Maximize Proft

increase revenue or decrease costs

MVM Roadmap Thought Process

1. Start in zone 2 (operations) looking at revenue - how do we make money (break it down across product, geography)? what is our market share? How have we been trying to increase revenue?

2. Still in zone 2 look at xosts - how have the main cost categories remained over time? what portion is fixed vs variable? How do we compare with benchmarks? is outsourcing an option?

3. now look at zone 5: external forces - how do we compare to competiors in terms of revenue and costs

4. Lastly look at zone 1: strategy - are there any significant actions we need to take to increase revenue and reduce costs? What is the best mix of volume, price and costs.

Plan out on paper

Profit - how do we maximize

Profit = revenue - costs

Revenue

• Price

  • can we raise price

  • if raise price, will volume go down

• Volume

  • what products will grow fastest

  • how will customers respond to price and volume

Costs

• fixed costs

  • building equipment, long-term contracts, other assets

  • What can we sell or change?

• variable costs

  • direct labor and materials

  • can we reduce cost or amount?

Presentation example

We are trying to maximize profit, so I would like to spend most of my time on the operations of the business. It will first be important to understand how we make money and whether or not price or volume can be increased. Secondly, costs may also be able to be reduced to maximize profit. Lastly, I would like to review how competitors are performing and whether or not there is some kind of strategic action we need to take to increase profit. I would like to start with revenue unless you prefer we start somewhere else.

MECE Mode

Revenue Assessment

• calculate the revenue estimates breaking down the volume and price

Cost assessment

• Calculate the total costs, breaking out the variable costs and the fixed costs

Other factors

• Group additional items like competitors and industry trends to focus your actions

Hypothesis examples

profit can be maximized by cutting costs

profit can be maximized by increasing volume

profit can be maximized by raising prices modestly

Mining for an answer

Volume: what has volume been over time? Do we have it by product line or sub category and what are the reasons for the changes?

Prices: how have prices changed over time and why are they constant? What are the risks of price changes? What are the expected trade-offs between volume and price?

Niche Markets: Are there niche markets where we undersell or do not sell? Do we have the skills to each these customers? How long will it take to begin selling?

Variable costs: Are their obvious variable costs that can be reduced? which variable costs will be harder to reduce? What variable costs reductions have been made thus far?

Fixed costs: are there any fixed costs where the contract is almost complete (lease)? Are there any fixed costs that we can slow (replacing equipment) or eliminate?

End the case

Answer main question directly: I would increase profit by…

if pushed to MECE - revs and costs