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Problem-solving and decision-making
This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organisation without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion.
July, 2011
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Importance of good problem-solving and decision-making
▪ Get to answers faster
▪ Use time and resources more efficiently
▪ Have greater impact on the business
▪ Free up time to do other things
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Objectives and approach for session
Objectives
▪ Introduce an approach/tools you can add to your toolkit of skills and use for many types of problem solving
Approach
▪ Learn key elements of approach through plenary lecture and discussion
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McKinsey’s problem solving approach
C R E A T I V E T H I N K I N G
Logical problem solving
Impact-driven
Focused Fact-based
IMPACT
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Synthesis Analysis
The problem-solving cycle
Problem definition
Problem structuring Prioritisation
Issue analysis and work plan
Problem?
Recom-mend-ations
© McKinsey & Company
Think next iteration: what are the team’s
next priorities?
Focus for today
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Step 1: Define the problem
Recom-menda-tions
SynthesisProblem definition
Struc-turing
Priori-tising
Issue analysis
Analysis
C O M M U N I C A T I O N? !Problem Impact
Think IMPACT: What is the question you are trying to answer?
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What is a good problem definition?
▪ What are characteristics of a good problem definition?
▪ What are “must-have” elements to – Ensure we get to the best answer?– Ensure our answer is practical and
implementable?
▪ What are the common pitfalls?
A ‘problem definition’ is a way to frame a problem so that we are clear up front on what we are trying to solve, and what success will look like
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Problem statements help sharpen your thinking about the problemWhat are we trying to achieve?Focuses the work and ensures that findings can be acted on. The more specific the statement the better, provided that it is not so narrow that the “wrong” problem is addressed.
Background and context
Potential challenges
Comments on the “situation” and “complication” facing the key decision-maker (e.g., industry trends, relative position in the industry).
Indicates what will not be included in the project (e.g., international markets, R&D activities). Also defines the limits to the set of solutions that can be considered, including degree of accuracy of analysis (i.e, 80/20 rule vs. 90/10).
1
4What is success?
Stakeholders
Refers to the basis on which the key decision-maker will decide whether to act on the recommendations (e.g.,financial returns, effect on staff, market share growth).
Identifies primary decision makers (e.g., CEO, Division Manager) as well as internal and external parties who can affect implementation (e.g., shareholders)
2
3
Where will we find information and help?
Describes implementation challenges (e.g., labour relations, communication practices, risk aversion) that must be addressed to change beliefs and behaviors
5
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One idea of what a good problem definition looks like…What are we trying to achieve?The basic question we are trying to solve. It should be SMART: specific, measurable, action-oriented, relevant and time-bound.
Background and context
Potential challenges
What is the current situation?What has happened so far?Why is this problem is being addressed now?
What are the potential issues or problems that we can forsee and plan to mitigate?
1
4What is success?
Stakeholders
What does a good final product look like? What are we trying to deliver?
Who are the decision makers?Who needs to be involved?
2
3
Where will we find information and help?Where does expertise and knowledge, exist (Internal and external)? e.g., work that has already been done, internal experts who we should draw on, published reports and papers
5
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Problem statement
Characteristics of good problem statement• Specific
• Measurable
• Action-oriented
• Relevant (to the key problem)
• Time-bound
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Example problem statement: Oilco refinery
The Oilco refinery is suffering from poor profitability despite a strong market niche position
Should the Oilco refinery improve its deteriorating position?
Can the Oilco refinery be managed differently to increase profitability?
Too general
Not disputable
Statement of fact
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Good problem solving: Oilco refinery
What opportunities exist for Oilco to improve profitability by $40 million per year through overhead rationalisation, operational improvements, or restructuring non-core assets?
Specific, action-oriented
• Specific• Measurable• Action-oriented• Relevant (to the key
problem)• Time-bound
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Step 2: Structure the problem
Recom-menda-tions
SynthesisProblem definition
Struc-turing
Priori-tising
Issue analysis
Analysis
C O M M U N I C A T I O N? !Problem Impact
Think DISAGGREGATION and HYPOTHESIS: What could the key elements of the problem be?
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Problem solving requires we answer a number of difficult questions
What issues should we
think about?
…?How will we
build our smart cities?
What steps will we need
to take?
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What is an issue tree and why is it important?
A problem solving tool that breaks a problem into discrete chunks
Why use logic trees?
▪ To break a problem into component parts
▪ To ensure integrity of the problem solving is maintained
▪ To build a common under-standing within the team of the problem solving framework
▪ To help focus team efforts
Problem
Issue 4
Issue 1Sub-issue
Sub-issue
Issue 2Sub-issue
Sub-issue
Issue 3Sub-issue
Sub-issue
Issue 5Sub-issue
Sub-issue
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The issue tree is a valuable tool to disaggregate a problem into core sub-questions that need to be addressed to answer the main question
Description Why use it? When to use it?
▪ Early in the problem solving process, when you know little about the problem
▪ Decomposes an issue into smaller sub-issues (e.g., measures, criteria)
▪ Sub-issues answer the question “What?” or “How?”
▪ Helps disaggregate problem into individual pieces
▪ Helps divide the work among team members
Issue tree
Text
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Basic principle of the issue tree
Goal:Break a problem into component parts and show concrete solutionsQuestion
Formulation of the basic question to be resolved should be as specific as possible
Idea 1
Idea 2
Idea 3
Idea 1.1
Idea 1.2
Idea 2.1
Idea 2.2
Idea 3.1
Idea 3.2
How / What?
Level of detail
Complete but non-overlapping list of conceivable solutions
Further levels of detail for ideas, also complete and non-overlapping
How / What?
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Question
Together, statements answer the question or fully describe the idea on the level immediately above
ME
CE
CollectivelyExhaustive
MutuallyExclusive
Idea 1
Idea 2
Idea 3
Mutually Exclusive Collectively Exhaustive
Content of Statements does not overlap
Benefit for impact
Efficient
Time and effort to structureproblem
NOT EFFICIENT
Trying to be perfect
100%
80%
100%20%
80/20 rule
Good issue trees meet MECE and 80/20 rule requirements
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Let’s try out an example
Create an issue tree to address the following:How can you reduce monthly shopping expenses?
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Example Issue tree solution
How could you reduce your expenditure each month?
Buy fewer items
Food
Clothing
Travel
Entertainment
Share costs of items (e.g., split rent with roommate, car pool)
Pay less for same quantity of items
Buy lower-quality items
Buy items at discount/on sale
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Good logic trees help prioritise issues and allocate responsibilities to team members
Recom-menda-tions
SynthesisProblem definition
Struc-turing
Priori-tising
Issue analysis
Analysis
C O M M U N I C A T I O N? !Problem Impact
Think SPEED: Which part of the tree seems most important to the problem?
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Purpose of prioritisation
Bundle of possible actions developed
But:▪ Limited resources▪ Time constraints
▪ Prioritisation required
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How to prioritise
Use judgement/intuition
Do back-of-the-envelope calculations
Involve your team
Take risks
20
80
80
20
Time and effort
Focusing on impact
Polishing
Benefit for problem solving
Be practical!
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Methods for prioritising
Key ideas
• Take a reasonably quick, informal approach to get started
• Remember that sometimes a ”back of an envelope” calculation is all that’s needed
• If new information emerges, you can always reprioritise and switch your efforts to another part of the tree
• Use likely impact to decide where to go first
• Use readily available data whenever possible; avoid major data requests
• Do not create massive spreadsheets or other computer models if you can move forward with less complete information
Example methods
• Percentage of total “X”• Estimated potential
increase/decrease (sensitivity analysis)
• Simple ratios• Quick industry benchmarks• Qualitative input from interviews• Ease of implementation• Timing• “Quick wins”• Available resources• High/low risk
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Step 4: Issue analysis and work plan
Recom-menda-tions
SynthesisProblem definition
Struc-turing
Priori-tising
Issue analysis
Analysis
C O M M U N I C A T I O N? !Problem Impact
Think EFFICIENCY: How and on what should the team spend its time?
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Step 5: Analysis
Recom-menda-tions
SynthesisProblem definition
Struc-turing
Priori-tising
Issue analysis
Analysis
C O M M U N I C A T I O N
Think EVIDENCE: What am I trying to prove/disprove?
Problem Impact? !
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Step 6: Synthesise findings
Recom-menda-tions
SynthesisProblem definition
Struc-turing
Priori-tising
Issue analysis
Analysis
C O M M U N I C A T I O N
Think SO WHAT: What are the implications of our findings?
Problem Impact? !
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Summary versus synthesis: what’s the difference?
FACTS▪ I have misplaced my keys ▪ My passport isn't where
I thought it was▪ I'm 2 months behind
on my tax return
SUMMARY
?
SYNTHESIS
?
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SYNTHESIS
Summary versus synthesis: extracting a higher level of meaning
SUMMARYI’ve lost my keys and passport and I'm behind on my tax return
FACTS▪ I have misplaced my keys ▪ My passport isn't where
I thought it was▪ I'm 2 months behind
on my tax return
SYNTHESISI’ve been sloppy
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Synthesis helps develop a powerful and effective main message
What is the one thing I want my audience to think or do as a result of this communication?
Main message must be:
▪Targeted▪Overarching▪Powerful▪Supportable
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Step 7: Develop recommendations
Recom-menda-tions
SynthesisProblem definition
Struc-turing
Priori-tising
Issue analysis
Analysis
C O M M U N I C A T I O N
Think POTENTIAL SOLUTION: What should be done?
Problem Impact? !
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Last chance for any questions…
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Thank you – Enjoy the rest of your day