MECE – Mutually Exclusive and Comprehensively Exhaustive – I first came across this term and concept when I was fortunate to be on a internal corporate team working with McKinsey consultants on shareholder value. That the study was on shareholder value shows how long ago it was.
MECE is a useful concept as it envcourages you to think about all aspects of a problem . But it also invokes Occam’s Razor – think about all aspects but obey the law of parsimony. With MECE you work towards no gaps but with no overlaps1.
MECE is useful in business mapping, which is why it is the focus of the McKinsey way. Cost-benefit analysis (CBA) needs the MECE approach. A good CBA should be a MECE CBA (…M-O-U-S-E!). CBA should capture all of the costs and benefits in exhaustive categories but it should not double count.
The MECE principle makes the CBA defensible. But does it make it bullet-proof?
A second concept needs to be added to a MECE CBA for completeness is the wisdom of the crowd.
Stackoverflow2 is my current favourite wisdom of the crowd source of information. When I have a programming question it is my go-to source. The reason I like it is that people vote on the answers to questions so the best answers, like cream on milk, rise to the top. In addition, contributors get reputation points when then are recognized by their peers for a good answer. The combination of wisdom of the crowd weighted by the wisdom of the smart (again informed by the wisdom of the crowd) is very powerful.
A MECE CBA from one person’s view is not always MECE from another’s. An infrastructure project proponent will want to include as many benefits as possible to build his business case. Overlaps will be a lesser concern. Other stakeholders may want to discount overlapping benefits. It is only by getting experts together to agree, outside of the passion and self-interest of any one project, on the correct MECE group of costs and benefits that the analysis can be bulletproof.
For transit, for example, property prices are sometimes claimed to capture the benefit of improved access that transit provides. But that benefit might already be accounted for in travel time savings that are also counted as a benefit elsewhere in the analysis. The wisdom of the crowd is that 50% of the property price increase is counted as incremental to these other benefits.
To get to a standard you have to be transparent about what is included and what is not so that the crowd can tell you when you are wrong. ii’s founders developed the Sustainable Return on Investment (SROI) Process. It was released into the public domain through a Clinton Global Initiative commitment to action.
The Institute for Sustainable Infrastructure (ISI) was founded by the American Council of Engineering Companies (ACEC), the American Public Works Association (APWA), and the American Society of Civil Engineers (ASCE). ISI is collaborating with the Zofnass Program for Sustainable Infrastructure at the Graduate School of Design at Harvard University. With ISI we are working towards a wisdom of the crowd informed MECE CBA methodology for sustainable infrastructure.
“ISI has initiated dialogues with various federal and state agencies involved with infrastructure programs, the engineering profession, academia, materials and equipment suppliers, constructors and interested individuals to share this evolving Body of Knowledge and to solicit feedback in developing future versions of the sustainable infrastructure rating systems. Your interest and involvement in developing this valuable toolkit and helping to influence the successful and sustainable development of infrastructure solutions is solicited and encouraged.”
Ronald Coase, Nobel prize winning economist, died on September 2nd 2013, aged 102. His Coase Theorem dealt with market “externalities”: economic choices that impose social costs or benefits on others. His work on property rights and externalities is the basis for our view that Risk Analysis and Multi-Account Benefit Cost Analysis is useful. He said:
“A scholar must be content with the knowledge that what is false in what he says will soon be exposed. As for what is true, he can count on ultimately seeing it accepted, if only he lives long enough.”3
Through ISI, we had a stormwater management CBA peer reviewed that we hope is MECE and informed by the wisdom of the crowd. Time will tell.
1MECE Framework by Tom Spencer – http://www.tomspencer.com.au/2013/01/30/mece-framework/#.UqR1TbVDulg
2“Stack Overflow is a question and answer site for professional and enthusiast programmers”. The competition between programmers to find the code that best obeys the lex parsimoniae is wonderful. “I can solve that problem in 3 lines of code not 4 as proposed above”. As much as I find the most up-voted answer useful, I also find myself looking at those that have lots of down votes. I learn good techniques as well as discovering my bad habits.