Constructing and Using Problem Statements

David Bouchard, Ph.D., 2009-2012

Everyone has Problems, whether in business or personal settings. However, as with many
things we deal with daily, do we really know what Problems are? Even if we have a strong,
workable definition of Problem, what do we do next how do we reliably and effectively
analyze problems and generate solutions or recommendations?
I created this Problem Formulation Model especially for graduate business students. It takes
into account over 40 books on the subject (along with my own ideas) and sets forth a framework
that applies in many business (and some personal) situations. With this model, you will move
from the one answer textbook solution, to the real world of solving business problems.
Definition: Problem
One must first ask, What is a Problem? I define this as follows:
Problem: the difference between an actual observed state and an ideal desired state.
Lets look at an example to explain the distinction. If our organization set up a budget of
$250,000 for a project and the project ends up costing $450,000, do we have a problem? It
depends:

Who established the original budget amount? Was the amount agreed upon? How, by
whom and with what caveats or contingencies?

Was additional money authorized? By whom? For what additional anticipated value?

Depending on the expectations and agreements surrounding the situation, we either have a large
problem, or a well-managed project.
How do we determine if we have a problem?
As in the above example, we have no problem if a gap does not exist between the expectations
and reality of the over budget amount of $200,000. However, when we find gaps between
expectations that often indicates a problem. Other indications of a problem include:

An associate or manager tells us we have a problem. We hear complaints.

We observe symptoms of a problem. We notice a colleague acting worried or differently.

We see variances from what we would expect as normal.

Rarely will we hear a person tell us either exactly what the problem is or what a satisfactory
resolution might look like. Furthermore, the fact that a person tells us we have a problem or we
see indications of a problem does not determine whether an actual problem exists. The following
checklist will help you decide if you have a problem in a general sense.

Steps
Examine the rules, policies, guidelines or standards applicable to the
situation.

Results

Does the situation conform to the standards we examined above?

Do the standards remain relevant to the situation we currently encounter?

Gather facts, make observations, and test assumptions. Document what

you find. Do our facts, observations and tests indicate a problem?

If a person suggests a problem, can they answer, what would you ideally
like to see happen?
Is the problem large enough to be concerned about?
Or, if the problem is small, is it an isolated incident or does it suggest a
systemic problem that over time or across the organization could lead to a
large problem.
How do we define the problem?
Once we determine a problem exists, we define it in terms that allow us to work on it
productively and generate high quality recommendations for its solution. Without adequate
definition of the problem my research and experience shows that people are often either
ineffective or inconsistent as problem solvers. A robust problem statement model moves the
persons away from the immediate situation to a point of reflection sufficient to answer, what is
the REAL problem here? In addition (as is often the case) if several people are expected to
work on the problem, there must be agreement that this is the right problem to work on at this
point in time.
To properly define a problem, the following questions should be considered.

What would be an ideal situation?

From where does the point of comparison of the actual state to the ideal state come from?
From whose point of view are we looking at the ideal and actual states?
How can we decide what point of view is most useful or do we need to consider several
points of view?
How and with what metrics can we measure any possible solutions or proposed
improvements?
What analytical approaches will help us do high quality work on the problem?

How large or small a focus on the problem is justified?

What resources can be expended in working on it?
What is the impact of the problem and its solution for the organization?
What might constitute an acceptable type of solution?
What might be some unintended consequences of solving the problem?

What are the key components of the Problem Statement Model?

1) A brief description of the condition to be studied
2) Nature of the variance from desired state (Actual vs. Ideal State)
3) Suggestion of parameters
a. Scope - what constraints limit our solution?
b. Domain to what space will we limit our problem solving? This may include the
number of solutions we will investigate, time frame, or extent of research.
4) A statement of the impact of the problem (Why do we need to work on this? What does a
solution provide us? What happens if we simply ignore it? Who cares?) At this stage be
careful here to set expectations for the project and without prematurely suggesting
solutions.
5) Relevant analytical models and metrics. How and which generic business models and
analytical tools will help us do our analysis What underlying assumptions do we make
in using these models and tools? What are the inherent limitations of these models or
tools?
6) An actionable statement of the problem which leads naturally toward next steps
REMEMBER: Problem Statements are often iterative as we learn more about the problem.
What does this Problem Statement Model look like?
Example of an initial starting place problem statement:
1) Description: Second quarter profits were below goal.
2) Variance: The profit goal was 15% and only 9% was achieved.
3) Suggestion of parameters:
a. Scope: management is prepared to assign two business analysts for a period of
one week to study the problem and provide recommendations, with an expense
budget of $20,000 for the entire project.
b. Domain: Analysis of the shortfall will begin by focusing on the marketing of our
new product X in North America, since sales of that product were substantially
delayed beyond target roll-out date.
4) A statement of the impact. What happens if we resolve the product delay and we still fall
short of the profit projection? Is the profit shortfall due to volume? Margin? Unexpected
costs or other factors?
5) Relevant models and metrics. We will simulate the results had the roll out occurred as
planned and compare it to our target goal.
6) Action Statement. Team A will collect data on revenue and costs after the rollout of
product X in sufficient detail to perform the simulation in step 5.

What happens after we complete the Problem Statement Model?

When we have completed such a formulation of the Problem Statement, we can present this to
those who will be receiving the results and will be able to determine if this approach would
generate acceptable results, before we expend significant time, effort, and funds on doing any
analysis or fixing of the problem. Once we agree on the problem itself, the likelihood that the
analysis will yield results that will meet requirements and solve the real problem increase
significantly.
An important aspect of presenting this information is to provide context, or suggest what
context should come with the resulting analysis to be provided. Context, refers to additional
information that provides perspective or additional points of comparison, categorization or
history to add meaning to the basic data to be presented. Comparison with last years results, or
budgets/goals, or the results of comparable competitors are examples of context. Using visual
tools like business graphics or visual metaphors can significantly enhance the value of the
context provided.
Following agreement on a Problem Statement, good problem Solvers begin collecting data,
analyzing, and possibly iterating back into the Problem Statement to re-state it, based on what
has been learned. The result of this process should be a better-formulated problem, and a
hypothesis of the mechanism by which the problem is occurring. Once agreement is met on
these components, strong solution-generating methodologies can be applied that will generate
recommendations for consideration, choice and implementation.
CAVEAT
A persons first reaction to the above methodology might be that it seems complex and many
problems do not require that level of complexity. I would certainly agree. However, this model
provides value in a number of situations:
When the problem is complex, poorly understood, conceived differently by different people or
other conditions, the methodology provides structure to an unstructured environment. In
situations of high uncertainly, high risk or nebulously definable variables, the model provides a
discipline that helps reduce the levels of inherent uncertainty to a minimum. In simpler
situations, knowing all the component of a high quality problem formulation allows you to
selectively choose those from the methodology that you need for the particular situation, and
leave you a place to refer if the simple definition of the problem proves to be insufficient.
Conclusion
We spend a remarkable part of our working lives trying to solve problems, yet few of us really
know how to use a robust problem formulation approach. Methodically developed problem
statements ensure dependable and consistent high quality in our problem solving activities. The
models suggested here give you a reasonable start toward improved problem formulation and
thus problem solving.