Imagine the situation. You run a pizza store and you are losing money. Your raw material costs are far more than they should be. You jump to the most obvious conclusion:
Somebody must be stealing the cheese. (Either that or you have king sized mice wondering about).
After spending a lot of money on an expensive cheese alarm and CCTV system it becomes abundantly clear that nobody is smuggling cheese out of the back door. And you didn’t spot any big mice either.
There is an analytical solution to the problem. It is called M.E.C.E. (Mutually Exclusive, Collectively Exhaustive).
First you need to back up to the point you are totally sure you can define the problem; in this case raw material costs are more than they should be (not somebody is stealing the cheese). Then create a list of the things that could be causing the problem. The raw materials that you are spending too much on:
- Tomato Sauce
The categories should be “mutually exclusive” to avoid double counting and confusion. Topping could include tomato sauce and cheese, it depends which school of pizza making you come from. “Other Toppings” would be a far better description. Nobody will get confused.
Now you have defined the categories re-evaluate the problem. Where are you spending too much money? If the packaging, other toppings, cheese and tomato sauce are OK then it must be the dough.
Drill down and repeat the exercise; list all the reasons why you could be loosing money on dough.
- You aren’t receiving all the materials you paid for
- The mix is wrong, too much expensive flour, not enough cheap water
- You are throwing it away, too much in the bin
- You are giving it away, thick crust not thin
- Somebody is stealing it
Other is the “Completely Exhaustive” bit of M.E.C.E. We don’t and can’t know everything. There is always an “other” category. It is the balancing category, the bit that is left when you have counted everything else. Realising that there is always an “other” means that you won’t ever miss anything.
- If other is small don’t worry about it
- If other is big then you need to dig into it
Keep creating “mutually exclusive, completely exhaustive” categories and drilling down until you can pin point the problem, and once you have you can do something about it.
Alternatively you can of course keep jumping to conclusions and install a bunch of very big, very expensive mousetraps.
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