MBB Unconventional Case: Coral Reefs

The first step I'd like to do is identify where exactly the coral reef health decline is occuring. This is because Indonesia is extremely large and the decline in coral reefs could be differ based on specific locations. 

I would segment Indonesia based on the different coastal regions e.g. North, East, South, West (or how the government organizes their land) and understand for each region:

• Underwater Fauna health data (10 years ago vs present)
• Underwater Flora health data (10 years ago vs present)

In the second step, for the areas that have the highest fall in marine health, I'd like to dive deeper and understand the specific drivers causing this problem. I think there could be a couple of factors to consider

Human-related factors

• Fishing
• Tourism
• Pollution
• Development

Environment-related factors

• Climate change
• Animals
• Disease

Enablers (for each of the 2 factors above)

• Government (regulation)
• Society (culture, education)

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A good candidate should be able to develop a framework that breaks down the potential drivers or issues that could cause the health of the coral reefs to have declined. This breakdown should be MECE as far as possible.

A good candidate should also be able to elaborate on the framework with some hypotheses. This requires a combination of 'common sense' and business judgment, and multiple priorities can be accepted here - e.g. climate change could affect the temperature of the water; e.g. fishing practices could be detrimental both to the fish (animals) but also the corals; e.g. increasing industrialization or urbanization could have harmed coastal areas 

A strong candidate is going to add an extra leyer of practicality and nuance to the framework by starting first with isolating the geographic areas that have seen the highest amount of decline. This is because we cannot assume that the issues causing a decline in coral reef health is homogenous across the entire country

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