Management Consulting Approach to Problem Solving

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How to solve problems like
management consultants
Practical guide with case studies & real life
examples

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In business you have to make a lot of important decisions
Time and again you will come across problems that are seeming unsolvable. In many
cases you don’t even know how to approach them…

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In business you have to make a lot of important decisions
Luckily, there are a lot of nice management consulting tools, techniques
and frameworks that will help you solve every day problems.

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We will go through cases studies that will show you how to apply those
techniques in real life situations
Estimate the cost of wedding
How to decide when you can
retire?
How to lose weight and get in
shape
How to choose the right
boyfriend
How to decide whether you
rent or buy a houseHow to set personal KPIs
Is it worth doing an MBA?
How to analyze what happens
with your time

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We will go through cases studies that will show you how to apply those
techniques in real life situations
What makes more sense Uber
or owing a car
How long will it take you to
finish the presentation? How to find a new girlfriend?
Does it make sense to learn
fast readingWhy your flat is so dirty?
How to do more works?

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This presentation will help you solve
problems on the level of top

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$190
$19
What you will see in this presentation is a part of my online course where you
can find case studies showing analyses along with detailed calculations in Excel
Click here to check my course

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How the presentation is
organized

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Management consulting techniques and frameworks come in handy both at work
as well as in private life. In this course you will see examples from both

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Intermediate
techniques and
frameworks
Advanced techniques
and frameworks
Basic techniques and
frameworks

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Basic tools used by Management
Consultants

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In this section we will discuss the basic tools, techniques and
framework used by Management Consultants
Bottom-up approach Top-down approach Backward logic
Compounded effect Issue Tree Priorities
Benchmarks 80/20 rule Opportunity Tree
KPIs and business
drivers
Theory of constraints
and bottlenecks

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We will help Tomasz estimate the costs of the wedding

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We will help Lucas estimate how much his colleagues earn in the other
department. For that we will use the top-down approach

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We will help Peter decide at what age he can retire using his own
savings. For that we will use backward reasoning

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He will help John find out the main reasons why his flat is so dirty. For
that we will use the issue tree

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We will also help Ann decide whether it makes sense or not to take the
course for fast reading and what could be the benefit of that

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We will help Kate to lose weight. We will use the low hanging fruit
approach to map all the potential solutions and pick the easiest ones.

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We will help Tom get in shape by using the SMART goal framework. He
has only 9 months to achieve his goals

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We will help Giuseppe to define the personal KPIs that will help him
make sure that he is increasing his chances of being happy

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…the one you will for sure use is bottom-up approach where
you go from single (typical) consumer to market research
 First you should
imagine the
typical users
 Then you should try to
guess his consumption
level
 By estimating the number of
typical users you and their
consumption level you get
the rough size of the market

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…sometimes it makes sense to divide markets in segments and estimate
them separately (i.e. average and typical users, women and man, people
in different age groups or segmentation by lifestyle)
Segment A
Segment B

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…lets do a simple example. Imagine that you want to make an
application for franchised restaurants
 You pick the sample
group / area you want
to estimate i.e. city
(here Warsaw)
 You count the number
of all restaurants in the
area
 For the chosen area
you count the
franchising restaurants
 You check the population of
the whole country – here
Poland
 Assuming similar density as in
Warsaw you scale up the number of
franchised restaurants

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…to make you better at this method imagine you want to sell
home made dog food….. First you have to estimate how many
dogs they are…..
 First you should pick
your sample – can be
your friends or
neighbors
 Next step is to calculate
how many dogs they
have
 Once you have the number also
calculate how many households they
are in the sample
 It is now enough to know how
many households there are in the
country
 And assuming similar proportion as
in your sample you scale up the
number of dogs
+

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…with the number of dogs you just have to estimate the
number of food eaten per year by average dog…..and you get
to the size of the food market
 We have the number of dogs in the
whole country. Now we have to get
from here to the dog food
 This requires us to estimate additionally how much
food would average dog eat per year
 In this way using annual average consumption per dog and the
estimated number of dogs we are able to estimate how much food is
eaten every year in the country
+

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Lets sum up the bottom-up approach
Bottom-up approach enables you to estimate within
one minutes the indicative size of the market
It is very good for the B2C markets
For better estimation you should segment customers
and increase the sample size

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Check the YoutTube movie for the solution to the case study
Click to go to the YouTube Movie

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Estimating the costs of a wedding
– Introduction

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Imagine that you have to estimate the costs of the wedding to help
Tomasz plan his wedding. Use for that the bottom-up approach

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Imagine that you have to estimate using bottom-up approach the costs
of the wedding. A few information we have
200 guests
40% will need a hotel
20% of them have kids.
There will be a band and
entertainment for kids

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Estimating the costs of a wedding
– Solution

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Just as a reminder you have to estimate using bottom-up approach the
costs of the wedding
200 guests
40% will need a hotel
20% of them have kids.
There will be a band and
entertainment for kids

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First let’s think about what kind of cost positions you have
Food & Drinks
Hotel
Clothes (bride and the
groom)
The band
The place / venue
Flowers
Entertainers for the kids
Church costs
Other costs

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First let’s divide the cost into 2 groups: fixed and depending on
the number of guests
Food & Drinks
Hotel
Clothes (bride and the
groom)
The band
The place / venue
Flowers
Entertainers for the kids
Church costs
Other costs

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Let’s see how we can estimate the costs of food & drinks, hotel,
place / venue
# guests
Cost of food &
drinks per 1 guest
Food & drinks costs
Hotel costs
x
# of rooms needed
Cost per 1 room
x# of guests per 1
room
# of guest requiring
hotel
% of guest
requiring hotel
÷x
# sq m (space)
Cost per 1 sq m
Place venue costs
xSpace per 1 guest
x

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Let’s see how we can estimate the costs of entertainment and flower
costs
# guests
Cost of food &
drinks per 1 guest
Food & drinks costs
Entertainment
costs
x
# of kids
Cost per 1 kid
x# of kids per 1
guest
# of guests with
kids
% of guests with
kids
xx
# of vases
Cost per 1 vase
Flower costs
x
# of guests per 1
vase
÷

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After we have calculated every cost position we have to sum them
up to get the total cost of the wedding
Food & drinks costs
Hotel costs
Cost depending on
the # of guests
Entertainment costs
Flower Costs
Place / venue costs
+
Clothes (bride and
the groom)
The band
Other costs
Church costs
Fixed costs
Total cost of the
wedding
+
+

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When to use top-down approach?
You know the size of the whole market
You are interested in a specific segment of the
market
Segment is big enough
You are thinking about niche strategy or low cost
strategy (market re-segmenting)

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For a change lets see how it would work with top-down
approach
 You use the total market size
to get to the size of the
segment in which you are
interested
 You have to use some
sort of sample
measure
 By applying the result from
the sample you can get to
the size of the segment in
which you are interested

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… let’s use the top-down approach to estimate the market for
science fiction books sold in Poland….
 You use the total number of books sold in your
country
 Then you go to the bookstore that belongs to the biggest
chain of bookstore and check what percentage of the
shelves are take by science fiction books
 If you use this proportion to the whole market you should
get the rough estimation of the science fiction book
segment

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Check the YoutTube movie showing more details

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Average salaries in other
department – Introduction

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Imagine that Lukas would like to know how much his colleagues in the
other department earn. Use the top-down approach

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Imagine that Lukas would like to know how much his colleagues in the
other department earn
In total they cost EUR 101 K per
month
There are 20 Business Analysts, 2
Associates and 1 Manager
Associate costs 50% more than
Business Analyst
The manager costs 50% more
than Associate

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Average salaries in other
department – Solution

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Just as a reminder you would like to know how much hiscolleagues in
the other department earn
In total they cost EUR 101 K per
month
There are 20 Business Analysts, 2
Associates and 1 Manager
Associate costs 50% more than
Business Analyst
The manager costs 50% more
than Associate

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Let’s start with the things we know now
Business
Analyst Salary
+ Associate Salary = Total SalariesManager Salary20x 2x +
Manager Salary Associate Salary1.5x=
Associate Salary
Business Analyst
Salary
1.5x=
1.5x= 1.5x
Business Analyst
Salary
Business Analyst
Salary
2.25x=
Business
Analyst Salary
+20x 2x
Business Analyst
Salary
1.5x + Business Analyst
Salary
2.25x = Total Salaries

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From this we can calculate the salary of a Business Analyst
Business
Analyst Salary
+20x 2x
Business Analyst
Salary
1.5x + Business Analyst
Salary
Business
Analyst Salary
+20x 3x
Business Analyst
Salary
+
Business Analyst
Salary
Business
Analyst Salary
Business
Analyst Salary
25.25x = EUR 101 000
Business
Analyst Salary
= EUR 4 000

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And use it to calculate the rest of the salaries
Business
Analyst Salary
= EUR 4 000
Associate Salary
Business Analyst
Salary
1.5x= = EUR 6 000
Manager Salary
Business Analyst
Salary
2.25x= = EUR 9 000

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Imagine that you were supposed to say how much you have to
spend to create a company that has revenue of $ 100 M dollar

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You could use for that the so called backward reasoning
CC: Flickr; Cycle Track

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Total Costs
$ 400 M
Cost of 1 lead
$ 2 K
# of leads
200 K
÷
% Conversion
10%
x # of customers
20 K
Average revenue
per customer
$ 5 K
Revenues
$ 100 M
x

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When can you retire –
Introduction

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Try to estimate at what age can Peter retire using his own savings. To
estimate the age of retirement use the backward reasoning

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Try to estimate at what age you can Peter retire using his own savings
Life expectancy for man is 80
years old. Peter is currently 30
Peter currently earns 120 K. His
current annual costs are 50 K
His annual costs after retiring
will be 50 K
Peter has 1 M in savings

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When can you retire – Solution

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Just as a reminder we were to estimate at what age can Peter retire using
his own savings. We were to use the backward reasoning for that

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Just as a reminder you were supposed to estimate at what age you can
retire using your own savings
You are expected to live up to 80
years old. Peter is currently 30
Peter currently earns 120 K. His
current annual costs are 50 K
His annual costs after retiring
will be 50 K
Peter has 1 M in savings

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Let’s see how the 2 options compare
42,5 41,1
1,4
Age of retiring - no passive income Age of retiring - with passive income Difference
At what age you can retire
In years

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There are 2 types of compounding effect
Time related Operations related
 Even if the growth is small applied over long period of
time gives big end-results
 A lot of small changes in many areas may produce a
big end-results
# of customers Average revenue per
customer
Revenues
x
+15% +20%
+38%
= 2,6 x StartStart x (1+10%)^10

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$190
$19
For more details and to see all the analyses in Excel go to my online course

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Issue tree - general
Area of analysis
Area 1
Problem 1
Problem 2
Possible Reason 1
Possible Reason 2
Possible Reason 3
Possible Reason 4
Possible reasonsSuspected problems
Analysis to be
performed
Analysis 1
Analysis 2
Analysis 3
Analysis 4

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Issue tree in Logistics –
examples

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Issue tree - general
Area of analysis
Area 1
Problem 1
Problem 2
Possible Reason 1
Possible Reason 2
Possible Reason 3
Possible Reason 4
Analysis to be
performed
Analysis 1
Analysis 2
Analysis 3
Analysis 4

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Issue tree – example – chicken meat producer
Area of analysis
Transport
High costs of transport per ton of
goods
Big level of waste and breakage in
transport
Analysis to be
performed
Analysis of correlation between type
of packaging and percentage of
damaged
Analysis of time spent on the way and
kilometers covered in that time
Analysis of designed routes, their
length and the influence of possible
changes
Analysis of fuel usage and kilometers
covered by vehicles
Analysis of load carried on the way
back
Badly designed routes
Too big fuel usage
No shipments on the way back
Low usage of resources
Badly designed method of packaging
which makes the product prone to
damage
Speed not adjusted to the product
Badly organized work and schedule of
deliveries
Limitation on delivery time of finished
goods
Analysis of level of overtime, daily
organization of drivers work
Analysis of Clients’ preferences on
delivery time

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Issue tree in Retail –
examples

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When you are talking about retail you should have a look a
the following areas
Retail chain development
Product Range / Category Range
Management
Pricing
Logistic / Supply Chain
Expansion model
In-store process
HR especially trainings

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Below you can see example of issue tree in Retail Chain
Development
Area of analysis
Retail chain
development
Low growth in sales
Decreasing EBITDA of new stores
Analysis to be
performed
Analysis of rents vs comparable
competition
Salaries growth vs rotation – comparison
with competition
Analyze the change in sales after opening
new stores / on-line introduction
Analysis of number of openings vs
availability of new places
Low LFL due to cannibalization (on-
line, new stores in old locations)
Few new openings in locations
Increasing rents due not proper usage
of purchasing power
Growing salaries to keep low rotation
High cost of building new stores
No support from the shopping malls
Not optimized formats, expensive
fixtures
Analysis of contracts with shopping malls
Analysis of cost per 1 sq. m, number of
fixtures, cost per fixtures

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Issue tree – example – chicken meat producer
Area of analysis
Product Range
Management
Low margin on Category A
Low margin on Category B
Analysis to be
performed
Analysis of whom we buy from Category B
and the whole value chain
Analysis of planning and allocation process
Analyze of number of suppliers and their
share in sales vs market
Analysis of Private Labels potential –
benchmarks and potential supplier
Too many supplier of Category A that
undermines your purchasing power
Lack of Private Labels
Usage of middlemen instead of direct
suppliers
Improper planning and allocation by
stores
High inventory cost
Improper planning and allocation by
stores
Non-responsive supply chain
Analysis of planning and allocation process
Analysis of lead times, deliverability on-
time, level of breakage

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Issue tree for John's flat –
Introduction

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Imagine that you would have to create an issue tree for John’s flat. What
kind of problem he has and what could be the reasons for that

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Issue tree for John's flat –
Solution

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Just as a reminder you had to create an issue tree for John’s flat. You were to
guess what kind of problem he has and what could be the reasons for that

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Below you can see example of issue tree for analyzing the John’s flat
Area of analysis
The flat
There is a clutter / mess
The space is too small
Analysis to be
performed
Map the layout against the activity of John
Measure the height of furniture and
estimate what space is not used
Check where he put things. Check whether
he has dedicated space for every thing
Analyze the frequency of cleaning
He doesn’t put the things in a
dedicated space
He doesn’t clean often enough
The layout is not practical
He has too low furniture which have
low capacity
He spends too much time for
cleaning and maintaining
He has too many open furniture that
collect more dust
His technique, tools of cleaning are
not optimal
Analyze the furniture he has at his flat
Analyze the techniques and tools used
along with labor intensity
He has too many things that are not
used
Analyze what percentage of clothes,
gadgets, dishes etc. he uses

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Priorities
 FCFS – First Come First Served (FIFO)
 LCFS – Last Come First Served (LIFO)
 Due Date
 SOT – Shortest Operating Time

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What you do depending on the rules you use?
FCFS
 Write 1 blog post
 Analyze sales
results
 Send email
 Read 4 articles
 Pay for cable TV
Task
When
it came Deadline
Time
needed for
completion
In minutes
 01.04
 01.04
 02.04
 02.04
 03.04
 10.04
 04.04
 09.04
 11.04
 04.04
 120
 30
 2
 25
 4
1
2
3
4
5
LCFS
5
4
3
2
1
Deadline
4
1
3
5
2
SOT
5
4
1
3
2

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There are 2 types of benchmarks
Internal External
 Based on previous execution
 Extremely comparable
 Very reliable
 Detailed – can be put for each and every activity
 Based on some external source (i.e. reports)
 Not that easily comparable
 They to be treated with caution
 Only for chosen amount of activities
 Can give you food for drastic improvements - by
analyzing them you can find totally different
method of working

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By comparing your results and benchmarks you can decide
what to improve, work on
Internal
 Salary
 Speed of typing
 Speed of
analyzing Excel
Area Unit
Current
result
 K USD
 words/ minute
 minute
 5
 40
 15
4
39
10
External
7
80
12
 Your salary went up in
comparison with your previous
one but you are still below the
market
 Your typing speed has improved
slightly yet you are far below the
speed achieved by others
 You not only improved your speed
of analyzing but also are better
than others
 Makes sense to teach others how
to do it
Conclusions

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Check the YoutTube movie for more details

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Applying 80/20 rule in practice

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What does 80/20 mean in practice
 Concentrate only on the big items
 Concentrate on the big customers
 Analyze the most typical cases
 Concentrate on the most frequently occurring problems
 Analyze problems with big impact
 Your analyses should have only 20% of the variable that
generate 80% of the impact
 Start with subjects where you see the biggest difference
between actual results and benchmarks

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Here are 3 examples of using 80/20 rules
 Learning Visual
Basic for Excel
 Checking
competitors
 Salsa course
Area
 Learn only the 5 most used items that will take only 20% of full course and will
be used by in you in 80% cases
 You check only 20% of competitors that sales add-up to 80% of the market
 Go through 20% of the course to learn the moves and the figures used in 80% of
cases
Description

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Get the low hanging fruits first. By
low hanging fruits we mean things
with big impact and easy to
accomplish

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Resources needed
Impact
SmallBig
High
Low
 Things with big impact that
require little work
1
How to find low hanging fruits?
 Easy but with low impact
3
 Things with big impact yet
expensive, time consuming
2
No

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How to lose weight –
Introduction

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Imagine that you want to help Kate lose weight. Use the low hanging
fruit approach to map all the potential solutions. First list activities

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List of potential activities

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Just as a reminder you were supposed to help Kate lose weight. The first
step is to list all potential activities that can help her achieve the goal

103
Let’s first list all potential ideas
Cut down on sweets by 50%
Buy special meal kit / box diet
Run 2 times a week for 30 minutes
Walk every day 15 K steps
Hire personal trainer / coach
Measure calories intake
Do intermittent fasting
Stop eating carbs / carbohydrates
Eat 2 kg of vegetables every day Give up sweet beverages
Start drinking green tea Drink 4 liters of water every day
15 minutes of daily exercises Plastic surgery

104
1
Now try to map all ideas on the low hanging fruit matrix
2
4 3
Impact
High
Low Difficulty level
LowHigh

105
Solution

106
Just as a reminder you were supposed to help Kate lose weight. We have
the list let’s try to put the on the map and identify low hanging fruits

107
Let’s first list all potential ideas
Run 2 times a week for 30 minutes
Walk every day 15 K steps
Do Intermittent fasting
Eat 2 kg of vegetables every day Give up sweet beverages
Start drinking green tea Drink 4 liters of water every day
15 minutes of daily exercises Plastic surgery

108
1
Let’s map all ideas on the low hanging fruits matrix
2
4 3
Impact
High
Low Difficulty level
LowHigh
Run 2 times a week for 30 minutes Walk every day 15 K steps
Eat 2 kg of vegetables every day
Start drinking green tea
15 minutes of daily exercises
Do Intermittent fasting
Give up sweet beverages
Drink 4 liters of water every day
Plastic surgery

110
S
M
A
R
T
Specific – target a specific area for improvement
Measurable – it has to be quantifiable; you have to have a way of measuring it
Assignable – it says who will do it
Realistic – it can be delivered
Time-related – it says when it has do be delivered / by which dates
The SMAR formula translates to 5 rules you should use when
defining the goals

111
Goals for ordinary tasks Goals for skills
 Avoid vague tasks
 Always for projects set deliverables, dates and
responsible persons
 Merge the task with the goal on the to-do list and
set the right pace to a achieve the goal within the
defined time
 Set goals for improving your skills
 Set goals for learning new things
 Set goals for making the repetitive things faster and
better
SMART goals should be set for the task but also for skills

112
Imagine that you want to write a book. Let’s translate it into
task with SMART goals
Imagine that you
want to write a book
Define the size
of the book and
deadline
Divided into
small tasks
Make the tasks
SMART
Set the pace and
execute
 200 pages
 1 page = 800
characters
 Time= 1 year
 Write pages  Write 1 page
every day
 Measure every
week completion
rate against the
target (1
page/day=7
pages/week)
 If necessary act
to keep the pace

113
By comparing your results and benchmarks you can decide
what to improve, work on
Internal
 Learn
Spanish
 Speed of
typing
Area Unit
Current
result
 Level
 words/
minute
 0
 40
n/a
39
External
Intermediate
80
 Sing-in the course
 Listen to Spanish TV 30 minutes
every day
 Enroll into a on-line course
 Devote 15 minutes every day to
training
Target
 Intermediate
in 2 years
 Achieve 60
words/minute
In 3 months
Actions

114
Map your skills, experience, skills and set goals where you
want to be
 Sales projects
Experience
 1
# of projects
Current Target
 4
Industry
Current Target
 Marketing projects  2  6
 Supply chain projects  2  2
 Production projects  3  3
 HR projects  0  1
 Excel
Skills Lowest Level Highest level
 Negotiation
 English
 Optimizing production
 Setting up on-line
marketing campaigns

116
Opportunity tree
Gross Margin
Sales
% Gross Margin
% Front Margin
% Back Margin
# of transactions
ATV
Traffic
% conversion
 YouTube
 Ads on instagram
 Affiliation with bloggers
 Guest blogging
Opportunities
 Long form / Short form
 Reduction of delivery methods
 No account
 Emailing for people abandoning cart
 Upselling and Cross selling
 Free delivery for higher tickets
 Introduction of new categories
 Reducing number of suppliers
 Finding new suppliers
 Renegotiation

118
Cost drivers are causing the cost to go or down
Cost of a Udemy course
Slide preparation
Recording and editing
# of slides
Cost of 1 hour
# of hours per 1 slide
# of lectures
Cost of 1 hour
# of minutes per 1 lecture

120
To understand and analyze business you have to identify the drivers / KPIs
that a key for specific business and translate it into a model in Excel
# transactions
Average
revenue per
transaction
Total revenuex
% Fee of the
marketplace
Average
transaction value
Total searches % conversion
x
x
Total Costs
Total margin
-
Rent
People
Cost of traffic
Ratio of visitors
to searches
Average cost of 1
visit
+
x
Development

121
Imagine that you have to estimate typical family spending's. You can take
into account countless number of factors…..

122
…or you can limit yourself to the most important ones i.e. number of kids,
size of house, main repetitive spending like food.

123
To measure the selected factors you have to use some sort of KPIs
Spending per 1
person per month
per category
# of people in
average family
Average size of the
house in sq. m
Average rent per
sq. m

124
Personal KPIs – Introduction

125
Let’s imagine that you have to define the personal KPIs for Giuseppe that
will help him make sure that he is increasing his chances of being happy

126
A few information about Giuseppe
Giuseppe has a girlfriend
He works as a business analyst
His family, health and friends are
important to him
He also wants to get more
financially sound

127
To define KPIs I would recommend following a very simple
sequence of actions
Define what areas
matter for you
Identify drivers Define output KPIs Define input KPIs Set targets for KPIs

128
Personal KPIs – Solution

129
Just as a reminder you were helping Giuseppe define his personal KPIs that will
help him make sure that he is increasing his chances of being happy

130
Just as a reminder what we know about Giuseppe
Giuseppe has a girlfriend
He works as a business analyst
His family, health and friends are
important to him
He also wants to get more
financially sound

131
KPIs help you manage the drivers of your business model
Define what areas
matter for you
Identify drivers Define output KPIs Define input KPIs Set targets for KPIs
 Relationships
 Family
 Health
 Work
 Financial well-being
 Pastime / Hobby

132
Let’s look how we can define KPIS for the relationship
Relationship
Time spend with his
girlfriend (Laura)
Area Drivers Output KPI Input KPI
Laura’s happiness
level
 # of times they see each other during
the week
 # of times he propose to see her during
the week
 Average # of Laura’s smiles per meeting
 # of times she says something nice
during the week
 # of small gifts given to Laura
 # of times he propose to see her during
the week
 # of times he organizes a nice date
(cooking, cinema, restaurant visit) during
the week

133
Let’s look how we can define KPIs for the family
Family
Time spend with his
family
Family’s happiness
level
 # of times they see each other during
the week
 # of times he accepts invitation from his
mother
 # of complaints from his mother during
the week
 # of times he accepts invitation from his
mother
 # of times he calls his mother
 # of times he praises his mother about
her food

134
Let’s look how we can define KPIS for the health
Health
Be in shape
Have no illnesses
 His weight
 The size of his muscles
 # of times he runs a week
 # of times he visits the gym
 Average number of kcal per day
consumed
 # of illnesses he is suffering from during
specific week
 Average sleep per day
 Average number of kcal per day
consumed
 Vegetables as a % of his food intake
 Alcohol consumption per week

135
Let’s look how we can define KPIS for the work
Work
His salary
Doing interesting
new things
 His salary
 % salary increase over the year
 Additional income per month
 # of networking meetings per month –
internal
external
 Money invested in additional businesses
 CVs / resume sent to other firms
 # days during the month during which
he did interesting things
internal
 Quality of his work from 1 to 10 –
measured by people who work with him
 # of praises he got during the month
 # of attempts to get into interesting
projects per month

136
Let’s look how we can define KPIS for the financial well-being
Financial well-being
His net value
Generate positive CF
 Net value in EUR  % of his salary not spent during the
month
 Additional money invested
 Additional income generated
 Cash flow generated during the month
 Positive cash flow generated during the
month as % of his salary
 % of his salary not spent during the
month
 Additional income generated

138
 All the cost related to owning or using a specific
item / thing
 It will also include the cost of lost opportunity i.e.
money not earned due to spending time on
repairing the thing
Total cost of
ownership
=
Let’s start with a short definition

139
 Cost of buying a car
 Insurance
 Fuel
 Cost of maintenance including repairs &
parts
 Time wasted on maintenance, parking etc.
 Other i.e. parking tickets, traffic ticket etc.
Let’s compare the cost of owing a car and using a rideshare /
taxi / cab service
 Cost of rideshares

140
Rent or buy an apartment / flat –
Introduction

141
Let’s imagine that Peter is considering 2 choice: buying an apartment or
renting it. Let’s use the total cost of ownership to see what makes sense.

142
Let’s have a look at the information that Peter has
Buying the apartment would
require EUR 150 K
Renting cost EUR 600 per month
Interest rate is 3%, inflation 2%,
Wage increase is 5%
Peter currently earns EUR 30 per
hour

143
To see the case studies along with analyses in Excel check my online course.
Below a link to the course
Estimating the costs of a
wedding
Guessing the average
salaries in other
department
Estimating when you can
retire
Estimating what could be
the impact of mastering
new skills
Defining issue tree in
practice
How to lose weight
How to get into shape
Deciding what makes more
sense to buy or to rent an
apartment?

144
Intermediate tools used by
Management Consultants

145
In this section we will discuss the intermediate tools, techniques and
frameworks used by Management Consultants
Rankings Scenario Analysis
Representative
element analysis
Decision Tree
Analysis
Critical Chain
Theory of constraints
and bottlenecks
Lean Manufacturing

146
$190
$19

147
Intermediate tools – Case
studies overview

148
We will help Maria pick the ideal guy / boyfriend. For this try we will use
a specific ranking which will take into account 4 criteria

149
We will also analyze whether it makes more sense to buy a car or to use
Uber. For that we will use scenario analyses

150
We will help George decide whether it makes sense to go to USA for MBA

151
We will help Adam and Eva pick the best size of the house for their family. They have
currently 1 kid but may have more. We will try to pick the optimal solution.

152
We will help Jorge become more efficient. We will do that using the Overall Labor
Efficiency Framework and estimate how much he can improve his situation

153
We will help Ivan who wants to improve the work of his team. In this
case we will use the bottleneck framework

154
We will help Adrian, who is currently single, find a
new girlfriend using the decomposition analysis.

156
Quite often you have options that you want to somehow compare and
rank them
Option 1
Option 3
Option 4
Option 5

157
Thanks to the ranking you not only give points but you can sort them
from the most wanted to the least desired
Option 5
Option 3
Option 1
Option 4

158
You may use ranking for many things
Pick the best option from
available options
Create priorities for further
actions
Rank people / team members
Rank business ideas
Motivate
Create benchmarks

159
Rankings are done in 5 steps
Create criteria and
weights for the
ranking
Gather data
Calculate the points
and create the
ranking
Pick the preferred
option
 At least 3-4 criteria,
preferably
independent
 Every criteria
should have a
weight – not all
criteria have to
have the same
importance
 For defined options
gather data on the
criteria so you are
able to calculate
the points for every
criteria and option
 Define the rule /
function that
assigns points for
every criteria
 Calculate the score
for every option-
criteria
 Using weights
calculate the total
score
 Use the total score
to rank the options
 You can use
additional criteria
 Using the ranking
and additional
criteria you can
pick the preferred
option
Define options
 You have to define
all options that you
will be choosing
from

160

161
How to chose the right boyfriend
– Introduction

162
Let’s imagine that you were to help Maria pick the ideal guy / boyfriend.
For this try to use rankings

163
There are a few things that we know about Maria
She has 4 potential candidates
She wants her boyfriend to be
nice, intelligent, good looking
From her perspective his
earnings and assets matter
She is not sure about importance
of specific criteria

164
How to chose the right boyfriend
– Solution

165
Just as a reminder you were to help Maria pick the ideal guy / boyfriend.
For this try to use rankings

166
Let’s summarize the results of our ranking
8
0
6
10
4
6
4
63
6
4
46
5
10
10
0
5
10
15
20
25
30
35
Alejandro Santiago Jose Pablo
Inteligence Being nice Financial situation Attractivness

167
Scenario Analysis –
Introduction

168
Future is pretty difficult to figure out. You don’t know what will happen.
In those cases it is a good idea to consider a few different scenarios

169
Future is pretty difficult to figure out. You don’t know what will happen.
In this cases it is a good idea to consider a few different scenarios

170
Imagine that you are ice cream producer and you have to decide how much
ice-cream to produce for the next day without knowing what will be the
weather. Therefore, you have to consider different scenarios
Scenario 1 Scenario 2 Scenario 3
100 70 30

171
The scenario analysis consists of 5 steps
Define the thing
(goal function) you
want to analyze
Define which drivers
are the least certain
Define the scenarios
Define your
behavior / policy
Check the goal
function for every
policy
 You should be
analyzing the things
that are threatened
by different
scenarios and are
important for your
business
 It can be profit,
NPV from new
investment,
inventory you
should have etc.
 It is good to define
3-5 different
scenarios
 In every scenario
the main drivers
will have different
value
 You should assign
certain probability
to every scenario
 Scenarios do not
depend on you but
your behavior does.
 You can define a
policy / behavior
that helps you in a
specific situation
 Concentrate on
drivers that have
big impact and big
volatility
 The aim of this step
is to pick the right
policy, given the
scenarios and their
policy
 The best policy is
the one that gives
you highest
benefits (highest
goal function)

172
Car vs Uber – Introduction

173
Let’s imagine that you were to decided whether it makes more sense to
buy a car or to use Uber

174
We will consider 3 scenarios
Consider 3 scenarios
In scenario 1 you use the car just
to get to work
In scenario 2 you use it also for
buying and visiting friends
In scenario 3 you also travel on
weekends

175
Let’s see what is the difference for
# of days during
which you use the
car during the
month
Scenario 1 - just to get to
work
 20
Average # of km per
day covered
 50
Scenario 2 - work, shopping,
friends
 26
 70
Scenario 3 - work, shopping,
friends, weekends
 30
 90
% probability of
scenario
 50%  30%  20%

176
A few hints on what costs you should take into consideration
for the own car option
Purchasing of the car & financing
Maintenance
Insurance
Fuel
Parking
Other costs i.e. traffic tickets

177
Representative element
analysis – Introduction

178
In many cases there are a lot of options that you can consider. For simplicity you
want to limit the options and get down to 1-5 representative elements

179
There are usually 2 main ways to use representative element analysis
Average 3 options

180
Thanks to representative element analysis you can achieve a
lot of interesting things
Compare different solutions and
decide which is better
Compare different offers and
decide which is better
Find optimal solution
Create benchmarks
Plan & Forecast
Do the segmentation

182
Quite often you have to make important decision faced with uncertainty. In those
situation it is very useful to apply the so called decision tree

183
Let’s have a look at example. You are to build a chocolate factory. You
have to decide on the size of it.
Big Factory
(Invest $50 M)
What factory you
should build?
Small Factory
(Invest $30 M)
Big Demand
(EBITDA= $100 M)
Small Demand
(EBITDA= $20 M)
Big Demand
(EBITDA= $50 M)
Small Demand
(EBITDA= $30 M)
 50
Outcome
In M USD
 -30
 20
60%
40%
60%
40%
 0

184
Once you have the outcomes for each and every option it is time to
calculate the expected value for both decisions
Expected Value = Outcome 1 x
Probability of
Outcome 1
+ Outcome 2 x
Probability of
Outcome 2
Expected Value for
Big Factor
= 50 x 60% + - 30 x 40% 18=
Expected Value for
Big Factor
= 20 x 60% + 0 x 40% 12=

185
Once you have the outcomes for each and every option it is time to
calculate the expected value for both decisions
Big Factory
(Invest $50 M)
What factory you
should build?
Small Factory
(Invest $30 M)
Big Demand
(EBITDA= $100 M)
Small Demand
(EBITDA= $20 M)
Big Demand
(EBITDA= $50 M)
Small Demand
(EBITDA= $30 M)
 50
Outcome
In M USD
 -30
 20
60%
40%
60%
40%
 0
18
12

186

187
How big house should we build –
Introduction

188
Let’s imagine that you have to help Adam and Eva pick the best size of the house for
their family. They have currently 1 kid but will have more. Pick the optimal solution.

189
A few information about Adam and Eva
They may have in total 2 or 3
kids
They will have 2 kids with
probability 60%
Small house costs EUR 150 K
Big house costs EUR 250 K

190
If the house is too big or too small they will have cover additional costs
Big House
(Invest EUR 250 K)
How big house
should they build
Small House
(Invest EUR 150 K)
2 kids
3 kids
2 kids
3 kids
 0
Renting
additional space
In K EUR
 0
 0
60%
40%
60%
40%  151
 50
Not used space
In K EUR
 0
 0
 0

191
How big house should we build –
Solution

192
Just as a reminder you were to help Adam and Eva pick the best size of the house for
their family. They have currently 1 kid but will have more. Pick the optimal solution.

193
If the house is too big or too small they will have cover additional costs
Big House
(Invest EUR 250 K)
How big house
should they build
Small House
(Invest EUR 150 K)
2 kids
3 kids
2 kids
3 kids
 0
Renting
additional space
In K EUR
 0
 0
60%
40%
60%
40%  151
 50
Not used space
In K EUR
 0
 0
 0

194
Let’s see what is we get after the calculation in Excel
Big House
(Invest EUR 250 K)
How big house
should they build
Small House
(Invest EUR 150 K)
2 kids
3 kids
2 kids
3 kids
 0
Renting
additional space
In K EUR
 0
 0
60%
40%
60%
40%  151
 50
Not used space
In K EUR
 0
 0
 0
-280
-210

196
Overall Labour Efficiency how much work there is in the work
? Workday
Time that you can devote
Time left for real workLack of work
100%
54%
OLE =
100 %
54 %
x
x
98%
Work
98%
37%
No work due to
organizational
issues
Movement
70%
Work well done
70 %
Liczba
dostępnych
godzin
lalka Stawka Godzinna
Dodatkowe
przychody

198
Bottlenecks are dangerous as their hurt the efficiency of the
whole system

199
What is the throughput of every system and where
is the bottleneck?
Example 1
7 5 7
Example 2
5 10 20
Example 3
5 5 3
x Stage capacity

200
The are 4 rules that you should follow when it comes to
bottlenecks
 Identify what is the bottleneck
 Increase its throughput by lowering the time needed for
everything that goes through the bottleneck
 Add new resources to bottleneck
 Adjust everything to the bottleneck – so it works at the
same pace

201

202
$190
$19

203
Content marketing agency –
Introduction

204
Your friend Ivan works in a content marketing agency and wants to
improve the work of his team. Help him using the bottleneck framework

205
A few things about Ivan team
He manages 4 people
Every person specializes only in
1 area
You measure your success in
number of posts produced

206
Below you can see the production capacity for each and every stage.
1 person works on 1 stage only
Research topics for a
post
Write a post Create illustration
Edit and modify
post, add illustration
and schedule
20 7 10
# of post that can
be done in a week
by 1 person
xx
5

207
Content marketing agency –
Solution

208
Your friend Ivan works in a content marketing agency and wants to
improve the work of his team. Help him using the bottleneck framework

209
Just as a reminder a few information about the content marketing
agency
He manages 4 people
Every person specializes only in
1 area
You measure your success in
number of posts produced

210
Let’s see how we could increase production of posts
Research topics for a
post
Write a post Create illustration
Edit and modify
post, add illustration
and schedule
20 5 7 10
# of post that can be done in
a week by 1 person
 Speed up the writing process (faster typing,
better tools, shortcuts for the most popular
words)
xx
20 8 7 10
10 9 10 10
 Make the researcher do also par time
writing and making illustration
 We have almost doubled the production of post with the same resources
 The same principles would apply if all the activities were done only by you – in this case it would mean that you
should not do too much research and illustration but rather improve the typing speed and match the number of
illustration and researches to your capacity in writing
 If you have no impact on the process (you are one of the guys above just doing his own part and your boss does not
want to listen to you then simply do less – identify the bottleneck and adjust your speed to his speed.
 On the other hand if you are the bottleneck then speed up because the whole team depends on you.

212
One of the biggest problem for efficiency is the so called Parkinson’s Law –
Work expand so as to fill the time available for its completion

213
People when asked to evaluate the time certain things will take build in
buffers
A B C
A + B + C
A + B + C
A B C Central buffer
Declared time
Buffer time
Real execution

214

215
Simulation analysis –
Introduction

216
Future is pretty difficult to figure out. You can use scenario analysis or
you check ALL the potential options and see which is optimal

217
Imagine for a second that you have a small bakery trying to decide what is the optimal
number of cakes that you should bake. You want to use simulations to find out

218
For the producer of cakes that at the same time can bake from 1 to 10
cakes using the simulation to find optimal production batch would
entail calculating the costs for all options

219
There are plenty of things you can do thanks to simulations
Find optimal solutions
Carry out sensitivity analysis
Plan & Forecast
Test the boundaries of the system
Find weak spots
…..

220
Decomposition analysis –
Introduction

221
Revenue Growth
Decomposition analysis shows you what are the components, driving
forces behind certain phenomena. Imagine for a second that we are
analyzing revenue growth of a FMCG company

222
We would like to break it down to following components. This
decomposition helps us see how we managed to grow the
revenues
New customers
New products
Increased sales in existing customers and products
Others
Increased price

223
Decomposition analysis helps you achieve a lot of goals
Pick the biggest contributor
You will know what to focus on
to get the required effect
Check to what extent you were
dealing with one-offs
Create a business model based
on drivers and KPIs
Forecast / Plan the future
results
Evaluate the business / business
unit

224
How to find a new girlfriend –
Introduction

225
Adrian is single again and wants to understand better what is the best
way to pickup girls. Have a look at his history and help him

226
A few things about Adrian. As a first task create a framework to analyze
the history
He wants to understand the
drivers of historical successes
Adrian wants to know what he
should do to be more successful
Use the decomposition analysis
to help him

227
How to find a new girlfriend –
Decomposition framework

228
Let’s have a look at the general framework
% conversion rate
Probability that you
will convert her into
a potential girlfriend
# of Potential
Candidates per
opportunity
# of opportunities
Probability that she
will give her phone
number
# of Potential
Candidates
x x
# of Potential
Girlfriends
x
Driving KPI
Output KPIs

229
Feasibility analysis –
Introduction

230
In feasibility analysis you want to check whether something is possible or
what are the limitations that you have to consider

231
In feasibility analysis you are given the goal you have to achieve. Now
you need either to find the limitation or alternative ways to reach that
goal
Limitation 1
Limitation 2
Goal
Limitation 3
Limitation 4
Way to achieve
the goal 1
Way to achieve
the goal 2
Way to achieve
the goal 3
Way to achieve
the goal 4
Limitation 1
Limitation 2
Limitation 3
Limitation 4

232
There are plenty of things you can do with feasibility analysis
Identify the limitation you have to
remove to achieve the goal
Pick the most interesting way to
achieve the set goal
Check what are the limitation behind
alternative ways to achieve the goal
Find directions in which you can to
develop your company
Build a strategy for a business unit

233
How to increase the net profit
by 10% – Introduction

234
Imagine that you supporting a beauty saloon chain in Easter Europe in
their attempt to increase net profit
50 location in Easter
Europe
They mainly do manicure
They are looking for ways
to increase profit by 10%

235
There are number of ways in which you can increase the profit by
10%
Get new customers
Convince existing ones to come
more often
Upsell and cross-sell customers
during their visit
Introduce new product
Increase prices

236
How to increase the net profit
by 10% – Solution

237
Imagine that you supporting a beauty saloon chain in Easter Europe in
their attempt to increase net profit
50 location in Easter
Europe
They mainly do manicure
They are looking for ways
to increase profit by 10%

238
Option 1 –
Increase price
Description
Required change to increase net margin
by 10%
Commodity is a basic good used in commerce that is interchangeable with
other commodities of the same type
 We increase the price for manicure for all customers
 Current price is 25 USD per visit
 5% increase of the price
Option 2 –
Increase
Frequency
 We increase the frequency of visiting our beauty shop
 Currently, an average customer does 1.4 visit per
customer
 Increase from 1.4 to 1.6 visit per
customer
Option 3 –
Increase
Customer Base
 We increase customer bases size – acquire new customers
 Currently, we have 60 K of customers per shop
 Increase customer base from 60 K
to 68 K
Option 4 – New
product
 We introduce new product
 Currently we do not sell any additional product
 We need 36% of our customer to
buy the new product

239
Sensitivity analysis
– Introduction

240
Once you come up with an optimal solution you want to see how
sensitive it is to small changes in underlying assumptions. The solution
can be pretty stable….
Current Solution -
7%
Current Solution -
5%
Current Solution -
2%
Current Solution -
1%
Current Solution Current Solution
+1%
Current Solution
+2%
Current Solution
+5%
Current Solution
+7%

241
… or the contrary very volatile
Current Solution -
7%
Current Solution -
5%
Current Solution -
2%
Current Solution -
1%
Current Solution Current Solution
+1%
Current Solution
+2%
Current Solution
+5%
Current Solution
+7%

242
You want to carry out a sensitivity analysis for many reasons
Volatility means risks
You want to prepare for the risk /
hedge against the risk
In some cases you may want to
choose less sensitive option
Sensitivity analysis is basis for
managing a portfolio of projects
Sensitivity analysis helps you
manage expectations

243
To see the full case studies along with analysis in Excel check my online course.
Below a link to the course
How to chose the right
boyfriend – how to chose
rankings in practice
Car vs Uber – what is
cheaper, scenario analysis
How much is MBA worth –
scenario analysis
Estimate how long will it
take to prepare the
presentation?
How big house should you
build – decision tree
example
How to improve your
efficiency using OEE
analysis
How to remove bottlenecks
in practices – content
marketing agency case
study
How to get a girlfriend –
picking the optimal method

244
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245
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KPIs for Management
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Practical Guide
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presentation
For more information on Strategy check also my other presentation

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Practical Guide
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Practical Guide
presentation
For more information on Supply Chain check also my other presentation

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Essential Excel for Business
Analysts and Consultants
A practical guide
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Top 10 courses that every
Management Consultant should
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My super objective view
presentation

253
Top 25 books that every
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read
My super objective view
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254
Management Consulting Tools,
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A practical guide
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255
How to manage a consulting
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A practical guide
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A practical guide
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Practical Guide
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A practical guide
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A practical guide
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Management consultant
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How to be lazy and still get things done
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Practical guide for startups and entrepreneurs
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5 examples of business /
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Practical guide how to check whether the business makes
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Essential Lean Manufacturing
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Practical guide how to cut costs
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What is an issue tree and how
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Practical guide with examples
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Excel shortcuts for Management
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Practical guide how to work fast in Excel
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