been increasing amount of Marine Protected Areas that have been added over the past 2-3 decades, and total area under protection has been increasing by 3x (from ~1M km2 to ~6M km2)
• Second observation is that despite this, the % of reefs at 'excellent quality' has not increased significantly and instead has trended downwards in recent years (from 15% to 6.3%)
• Furthermore, looking at the visual map of Indonesia, what we see is that a large proportion of coastal areas are still not covered and this is point for further consideration
• Therefore, the data could suggest that either the existing MPAs have not been effective, or that degradation has been happening to areas outside these MPAs therefore bringing down the overall reef health

A strong answer will push for further implications and next steps

• A strong candidate would push for more data to make sense of the effectiveness of the MPAs - top data points to ask for would be a breakdown of the specific health quality of these MPAs (ideally before and after designated as MPA). Another data point could be an overlay map of the % of reef health to the specific locations - to see what occurs in MPA and non-MPA areas
• The above will help to isolate which areas are seeing the biggest drop in reef health, as per the structure

A good answer will require the candidate to come up with a structured response of a list of factors to consider. In addition, a good answer will have relevant elaboration of these points that also demonstrate business judgment:

1. Financial considerations
   1. Cost
      1. E.g. what would be the full cost of setting up the expanded MPA?
   2. Source of funding
      1. E.g. where would the government obtain the funding from?
      2. E.g. how does this fit within the budget of the committee going forward?
2. Operational considerations
   1. Location
      1. E.g. Are the identified locations the most critical or priority ones to focus on, either because of degradation or high risk of decline?
   2. Effectiveness
      1. E.g. What will be the model of monitoring & enforcement in these new areas?
      2. E.g. How will we ensure the implementation of the rules are effective?

In addition to the above, other considerations can also be accepted if the candidate is able to justify them sufficiently

A good candidate will reference the information provided earlier on MPAs to develop a structure and further break it down to understand the cost drivers they have to estimate. Note that a good amount of business judgment and creativity is expected here.

• Administration
  • Staff
    • # of administrative staff
    • Annual salary per staff
  • Other costs (e.g. insurance, legal or zoning costs, studies etc)
• Monitoring & Enforcement
  • Staff
    • # of enforcement staff
    • Annual salary per staff
  • Facilities & Equipment
    • Buildings
    • Boats
  • IT / Tech

A strong candidate will consider additional nuances, including but not limited to

• Projecting the costs over time
• Recognizing the potential difference in one-off costs vs recurring costs for an activity like this
• Building out the Monitoring & Enforcement costs with more creativity & business judgment, i.e. discussing the possibility of how exactly the monitoring and enforcement is done, whether through use of boats (most plausible) or other technology e.g. drones

Note that it is perfectly possible to also structure this answer according to One Time Costs vs Recurring Costs, just make sure the candidates elaboration of cost categories are MECE

The client provides the following assumptions:

Administration Costs

• 35 admin staff working in the office
• Each admin staff earns $5/hr
• Non working days
  • 100 weekend days
  • 17 public holidays
  • 7 mandated employee vacation days

Monitoring & Enforcement Costs

• Boats
  • Effective coverage per boat per day: 960 km2 (km squared)
  • KM travelled per boat per day: 150 km
  • Cost of Fuel per Litre: $2
  • Efficiency of each boat: 35 liters per hour
  • Cost to build each boat: $500,000
  • Maintenance (yearly) per boat: $10,000
• Staff: $7.5M
• Other costs: $5M

After solving for Total Cost, a good candidate will ask whether this amount is within the governments budget, or question how the government will be funding this amount. If this is asked either now or before, it will be revealed that the budget is around USD ~75M per year. Thus this amount definitely exceeds the budget even on the first year.

A strong candidate should push the thinking even further

• A significant portion of the costs are the $50M Build Cost which are one-time (or can be depreciated), and therefore the operating cost per year of ~$60M + $7.5M (M&E staff cost) + $5M (Other costs) + 1M (maintenance) + $0.4M (admin cost) a year are just barely within the budget of the government
• However, the key driver for Monitoring & Enforcement is really the fuel costs - and the current calculations only assumes that each area is passed once during the day. That means that if a boat sails past a certain point during the day, that point is NOT OBSERVED for the remainder of the day. One can argue that this coverage is not practically very effective
• Therefore, the existing fuel cost could be significantly higher if we need better coverage

Optimize sourcing process

• Suppliers: find and search for lower cost suppliers
• Negotiation: improve negotiation tactics e.g. ensure volumes are consolidated

Modify build requirements

• Size
  • Make smaller boats
• Material
  • Adjust material -> use cheaper alternatives selectively
  • Use less material -> use less material selectively
• Features
  • Reduce unnecessary features 

A strong answer will also provide elaboration on the ideas in addition to some implications or risks of the suggestions. E.g. the suggestion to use smaller boats could have a positive implication if the boats are smaller and are able to manoeuver or travel faster; e.g. safety should be considered when adjusting the materials or removing features

We've validated that while MPAs have been increasing, the health of the reefs have indeed been declining, with reefs at "Excellent Quality" dropping from 15% in 2005 to 6% in 2025. While the expansion of MPAs would definitely be beneficial, initial estimates show that the planned model of using boat-based surveillance is too expensive as it requires a $50M one-time build cost and an on-going operational cost of ~$75M. Furthermore, with this amount of cost we are only getting the bare minimum coverage, so costs may likely be even higher. 

As a next step, we propose to investigate further 2 things:

1. Reducing boat build cost
   1. E.g. adjusting material specs or size required
2. Using other methods to increase monitoring & enforcement effectiveness
   1. E.g. use of technology
   2. E.g. greater collaboration with local communities

A good candidate should generate a few ideas to enhance or substitute the usage of boat based monitoring & enforcement. A few example ideas could include

• Using technology
  • Drones
  • Surveillance buoys / acoustic sensors
• Increasing efforts at ports
  • Stepping up inspections at the ports
• Leveraging civilians / community
  • Tourist / local commuter or fishing boats can report and help monitoring for illegal activity

In addition, beyond just listing the ideas, a good discussion here should also include some elaboration on how they would work and also considerations when deploying these ideas

• e.g. Using drones can be a helpful addition, we could fly the drones to monitor illegal fishing but we need to also consider the financial and operational implications of drone usage - how much would it cost? Where will the drones be launched from and how will the fly-time affect the effectiveness of the surveillance?

A very strong candidate may bring up another potential creative solution

• Given that local fishing is the biggest threat to this area, it might be possible to use the budget to incentivize fishermen to practice sustainable fishing habits
• If each fisherman earns an average of USD 500 a month (currently through unsustainable fishing habits), the total income of all fishermen in that area would be USD 500 * 12 months * 12,500 fishermen = $75,000,000 per year
• Giving a bonus of e.g. [50%] of monthly salary to each fisherman to follow sustainable practices would be well within the budget