What you will be able to do
- Estimate attainable demand with explicit conditional assumptions.
- Connect contribution, capacity and working capital to entry feasibility.
- Use sensitivity and the value of information to design a staged pilot.
Before you begin: Comfort with percentages, contribution calculations and spreadsheet formulas.
Write the decision contract
Start a decision contract with the person who can approve entry. Specify the city, customer segment, service standard, and first operating year. Then agree gates before anyone sees favourable results. For example, paid orders must cover monthly operating costs, available capacity must meet the promised service, and cash must fund the collection cycle. A gate is useful only when its definition is testable. Saying demand must be strong leaves room for interpretation; specifying a contribution threshold establishes a measurable requirement. Record which evidence could support, weaken, or overturn each gate. This prevents the familiar problem of changing success criteria after the fieldwork. The contract should also name who resolves conflicting commercial and operational evidence.
Translate orders into contribution
Now turn market evidence into operating economics. Our hypothetical price is three hundred cedis and the incremental cost per order is one hundred and eighty, so each order contributes one hundred and twenty toward fixed costs. Divide monthly fixed costs of forty-eight thousand by that contribution: operating break-even is four hundred orders. The denominator must include costs that actually change with an extra order, such as route labour, fuel and packaging. If overtime begins above a capacity threshold, one constant variable cost will mislead. This calculation also excludes initial investment, financing and tax. A positive operating surplus therefore does not establish an acceptable investment return. State that boundary explicitly before using break-even as an entry gate.
Find the assumptions that change the decision
A useful sensitivity analysis locates switching points. Holding reach and order frequency constant, break-even adoption is four hundred divided by eight hundred times sixty percent times four: approximately twenty point eight three percent. This tells the research team what precision matters. Distinguishing twenty-one from twenty-five percent may matter more than measuring the total city population perfectly. Then test coherent joint scenarios: weaker adoption could coincide with higher acquisition costs or slower collections. Changing one assumption at a time misses these interactions. Avoid assigning independent random distributions simply because a spreadsheet can simulate them. Use observed relationships or clearly labelled scenarios. Report which uncertainties can be reduced with evidence and which remain commercial risks even after careful research.
Make the recommendation auditable
Your final memorandum should fit the decision rather than reproduce every research activity. State the recommended option and the conditions that would change it. Show the demand funnel, constrained volume, contribution, cash requirement and critical switching points. Link each important assumption to its evidence, date and limitation. Distinguish measured facts, modelling choices and management judgements so a reviewer knows where disagreement belongs. Include a short adverse case and explain the operational response, not merely the financial result. Assign an owner to every unresolved gate and a date for review. Avoid writing that the market is attractive when the evidence supports only a limited pilot. The recommendation should be no stronger than the weakest essential condition supporting it.
Apply the method
Work through each task before opening the model answer. Compare your reasoning with the review criteria. Written answers stay on this page and clear when you leave or reload it.
Applied task 1
Show model answer and review criteria
The case forecasts 384 monthly orders and a GHS1,920 operating loss. Recommend revision or a bounded pilot rather than claiming profitable entry. Conditions should address adoption above the 20.83% operating threshold, reliable service capacity and funded peak cash need; each needs an observable measure and owner.
- Correctly derives volume and operating result.
- Connects each condition to a specific measurement and decision owner.
- Separates operating break-even from investment return and liquidity.
Applied task 2
Show model answer and review criteria
Recruit across target segments at planned prices; track paid conversion, repeat orders, resources, failures and collections. Set rules before observing results and assess scaling differences. GHS40,000 is only the perfect-information upper bound in the separate two-state case; a real pilot budget must be lower unless additional benefits are evidenced.
- Measures real behaviour and repeat use with a defensible sampling plan.
- Defines prospective decision rules and scaling limitations.
- Correctly interprets the perfect-information ceiling and imperfect-study costs.
Method references
- HM Treasury — The Green Book (2026)
General framework for comparing options, costs, benefits and risks. IDER original hypothetical commercial calculations; no government discount rate is imported. / Cadre général de comparaison des options ; calculs commerciaux hypothétiques originaux IDER.