Problem-solving and

decision-making

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 Approach

▪ Introduce an ▪ Learn key

approach/tools you elements of
can add to your approach through
toolkit of skills and plenary lecture
use for many types and discussion
of problem solving

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McKinsey’s problem solving approach

IMPACT

Logical
problem solving

Impact- Focused Fact-

driven based

CREATIVE THINKING

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The problem-solving cycle
Focus for today

?
Problem
Problem
definition
Problem
structuring
Prioritisation

Issue
analysis
and work
plan
Recom-
Think next iteration: mend- Synthesis Analysis
what are the team’s ations
next priorities?

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© McKinsey & Company
Step 1: Define the problem

Think IMPACT:
What is the question you
are trying to answer?

?
Problem
definition
Struc-
Problem turing
Priori-
tising
Issue
analysis

COMMUNICATION
Analysis Synthesis Recom-
menda-
tions
!
Impact

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What is a good problem definition?

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

▪ 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?

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Problem statements help sharpen your thinking about the problem
What 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.

1 3
Background and context
Comments on the “situation” and “complication”
facing the key decision-maker (e.g., industry
trends, relative position in the industry).
Stakeholders
Identifies primary decision makers (e.g., CEO,
Division Manager) as well as internal and
external parties who can affect implementation
(e.g., shareholders)

2 4
What is success? Potential challenges
Refers to the basis on which the key decision- Indicates what will not be included in the project
maker will decide whether to act on the (e.g., international markets, R&D activities). Also
recommendations (e.g.,financial returns, effect on defines the limits to the set of solutions that can
staff, market share growth). be considered, including degree of accuracy of
analysis (i.e, 80/20 rule vs. 90/10).
5
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

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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.

1 3
Background and context Stakeholders
What is the current situation? Who are the decision makers?
What has happened so far? Who needs to be involved?
Why is this problem is being addressed
now?

2 4
What is success? Potential challenges
What does a good final product look like? What are the potential issues or problems
What are we trying to deliver? that we can forsee and plan to mitigate?

5
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

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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 Statement of fact

poor profitability despite a strong
market niche position

Should the Oilco refinery improve Not disputable

its deteriorating position?

Can the Oilco refinery be Too general

managed differently to increase
profitability?

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Good problem solving: Oilco refinery

What opportunities exist for Oilco to improve

profitability by $40 million per year through • Specific
overhead rationalisation, operational • Measurable
Specific,
improvements, or restructuring non-core • Action-oriented
action-oriented
assets? • Relevant (to the key
problem)
• Time-bound

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Step 2: Structure the problem

Think DISAGGREGATION and

HYPOTHESIS:
What could the key elements of
the problem be?

?
Problem
Problem
definition
Struc-
turing
Priori-
tising
Issue
analysis

COMMUNICATION
Analysis Synthesis Recom-
menda-
tions
!
Impact

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Problem solving requires we answer a number of difficult questions

What issues
should we What steps
think about? will we need
to take?

How will we
build our
smart cities? …?

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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? Sub-issue

Issue 1
▪ To break a problem into Sub-issue
component parts Sub-issue
Issue 2
Sub-issue
▪ To ensure integrity of the
problem solving is maintained Problem Sub-issue
Issue 3
Sub-issue
▪ To build a common under-
standing within the team of Issue 4
the problem solving
Sub-issue
framework Issue 5
Sub-issue
▪ To help focus team efforts

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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?

Text
▪ Decomposes an ▪ Helps ▪ Early in the
issue into smaller disaggregate problem solving
sub-issues (e.g., problem into process, when
measures, criteria) individual pieces you know little
Issue
tree about the
▪ Sub-issues answer ▪ Helps divide the
work among problem
the question
“What?” or “How?” team members

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Basic principle of the issue tree

How / What?

How / What?
Idea 1.1
Idea 1
Idea 1.2
Goal:
Break a problem
into component
Idea 2.1
parts and show
Question Idea 2 concrete solutions
Idea 2.2

Idea 3.1
Idea 3
Idea 3.2
Formulation of
the basic
question to be
resolved should Complete but non- Further levels of detail for ideas,
be as specific as overlapping list of also complete and non-
possible conceivable solutions overlapping

Level of detail
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Good issue trees meet MECE and 80/20 rule requirements

Mutually Exclusive Collectively Exhaustive 80/20 rule

ME
Idea 1
Benefit for impact
Mutually
Exclusive 100%

Content of
Statements 80%
Question Idea 2 does not
overlap
T
I EN
C
F FI
E
T
NO
Idea 3

Time and
CE Together, statements effort to
20% 100%
answer the question or structure
Collectively problem
fully describe the idea Efficient Trying to be perfect
Exhaustive on the level immediately
above

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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

Food

Clothing
Buy fewer items
Entertainment

How could you

reduce your Travel
expenditure
each month?
Buy lower-quality items

Pay less for

same quantity of Buy items at discount/on sale
items

Share costs of items (e.g., split

rent with roommate, car pool)

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Good logic trees help prioritise issues and allocate responsibilities to team
members

Think SPEED:
Which part of the tree seems most
important to the problem?

?
Problem
Problem
definition
Struc-
turing
Priori-
tising
Issue
analysis

COMMUNICATION
Analysis Synthesis Recom-
menda-
tions
!
Impact

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Purpose of prioritisation

Bundle of possible actions developed

▪ Prioritisation
required

But:
▪ Limited resources
▪ Time constraints

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How to prioritise

Use judgement/intuition Involve your team

Be practical!

20

Polishing 80

80

Focusing 20
on impact
Time and Benefit for
effort problem
solving
Do back-of-the-
envelope calculations Take risks

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Methods for prioritising

Key ideas Example methods

• 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
• 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

Think EFFICIENCY:
How and on what should
the team spend its time?

?
Problem
Problem
definition
Struc-
turing
Priori-
tising
Issue
analysis

COMMUNICATION
Analysis Synthesis Recom-
menda-
tions
!
Impact

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Step 5: Analysis

Think EVIDENCE:
What am I trying to
prove/disprove?

?
Problem
Problem
definition
Struc-
turing
Priori-
tising
Analysis Synthesis Recom-
Issue
analysis

COMMUNICATION
menda-
tions
!
Impact

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Step 6: Synthesise findings

Think SO WHAT:
What are the implications
of our findings?

? !
Problem Struc- Priori- Issue Analysis Synthesis Recom-
definition turing tising analysis menda-
tions
COMMUNICATION
Problem Impact

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Summary versus synthesis: what’s the difference?

SUMMARY SYNTHESIS

? ?

FACTS
▪ I have misplaced my keys
▪ My passport isn't where
I thought it was
▪ I'm 2 months behind
on my tax return

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Summary versus synthesis: extracting a higher level of meaning

SUMMARY SYNTHESIS
I’ve lost my keys I’ve been sloppy
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

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Synthesis helps develop a powerful and effective main message

What is the one thing I Main message must be:

want my audience to
think or do as a result of ▪Targeted
this communication? ▪Overarching
▪Powerful
▪Supportable

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Step 7: Develop recommendations

Think POTENTIAL
SOLUTION:
What should be
done?

? !
Problem Struc- Priori- Issue Analysis Synthesis Recom-
definition turing tising analysis menda-
tions
COMMUNICATION
Problem Impact

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Last chance for any questions…

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Thank you – Enjoy the rest of your day

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