Management Consulting Guide by Michael Boricki

Management Consulting Guide

Management Consulting Guide to developing Business Cases Learn the process used by McKinsey & Company, Bain & Company and the Boston Consulting Group Follow a management consulting engagement team as they assist Goldy, a fictitious large Brazilian gold miner, diagnose and fix its production problems. In this detailed guide we will walk through an actual engagement and determine how the team built the business case for the client. The guide will follow a consulting team over an 8 week engagement and explain the challenges they face, how they developed hypotheses, built the analyses and provided the final recommendations. It will be written so the reader may understand, follow and replicate the business case process. Â Screen shots of the draft and final presentations will be provided. The actual presentations and financial models will be loaded on Lillilooloo.com and linked into this guide. Therefore readers can download the documents and track the development in this guide. It is fully interactive. The overall guide is over 180 pages in length and written by former management consulting directors and case leaders. This is the most comprehensive guide on business case development available. Read this to become a brilliant business case consultant.

Management Consulting Guide: Developing a business case for Goldy to improve its mining operations Contents 1. Introducing a totally new guide...business cases and business case development 2. Week before the project: Preparation 3. Day 1 & 2: First week at the client 4. Day 2: Preparing the engagement charter 5. Day 2: Preparing the work plan 6. Day 2 & 3: Thinking about the value tree 7. Day 3: Developing the value tree 8. Day 3: Developing the model architecture 9. Day 4: Drafts of the week one planning documents 10. Day 4 & 5: Wrapping up week one 11. Week 2 ‐ Day 1: Mine site visit 12. Week 2 ‐ Day 2: Discussions after the mine visit 13. Week 2 ‐ Day 2: Meeting with the FD 14. Week 2 ‐ Day 4: All the planning is done 15. Week 2 ‐ Day 4 & 5: Designing and conducting focus Interviews 16. Week 2 ‐ Day 5: Feedback from the focus interviews 17. The guide extends to 35 sections all the way until Week 8 – Day 5 About Lillilooloo.com Are you an aspiring management consultant? Are you an independent consultant, or a part of a small consulting firm? To be successful you need to simultaneously meet clients, sell work, deliver sold projects, train new people to deliver the work, generate intellectual property, write reports, write proposals, find contractors, develop toolkits...And the list goes on. This is a very difficult task which is all but impossible to do for seasoned consultants with years of experience. Younger or less experienced consultants could fair even worse. Nowhere in the entire world has there been a place to help consultants. Until Now! Lillilooloo.com is a one stop portal to help consultants with many of their problems. Our site is essentially a shared back‐office which you can tap into for sample work, toolkits, detailed advice on our blogs, methodologies, share ideas, access world class research; outsource proposals, letters, transcription of notes/concepts, administration...and much more.

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Follow the Morita & Company engagement team as they assist Goldy, a large Brazilian gold miner, diagnose and fix its production problems. In this detailed guide we will walk through an actual engagement and determine how the team built the business case for the client. This will take an in‐depth look and follow a natural sequence of the engagement. The guide will follow a consulting team over an 8 week engagement and explain the challenges they face, how they developed hypotheses, built the analyses and provided the final recommendations. Screen shots of the draft and finals presentations will be provided. The actual presentations and models will be loaded on Lillilooloo.com and linked into this guide. Therefore readers can download the documents and track the development in this guide. Lillilooloo is dedicated to helping management consultants master the skills and tools they need to effectively serve clients. We remain the only site helping consultants improve their skills. This guide will follow the same format. It will be written so the reader may understand, follow and replicate the business case process. If you worked at a large firm, you would have this guidance on a project. As an independent consultant or new consultant, you also certainly do not have exposure to this training and this series will talk you through the entire business case development process using actual examples. This is the same process used at the leading firms like McKinsey, Bain and BCG. This guide will help you learn these skills. To make this guide realistic we have worked with one company from start to finish. Using different examples and different companies throughout the guide will make it difficult for readers to see the data linkages and development of the final recommendations. The client and engagement is fictitious. The data presented is also fictitious. However, it is based on actual consulting engagements and the real experiences of the Lillilooloo.com writers when they were management consultants. Each week we will post the first page of the new chapter to the guide. Readers can purchase the complete guide from the Lillilooloo.com website. The client Although the experiences and examples will be based on real examples, we will use a fictitious client. The client is a Brazilian gold miner. We will call the company Goldy. Here are some key facts about Goldy: 1. The head office is in Rio de Janeiro, Brazil. 2. The bulk of its operations are in the Brazilian interior and are deep level gold mines.

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3. Goldy also has mines in Russia, South Africa and Australia. 4. The company is listed on the Toronto and Brazilian stock exchanges. 5. In the space of just 10 years Goldy grew via a series of acquisitions to become one of the 3 largest pure gold miners in the world. 6. It acquired lots of debt to fuel its M&A programme. 7. The company has a reputation for being a “rebel” and not playing by the industry rules. 8. Over the last 2 years it tried to buy several large mines but failed. This has stalled its growth. 9. Its efforts to improve the performance of its operating assets appear to be relatively modest. 10. There is a strong disconnect between the corporate office, who are generally of Italian/German ancestry, and the workers, who are of poorer African ancestry from the developing areas of both Brazil and South Africa. This has led to unrest at some of the mining sites. 11. Goldy is very independent and is generally hostile to any outside help. The consultants are advised to expect little corporation. 12. The company has seen a declining share price over time, as well as declining production value. 13. Morale has dropped a little and the project team needs to advise the company on the best way forward to fix its production problems. Engagement team The engagement team from Morita & Company consists of 5 consultants including the manager. There is also 1 partner and 1 senior partner leading the client engagement and engagement design. The objective of this team is to understand why production is down, and to recommend a set of options for implementation. Although different work streams (operational improvement and change management) had to be completed on the project, this guide will focus on the business case piece of work led by an associate and supported by an analyst. This is their experience.

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Business Case Development: Part 1 ‐ Week before the project: Preparation Week 0 is also known as the pre‐engagement week. The team will bill the client but will usually work in the office and away from the client. The objective of this week is to ensure the team fully understands as much about the client and the problem as they possibly can, and before they arrive on site. Engagement teams usually consist of experienced and inexperienced consultants. Consultants may be inexperienced because they do not understand a sector, client or particular type of analyses. This week in the office provides inexperienced consultants a chance to understand the client and sector, and not appear “green” in front of the client. This is the general format of the week: Reading and Research: The project team will review all newspaper articles, research reports, equity research reports, annual reports and regulatory filings about the client. They will also read competitor information and obtain advice from other consultants who have worked on similar engagements. The objective is to gain a broad understanding of the issues. Issues: As the team conducts its research, each member will write down issues they THINK affect the problems identified by the client. They will also think about the main problems mentioned by the client: drop in production value. The team is not worried about the accuracy of the lists of issues at this point. The aim is to generate a list of issues based on educated guesses and a careful reading of the material available. Over a series of 1 or 2, 2‐hour meetings, the team will list every issue on a white board using post‐it notes. In this engagement the Goldy team generated over 140 post‐it notes. They can be in any order, any priority etc. The aim is to capture possible all issues affecting the client. Usually the team will work in one large room together during this planning week. This allows us them to create a war room, put up information and immerse themselves in the engagement. Themes: In the second or a third meeting, the team then gets together again and discusses the common themes from the list of issues. Putting then up on the white board helps everyone see a common set of issues. The session focuses on clustering the issues into common themes. For example, the following list of 12 issues can be listed under a theme called “rising costs”: 1. Four salary increases to reduce labour walk‐outs 2. Fuel prices tripled in 16 months 3. Shortage of equipment and spare parts driving up costs

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Business Case Development: Part 2 ‐ Day 1 & 2: First Week at the Client This is week 1 of an 8 week project. The project team will be based in Rio de Janeiro but will be expected to travel extensively to Belo Horizonte in Minai Gerais Province, and will be based deep in the Amazon forest at the Mino 1 mining complex for at least 4 weeks of the project. At this stage of the engagement, the team planning of the previous week has generated all that it can. It is now up to the work stream leads to take ownership for their activities. This week is a critical one. The business case team needs to build the overall plan for their work, and share it with the team. Doing this is important for several reasons: 1. Building the overall work plan so early in the project requires the business case team to understand the overall problem, outline how they will design the solution, list their data requirements, understand all the questions which need to be answered and those they will need to lead. This is a steep learning curve for a team with no gold mining experience. Yet they know the process works and designed to overcome these industry‐ gap challenges. 2. While they need to design the overall work plan, they also need to have a process which is flexible enough to incorporate likely changes in findings from the rest of the team. What if a work stream finds a new benefit which was not identified earlier? The business case teams approach must allow for these uncertainties. 3. The business case team must provide direction to the rest of the team but also requires inputs from everyone else to complete its work. The team must design its approach over the next 8 weeks to cater for this: providing direction while also collecting information. 4. The business case team cannot work in isolation. They need to present meaningful updates of sufficient depth and at regular intervals. In this way, they can test their thinking with the client and engagement team, and also receive feedback on the direction. The engagement partners can therefore also determine if the project is adding value. 5. The business case team needs to find allies in the clients finance department who can share data, work with the team to test hypotheses/answer questions and eventually validate their approach. They need to build these relationships at several levels of the finance organisation. At the mid‐level, were they will work with the finance team on a day‐to‐day basis. At the Finance Director level they need to build rapport and trust to ensure he accepts the recommendations and defends the findings. First client meeting Week one is particularly tough for the business case team. The FD has heard about the start date of the engagement and has recommended a workshop presentation from the business

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Business Case Development: Part 3 ‐ Day 2: Preparing the charter The business case leader (BCL) lists his priorities for the week as the following: 1. 2. 3. 4. 5. 6. 7.

Complete the stream charter Complete the model architecture Complete the model description Complete the decision tree and data requirements Complete his work plan Complete his storyboard Get his team, engagement manager and client to agree to the above

He knows the model architecture may take longer than a week. Yet he needs to get the majority of the thinking done this week and finalise the architecture early next week. Hopefully the skeleton for the model can be built by the end of next week. With the focus interviews booked, FD meetings booked and team update completed, the BCL focuses on his first piece of work: the business case charter. The charter is essentially the business case teams “contract” with the engagement manager. It exists for several reasons: 1. Its helps set expectations from both sides. With the charter the manager can see clearly what the team will do and the team can tell the manager what they intend to do. Both sides can then proceed, having a good idea of what to expect. 2. The manager can use the charter to manager client expectations and the rest of the engagement team. 3. The charter becomes an important tool to manage the performance review of the consultant after the project. If expectations are written down, it is much easier to measure performance. 4. From a legal perspective, if the client agrees to the charter then it is much more difficult to claim the work was not done or they misunderstood what they would receive. 5. The charter is important and must be done. The charter is not just there to protect you and the team from the client and the rest of the project. It is also there to protect you from the pressure cooker environment of a project. With really aggressive timelines, an unpredictable client, daily challenges and data problems, it is very difficult to stay on track. The charter can serve as a necessary reminder of the objectives and ensure you understand why you are on the engagement, what you need to accomplish and what you need to deliver at the end of the 8 weeks.

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Business Case Development: Part 4 ‐ Day 2: Preparing the work plan The business case leader (BCL) has 7 critical tasks to complete in week one. Thus far he has only completed the draft stream charter. 1. 2. 3. 4. 5. 6. 7.

The BCL needs to think carefully about the time he has available and how he can complete the work. With just one analyst assigned part‐time to the BC, there is not a lot of support to complete the work. Yet he knows from past experience this is the typical structure of a business case and if he plans well. He will have sufficient time to complete the entire business case. The BCL arranges a meeting with his engagement manager and talks him through his initial thinking. The BCL points out he feels comfortable this will be a typical business caase engagement and he thinks his charter is a fair reflection of what to expect. The engagement manager (EM) cautions the BCL about several peculiarities/issues of the industry which must be carefully analysed and built into the timeline: Issue 1: The gold industry strongly believes in the existence of a gold premium. The gold premium is an “extra” valuation of 15%‐30% which exists for gold mining companies purely because they exist in the sector. The approach must cater for this, as the client executive committee will specifically want to understand how this may be affected by the Morita recommendations. Issue 2: Most of Goldy’s operations are in emerging economies. The EM advises on developing a approach which specifically looks at the vagaries of emerging markets. Issue 3: The client has their own views of what drives production value. This may not necessarily align with the correct principles of value creation. Therefore the BC stream must be able to educate the client about how to think through production value.

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Business Case Development: Part 5 ‐ Day 2 & 3: Thinking about the Value Tree On Tuesday night the BCL started thinking though the events of the past week and 2 days. Clearly this was an exciting engagement at one of the most prolific and successful emerging markets companies. Helping Goldy would be a massive breakthrough for Morita & Company in the important Brazilian market. Much depended on the business case team’s ability to deliver an exceptional analyses and set of recommendations. It was clear that while the client was tough and would not tolerate mediocrity, the BCL felt that a relationship could be built with the FD, provided Morita could deliver real value. Determining the drivers of value in the gold mining industry would not be as easy as he had initially thought. The industry and Goldy was clearly influenced by their own interpretation of events and the consulting team would have to work very much to educate the client. What is production value? Like any good consultant, the BCL knew that it would be foolish to take heavily marketed and hyped approaches and push them onto the client. While EVA and Holt analyses where popular, the BC team needed to start from first principles and design the approach bottom‐up. If it so happened that EVA was the designed outcome of the approach, then they would recommend Goldy take steps to improve its EVA. Starting from first principles, the BCL wrote down several “truisms” about increasing value: 1. Goldy must produce growth in revenue. 2. If Goldy did not produce growth in revenue, it needed to slash costs. This is not a long term answer since the company cannot diet itself to a higher valuation. Yet, being lean was a condition of benefiting from strong revenue growth. 3. Goldy must get a return for the cash they are putting into the operations. 4. To be more highly valued than its peers, this return should be higher and should be in the form of cash, free cash‐flow. 5. P/E ratio could serve as the proxy for valuation. Coming back to P/E ratios he also realised the following: 1. A fast growing firm could generate a high P/E ratio even if it had a low ROIC. Technology stocks tend to exhibit this. 2. A firm burning up lots of capital to grow fast and produce low returns, will only attract a high P/E if the market felt this investment laid the groundwork for greater returns in the future. 3. A slow growing firm on the other hand could have a high P/E if it had a high ROIC. 4. There are always exceptions to the rule but this was generally true.

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Business Case Development: Part 6 ‐ Day 3: Building a Value Tree Sitting down with the new analyst the BCL (business case leader) explains the Morita approach to management consulting. After a 3 years career with the firm he knows that management consultants have their own disciplined way of conducting research, and new joiners just assume their university training will equip them for the rigors of consulting analyses. It does not. When consultants talk about businesses cases; they refer to the quantifiable and financial impact of implementing a set of recommendations. Although the BCL has spent much of the last week and a half explaining the process to the analyst, only practice will allow a young consultant to understand the approach. A central part of building businesses cases and the economic models to test different options lies in the value tree. In simple terms a value tree simply takes the definition of value and breaks it down into its constituent parts. For example, if the BC team needed to work out profit, the value tree for profit would have two legs, one for revenue and another for costs. Costs can be further broken down into fixed and variable costs. This process continues until the BC team can understand the different parts of the operation which drives profit. Why build a value tree first? This is the question posed by the young analyst. She is an eager and an exceptionally smart physics undergraduate. She sailed through her studies with a 3.96 GPA and performed very well on her recruitment cases. This is her first case and she is eager to prove her worth. The BCL knows he needs to find a way to channel her enthusiasm and intellect into a structured approach so they can solve the problem without undertaking work which is irrelevant and frustrates her. If that happens, even a high‐potential consultant can become disappointed and it will affect their work. The analyst is of the view that since she attended the week‐long MBA training in Barcelona and knows how to build an economic model. She is ready to go! The BCL points out the following to the analyst: 1. Every economic model has a core engine which calculates/simulates/measures a business value. In this project that business value will be the EROC of the mining operations. 2. The core engine itself must be driven by a set of primary data. Therefore, the model determines how key metrics (such as EROC) change as the primary data is altered. In this case, the data may be the amount of ore mined. The BCL team needs to make a decision. Do they model the primary data or do they simply insert different figures for ore mined and determine the impact on EROC and the options? Is there an option for a hybrid where they model ore mined at a high‐level?

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Business Case Development: Part 7 ‐ Day 3: Developing the Model Architecture The business case leader (BCL) is now fairly confident that if he can produce a very good draft of the model architecture and description, then the BC team would have a tremendous first week on the project. He is aware that it is important to start the project in the right way. If the client and engagement manager sees that the BC team is organised, prepared, logical in their thinking and operating well with the broader team, then they are likely to find it easier throughout the project. He quickly ticks of the things they will likely have by Thursday midday: 1. 2. 3. 4. 5. 6. 7.

Typically, developing the model architecture can take up to 1 week or more. It is essential to also have the completed value tree to understand the levers and drivers of value for Goldy’s mining operations. These form the basis for the model architecture. However the BCL was recently assigned to Indonesia on a coal mining project and led the business case team in that engagement. So he feels confident of producing the high‐level architecture in one day. Once the analyst provides the value tree tomorrow, he can compare the model architecture to the value tree and make the necessary adjustments. The architecture is not an overly detailed layout of the economic model. It does not consist of many pages of drawings and notes. It is actually a one page diagram. The architecture explains the conceptual logic behind how the model will work. If the conceptual logic makes sense, the BC team can then go ahead and figure out how to actually build the model. Having the architecture does not mean all the questions about the model have been answered. Far from it! It just means the team knows what they are building, how it will work and what it will produce. They will still need to actually build the model, overcome data challenges and even make changes to the way the data is used in the model. Writing the purpose of the model The BCL writes down the things the model must do:

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Business Case Development: Part 8 ‐ Day 4: Drafts of the Week 1 Documents Just 4 days into the engagement the team has started to develop good momentum on the project. The engagement manager (EM) commences each day with a 7:30am meeting. Each stream of work; operations improvement, business case and recommendations (engagement management), has 7 minutes to deliver their update in the following format: 1. Key insights and findings 2. Things useful to the other teams 3. Help needed The engagement manager (EM) follows this up with a 9 minute discussion by summing up what he has heard, where he thinks the team should focus, feedback from the client and the plan for the week. The business case leader (BCL) has arranged a 1 hour working session with the analyst to review progress to date. This is an important pre‐meeting to arrange all the documentation for the next 24 hours. Later in the day, the BCL will meet the FM, on Friday morning he will meet the FD and Friday afternoon, the EM and senior partner (SP). From this meeting the BCL and analyst will need to produce final working drafts of the following documents: 1. 2. 3. 4. 5. 6.

stream charter model architecture model description value tree and data requirements work plan Thoughts on the storyboard

The BCL thinks it may be too early to get everyone to agree to the drafts in week one. It is unlikely the BCL himself will be comfortable with the documents. Therefore he has decided that the objective for week 1 must be for the engagement team, EM and FD to review and provide guidance on working drafts. The new milestone will be to sign‐off these planning documents by the end of week 2 of the project. The session starts promptly and each document is reviewed. The BCL explains to the analyst why it is important to present all this planning information as one package and so early in the project. The EM is ultimately accountable for delivering the project, while the partner and senior partner will be held accountable by the CEO. While they are all very experienced consultants, they cannot know everything. The BC team need to help them to help the BC team. The BCL outlines the principles for preparing these planning documents:

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Business Case Development: Part 9 ‐ Day 4 & 5: Wrapping up Week 1 The business case leader (BCL) takes along two printed and bound copies of all the planning documents. This meeting with the finance manager (FM) is crucial and the BCL knows it. The basis of a client‐consultant relationship is usually set over the first 1 or 2 meetings. Therefore unless something radical happens to alter the basis of the relationship, this meeting will determine the working relationship. This meeting is important for other reasons. The engagement team is unlikely to get much access to the FD. The senior partner (SP) provided feedback from a meeting with the CEO, who mentioned that the FD was opposed to bringing in Morita & Company. The FD felt that proper operations consultants were needed and did not believe Morita could handle the problem. The CEO did not feel the FD would immediately support the consultants or give them sufficient time. This is where the FM becomes important: 1. Without much access to the FD, the BCL would need to work the detail with the FM, and only take decisions and findings to the FD. 2. The FD is likely to rely heavily on the FM’s opinion of the consultants, their worth and abilities. Understanding the importance of this relationship the BCL has developed a strategy for the sessions with the FM. He will follow 3 simple principles in developing the relationship: 1. Consistently impress the FM and present an image of a consulting team which is organised, understands the business and meets deadlines. To do this, the BCL will only present work which has been checked and is logical. Incomplete parts of the analyses or errors will be checked by Goldy financial analysts. 2. Build both a professional and personal relationship. Within the next 2 weeks, the BCL intends inviting the FM and some of his close analysts for after‐work drinks in their home town. The BCL has heard the grumbles about consultants who want to only work out of the Rio office and are unwilling to spend the weekend in the mining towns. The BCL plans to take them out on a Friday and spend at least Saturday in the mining town. 3. Make the FM look good. It is apparent that while the FM is respected, not many people see him as the authoritative right‐arm of the FD. He is seen more as a walking encyclopaedia. The BCL wants to help raise the FM’s profile and hence build an ally. Arriving at the FM’s office, the BCL is surprised to see a very, very tidy office; unlike that of the FM’s colleagues down the hall. Sitting on his desk is the only noticeable personal item: an autographed football. Trying to break the ice and build a relationship, the BCL asks the FM about the football. That lights up the FM. Over the next 20 minutes they discuss football and

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Business Case Development: Part 10 – Week 2 ‐ Day 1: Mine Site Visit On a hot and humid Sunday afternoon, the team arrives in Belo Horizonte after a flight from Rio de Janeiro. They spend the night in Belo since they have very early departure the next morning. At 4am on Monday morning everyone is at the company airstrip boarding a chartered flight to Goldy’s massive Mino 1 complex deep in the Amazon. The 1 hour flight passes straight over the jungle. The engagement team cannot see much given the limited light of the early hours. Appearing from behind a hill, the Mino 1 mining complex is one of the world’s largest gold mines. Over 60,000 mine workers toil in this self‐sustaining facility deep in the Amazon jungle. Given the size of the complex and its isolation, it was built as a fully enclosed and self‐contained “city”. The complex has its own hospital (rated as one of the best hospitals in Latin America), housing facilities, recreational facilities, schools, hotels, shopping centres, theatre, pharmacy, airport and more. All of this exists within a facility under 24‐hour armed surveillance. Mino 1 is Goldy’s flagship operation. It contributes 18% of all gold ounces produced and just fewer than 15% of Goldy’s EBIT. It was originally built in 1972 and reached its peak in 1996. Production has dropped by 33% since then but the mine is still expected to be viable for the next 12‐15 years. Mino 1 currently consists of 1 shaft at 2.8km in depth linking 5 different mines. On any given day, 45,000 men work underground. The team will have an induction for 15 minutes, followed by 15 minutes to change into protective gear. They will go down with the morning shift at 6am and stay underground until 3pm when they will come back with the same shift. Thereafter they will tour the ground facilities. Later in the day, the team will have an early dinner with the president of the Mino 1 complex and his team. They will return to Rio on Tuesday morning to complete the planning phase of the project. They will return to Mino1 at the start of week 3. Why Mino 1 The site visit was not easy to arrange. The Mino 1 president was reluctant to have external consultants visiting his operations and reviewing his team. Goldy’s culture has always been to treat each major complex as a separate company. Hence the use of the title “president” when Goldy’s competitors used titles such as vice president, senior vice president or general manager. Mino 1 encapsulates Goldy’s tough and independent culture. The complex was developed when the Brazilian President decided to move Brazil’s capital from Rio de Janeiro to Brasilia. This was done to promote the development of the interior. Goldy was the first major local mining company to push into the interior. The mine was built and operational a full 5 years before roads and supply lines were properly established. The complex has battled terrorist attacks,

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Business Case Development: Part 11 – Week 2 ‐ Day 2: After the Mine Visit The Mino 1 visit had more than one benefit. Since the charter flight out would only leave at 10am, the team had an opportunity to have an unusually long breakfast. The other benefit was the presence of the project partner and the team discussion. The project partner, and not the senior partner, actually developed the idea with the Goldy CEO and convinced him of the need to change the performance of the business. The comments from the partner are very interesting, since they provide further context for the engagement. So while the senior partner (the partner was travelling at this time) summarised most of this information, it was useful to hear the detailed background. As the partner recounted, their first discussions took place about a 9 months ago when the CEO was being wooed by the chairman of the board to come across and run the business. At the time, the CEO was running a Brazilian electricity utility. While he had done a good job, he was not particularly keen to see himself go into a new industry and turn around one of Brazil’s floundering mining giants; especially when the giant did not consider itself to be in trouble. Given the amount of prodding from the chairman, he decided to do his own due diligence. He reached out to colleagues to find mining specialists who could talk him though the changes in the sector. Via referrals, the CEO arrived at Morita & Company and the engagement partner in particular. Over several dinners, they sketched out the challenges facing the mining sector, gold mining companies and Goldy in particular: 1. The traditional gold mining centres are dying. Famous deep (over 2 km’s underground) mining centres in Brazil, South Africa, Venezuela and Asia are becoming more expensive and difficult to mine. The deeper they go, the tougher it is. 2. Sweeping activism amongst shareholders is starting to hold gold miners accountable for safety and mining deaths. Safety is a major issue and until recently, most miners have avoided any scandal. It is every Gold mining CEO’s nightmare that a campaign will start similar to the blood diamonds campaign which cost the diamond industry millions of dollars. Increased safety costs money. 3. Due to the above and older assets, and techniques, production volumes are dropping. 4. Gold is moving to new centres in Russia, Canada, Mexico and Asia which require new mining techniques that the established companies are not skilled at. They are not comfortable transferring their core mining knowledge since it does not work in these new locations. Bringing in new mining technology and mining partners costs money. 5. The need for more capital is forcing gold mining companies to go to the capital markets. They are doing this at a time when they have relatively poor performance due to rising

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Business Case Development: Part 12 – Week 2 ‐ Day 2: Meeting with the FD The team is back at the office by 12pm after a very tiring site visit to the massive Mino 1 gold mining complex in the Amazon. The working conditions, state of the mine, viewpoint of the mine president and information from the project partner was extremely beneficial and helped frame the engagement far clearer then the pre‐engagement planning in the office. The planning was still useful but at least now the team knows the type of corporate environment within which they operate. Looking around the Rio Goldy head office with modern finishes and decorated offices only did more to reinforce how different the company’s actual culture was between the 300 people at head‐office and the 170,000 employees in the mines. The BCL tries to reorder his priorities based on all the new information received in the last few days: 1. Goldy will likely go through some dramatic changes in its organisational structure, business model and operating model. This engagement is a smaller version of such a corporate‐wide initiative. 2. Despite such an eventual and grand project, the BCL needs to focus on delivering the business case. The more he thinks about it, the more challenging this could be unless it is carefully managed. 3. The arrival of a new associate today to lead the analyses of the services assets will likely generate significant opportunities provided the business case team adapts their work to analyse these options. The bottom‐line is clear: the BC team needs to quickly sign off their approach and lay the ground work for the analyses. The BCL is also thinking through a decision which could save his team lots of time in the long term, or create numerous delays if he is incorrect. This is the trade‐off he needs to consider. It is clear that a baseline assessment of Mino 1 must be done. There are two possible ways to do this: 1. The first option is to complete baseline the analyses in a separate excel spreadsheet. After this is done, the business case model can be built. This is a faster approach which could yield a baseline result within a few days. The downside is that the model building will be pushed back, and the baseline data will need to be reinserted into the new model 2. The second option is to develop the full model and populate it with “best‐guess” data simply to test the model and make sure it works. This will be a fully functional model. Once the model is working insert the current and past actual financial data to generate

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Business Case Development: Part 13 – Week 2 ‐ Day 4: All the planning is done The BCL (business case leader) arrives at Goldy’s head office at 6am. Usually, there is no parking and he needs to park about 200m from the entrance. Today he has his choice of parking spots. As he crosses the foyer and goes through security scanners, he thinks about the final planning he has completed over the last two days. He feels good about the week; the analyst has done a great job of preparing a useful process map. All the planning documents are ready for his final review. The BCL is more pleased because he believes he understands what needs to happen, is driving the process and not relying too much on the engagement manager, partner or senior partner. In his experience he knows that despite all the assistance Morita partners and team members offer on an engagement, unless the consultant responsible for the work takes full ownership and understands the problem in its entirety, it will never be a successful engagement for that consultant. The BCL has thought through the model architecture and has figured how to build the model and include all the changes over the past few days. He is especially pleased because his solution to analyse the services functions (hospitals, schools and so on) is simple and effective. Arriving at 6am gives the BCL a full 90 minutes to print and review the documents before the engagement team meeting. So far, the days have been very busy and the best time to complete the work is in the early mornings and late afternoons. Picking up the printout’s the BCL does one final review to ensure: 1. The documents correctly capture all the changes made 2. The documents correctly reflect the overall objectives, approach and deliverables of the business case team 3. The documents pre‐empt possible concerns and questions. Work plan The BCL has altered the work plan to emphasize the following: 1. Tasks in white are important only to the BC team to complete the development of the business case. They support the development of the final deliverables but are not the final deliverables themselves. 2. Shaded tasks are important to the EM, engagement team and client. These have been shaded to ensure there is clarity on when the deliverables will be completed. 3. The building of the model framework, developing the baseline analyses and completing the rest of the model refinements have been split into different pieces of work. This

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Business Case Development: Part 13 – Week 2 ‐ Day 4 & 5: Designing & Conducting Focus Interviews “Given all the changes to the business case in the last few days, and the need to get my head around the services analyses, I think we should just focus on the business case.” “Therefore I think we should not do any of the focus interviews. It’s not that I do not want to help the other team members, I really believe we need to be focused on what is most important to the task at hand” When the analyst mentioned this to the BCL after the morning team meeting, he realised how many people misunderstood the purpose of a focus interview and the purpose of a business case. It’s clear the analyst sees the business case team’s modus operandi as simply building a model, crunching the numbers and handing this over to the rest of the engagement team. Too many young Morita analysts think the business case team is done once the model is built and ready. Little do they know that this is the easy part. The real work starts once the model is ready and it must be used to analyse the various options and guide the development of the final recommendations. The latter part requires building client relationships, understanding all the issues and being able to communicate clearly. Business case development is not about model building. It’s about understanding the business. It’s also apparent that the analyst does not fully understand how the business case team collects information and influences the project. The business case team does not simply work with reams and reams of data. They need to think carefully about the questions the model will answer, design techniques to collect the data and find ways to verify their initial hypotheses. For the business case team: 1. The focus interview is a critical tool to collect valuable data and test hypotheses. 2. The client will almost certainly know more than the consultant. The client can outline what has been tried, what has failed, and what has worked. The client may also indicate opportunities the consultant has not considered. 3. Thus far, all the information has been coming through from the CEO, FD and FM. The focus interview levels the playing field by allowing every level of the organisation to comment on the issue. It allows the consultant to view the problem from multiple angles. 4. A good business case consultant must be able to use many soft skills to produce a business case which is accepted by the client. The ability to design, conduct and analyse a focus interview is one such soft skill.

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Business Case Development: Part 15 – Week 2 ‐ Day 5: Feedback from the focus interviews and developing opportunity charts The BCL and analyst sit down at the cafeteria table after an exhausting Thursday evening and Friday morning spent conducting focus interviews. In all, they have conducted 4 (Financial Director – FD, Financial Manager – FM, Services Manager – SM and Operations Director – OD) focus interviews. All interviews went over their allotted time schedules as the interviewees were keen to provide their feedback and also ask many questions of the engagement. The good news is that all the concerns about the EROC metric and role of the business case team has disappeared. Sitting in the corner table out of hearing range of Goldy employees, the BC team sifts through their hand‐written notes and prepares their focus interview summaries. The EM and SP are sure to request a summary so they think that is the best place to start. For each interviewee they capture the 5 most important findings from the interview. FD 1. 2. 3. 4. 5.

Mino 1 is too independent and we will likely find many more problems. Mino 1’s production has dropped due to negligence and poor management. It is likely that other mines have the same problem. The culture is a huge problem. Probably the biggest problem. Goldy and Mino 1 cannot compare their performance due to a lack of benchmarks.

FM 1. Head‐office does not seem interested in operations. It’s all about deals, deals and more deals. 2. Production failed when they adopted a new mine management model. 3. Mino 1 is not the only problem. South Africa and Russia are probably worse. 4. Goldy is sitting on huge uranium and platinum reserves which should be exploited. 5. There is a problem with the Oracle costing database and no one wants to fix the problem. OD 1. Mino 1 is aware of its problems and has tried many different things to fix the problem: supply chain optimisation, cost reduction, throughput improvements, changing contractors etc. 2. The problem is getting the head office to pay for these things and the challenges of execution. All the initiatives failed after 6‐9 months of launch.

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