## Problem Solving Step 3/7: Prioritisation

So, now that we have adequately defined the problem and explored the many facets of the problem and potential solution space (through structuring the problem), it’s time to move from diverging to converging in our problem solving process. The first step in converging is to prioritise what the focus of the problem solving is going to be on from here on out.

Remember, the problem solving process is an iterative one. We are going to try our best to prioritise smartly and work on the aspects of the problem that we believe hold the most benefit in terms of solving the issue or unlocking the opportunity. However, if we miss something important or learn more during analysis stage that indicates that other aspects should have been included, we will come back and pick them up.

**Firstly, why prioritise? **

As we have seen through our rigorous definition and structuring of the problem, there are numerous avenues to explore and understand and numerous potential solutions to the problem. Some big, some small. It would be wonderful if we had infinite time and resources to explore every aspect of the problem and implement every potential solution. Sadly, we seldom do.

*Prioritising allows us to drive forward efficiently and effectively by choosing to work on the areas of the problem or hypotheses that have the highest potential benefit.*

Using the right methodologies and judgement can make this a very effective step in the process.

The **Pareto Principle** is a well known economics principle that talks to our overarching philosophy in this step. This from Wikipedia:

*The Pareto principle (also known as the 80–20 rule, the law of the vital few, and the principle of factor sparsity) states that, for many events, roughly 80% of the effects come from 20% of the causes. Management consultant Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who, while at the University of Lausanne in 1896, published his first paper "Cours d'économie politique." Essentially, Pareto showed that approximately 80% of the land in Italy was owned by 20% of the population; Pareto developed the principle by observing that 20% of the peapods in his garden contained 80% of the peas.*

*It is a common rule of thumb in business; e.g., "80% of your sales come from 20% of your clients." Mathematically, the 80–20 rule is roughly followed by a power law distribution (also known as a Pareto distribution) for a particular set of parameters, and many natural phenomena have been shown empirically to exhibit such a distribution.*

I have seen this principle show up in many many instances – whether it is “what percentage of items make up 80% of your spend?” to “what percentage of shopping malls make up 80% of profits?” the Pareto Principle holds roughly true.

*The question, is therefore, how do we identify the 20% of effort / tasks / focus areas that will yield 80% of the impact or outcome?*

That is the purpose of this step in the methodology.

**How to prioritise? **

There are three techniques that I would like to discuss that come together to help us move forward in the right direction:

1. Prioritisation matrix

2. Back of the envelope calculations

3. “What do you need to believe?” analysis

Steps 2 and 3 are used to build 1 but I want to start with 1 so that you know where we are headed.

**THE PRIORITISATION MATRIX**

The Prioritisation matrix is a simple two-by-two matrix that allows you to plot your hypotheses / improvement initiatives to identify which ones you should work on first. This is how it looks:

On the y-axis, we have **Financial Impact** – this is the impact to the business. If you are looking at cost reducing measures, then you would plot your hypotheses / initiatives against either having a high impact on reducing costs or low impact on reducing costs. If considering improving profit, we would have impact spanning from low increase in profit to high increase in profit.

On the x-axis, we have **Ease of Implementation **– either very easy (to the right) or not very easy (to the left). Some matrices use “Difficulty to implement” and invert the scale. I like to keep it simple without weird double-negatives. Easy to the right, hard to the left.

Both of these scales are relative! You want to get an 80/20 view on impact and ease of implementation and plot initiatives relative to one another. This is a great exercise to do in a workshop with the full working team and possibly some other representatives that can help for a quick gut-view on the two axes.

In the end, you will end up with a plot similar to the below:

As you can probably tell by now, the obvious initiatives to move forward and analyse and shape would be the initiatives that are “easy to implement and have high financial impact” – the top right quadrant of the matrix.

Actually, each quadrant has a particular "so what":

**High financial impact and easy to implement**: These are the quick wins. You can implement them easily and quickly and they will have a high impact on the problem or opportunity. Analyse and shape these initiatives quickly and implement asap.

**Long term planning**: High financial impact but more challenging to implement should be put into project funnels and longer term planning. Attributing organisational capacity to shaping, unblocking and implementing these initiatives is worth it as they have a significant impact on the business.

**Consider if capacity allows or delegate: **Those initiatives that are easy to implement but do not have significant financial returns should either be parked until capacity become available to work on them (gap fillers ** after **quick wins have been implemented and be worked on

**long term projects are being shaped and deployed)**

*while*Another opportunity here is to consider delegating these initiatives to lower level managers or supervisors. As they are easy to implement, and not high risk as they do not have a major impact on the business, they probably do not need senior management oversight and coordination. Carve them up and give them to frontline stars and supervisors to run with. Find a manager to champion the portfolio of initiatives and monitor implementation and success. This is a great way to get more people involved in continuous improvement in a low risk way.

**Don’t do**: Anything that doesn’t have significant financial impact and is difficult to implement, laugh it off. Its not worth it. By the time you have implemented the other three quadrants, the business and world would have changed and you could probably generate a new set of ideas and initiatives in the other three quadrants to make these initiatives redundant.

So, these are our immediate focus areas to push forward into workplanning and analysis:

As mentioned, this matix doesn’t magically appear. It is helpful to do simple, 80/20 analyses to help us shape the hypothesis and plot it on our matrix with an “educated guess” as to where it should like relative to other hypotheses or initiatives.

**BACK OF THE ENVELOPE CALCULATIONS**

These are those simple calculations you do on a napkin at a bar when your mate comes up with a crazy idea and you want to figure out what it could be worth. It isn’t large financial models requiring remote servers to process data and scenarios. For example:

If we wanted to increase company-wide sales by 10%, how much would we need to increase sales in our West-coast region along to achieve this?

“Well, the west coast accounts for 50% of our revenue. Therefore, They would have to improve sales by 20% to achieve this impact. It seems feasible but is a stretch. I think they can improve by 10% but not 20%. So, let’s say that it is Medium ease of implementation and Medium financial impact and find other initiatives to go along with it”

**I have always like the golf ball example as a great example of back-of-the-envelope calculations:**

Let’s say your friend, Cheryl, owns a local golf course. 18 holes, pretty good course, not Top 10, not Top 100 but still a good course with good membership. Cheryl comes to you and says “Hey Tom, you know, I was thinking: what if you helped me start up a little business on the side to take all those golf balls out of my dams, give them a scrub and sell them to the golfers as used balls?”

I’d say: “Great idea, Cheryl. Let’s quickly run some numbers!”

There are 18 holes on the course, 6 of which have water along the fairway or near the green.

The golf course is open 6 days a week. Real busy on Wednesday, Friday, Saturday and Sunday. Not so busy on Tuesday or Thursday. So, lets assume a 80% full field for 3 days and 50% for the other three. That’s an average 65% occupancy for the week.

4 golfers per slot. If we assume 10 minutes between slot tee offs, that gives us 30 x 10min = 300 minutes or 5 hours of active tee off time. Seems reasonable. 4 golfers x 30 slots x 65% occupancy = average of 78 golfers per day

If we assume that the bottom 10% of golfers hit at least one water hole per round (may be more but lets be conservative at this point). That’s 7.8 balls in the water per day. 365 days a year x 6/7 open days = 313 working days

That’s 7.8 x 313 balls hit into the water per year. That’s 2,440 balls a year.

But we cant assume we will find all the balls. Depending on the method we use, we would need to determine a “collection factor”. If we use scuba diving gear, we could probably recover around 85%. If we use manual labour without scuba gear, we would probably recover 50%

Using that envelope, we can recover and clean and resell between 1,200 and 2,000 balls per year. Assuming 10% aren’t resellable: we have approx. 1,000 to 1,800 balls to sell.

At $1,50 - $4,00 per new golf ball, we could probably sell our reclaimed balls at an average price of $1,00 a ball (we need to assume that the good guys using top quality balls aren’t hitting many in the water!)

So, out of this one golf course, we will earn a revenue of approx. $1,000 to $1,800 a year by collecting the balls. Taking costs into account, this doesn’t seem like an early retirement venture to me! Factor in the alligator and snake risk and this initiative moves to the bottom left of my matrix very quickly.

You can see how with a little bit of business judgement and some basic arithmetic, you can very quickly get a view on the value of the initiative and how difficult it would be to implement.

**WHAT DO YOU NEED TO BELIEVE?**

This is baked into the back of the envelope calculations in order to make them realistic and pragmatic.

Let’s take our golf ball example: What would we need to believe in order to make this a worthwhile business venture and move it upwards in our matrix?

We now know that one course is worth around $1,400 a year in revenue.

To clear out one dam takes one to two hours with nets and scuba gear. So you can probably do one course in a day if working alone (also accounting for travel time). So, if you wanted to earn $50,000 a year with this venture, how many courses would you need to sign up?

Lets assume, $200 of the $1,400 goes to travel, wages, cleaning equipment, packaging, etc. 50,000 / 1,200 = 42 golf courses. Visiting a golf course for one day ever 3 months seems plausible. But are there 42+ golf courses in the region that would want to sign me up to do this?

This is what I would have to believe to make this initiative work! That would be the key question to resolve in analysing whether this is implementable to the financial degree that I desire.

Using back of the envelope calculations and determining “what do you have to believe” in order for an initiative to work will allow you to very effectively populate your matrix with a good set of initiatives and hypotheses.

Starting at the top right with high financial reward and easy to implement, we determine how many initiaitves we would need to push forward to achieve our overall financial impact (with a margin for error / risk). We then move forward to the **Workplanning and Analysis **of these prioritised initiatives.