Issue trees and driver trees
Turning a clean split into a picture you can work through.
Key takeaways
- An issue tree is a picture of how you split a big question into smaller ones.
- The value chain is the list of steps a business follows to make its product and get it to the customer.
- A tree that stops too early: If a branch ends in something vague, such as "operations problems", you cannot check it.
Once you can split a problem cleanly, you draw it. An issue tree is a picture of how you broke a big question into smaller ones. The main problem sits on the left. It branches into its parts, and each part branches again, until each end point is something you can look at or calculate.
- Profit has fallen
- Revenue side
- Price per unit
- Number of units sold
- Cost side
- Fixed costs (rent, salaries)
- Variable costs (materials, shipping)
Each level is MECE: the branches do not overlap and together cover the level above.
When the branches are numbers that combine, the same picture is called a driver tree, because each branch drives the one above it. Revenue is price times quantity. Quantity is the size of the market times your share of it. A driver tree shows you which number to change to move the result.
Key idea
An issue tree is a picture of how you split a big question into smaller ones. When the branches are numbers that add or multiply, it is called a driver tree, and it shows which number to change to move the result.
"I want to find out why profit fell. Profit is revenue minus cost, so I will check both sides first. On revenue, it is price or volume. On cost, it is fixed or variable. Let me start by asking which side moved." Calm and clear, and the interviewer can follow every step.
If a branch ends in something vague, such as "operations problems", you cannot check it. Keep splitting until each end point is a number you can ask for or a fact you can check.
The value chain is the list of steps a business follows to make its product and get it to the customer. The steps are buying materials, making the product, moving it, marketing and selling it, and serving the customer afterward. Walking the value chain step by step is a clean way to find where a cost or a problem sits.
You can practice building trees in the Structure Builder, in the Practice area of this site.
A bakery's revenue has dropped. Split revenue into two clean branches, then split one of those branches again. Write your tree down, then reveal the model answer.
Sources for this lesson (1)
- Recognized public explanations of case-interview concepts and frameworks
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