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Cost optimization cases or questions can be part of a profitability case where a client is experiencing declining profitability or when a client wants to improve efficiency.

Note how in this example, everyone would fall into one customer segment and only one customer segment. For example, a decline in sales volume is a symptom. This work is a great launching pad for your career. This approach can be used to solve case interview questions where you first assume an answer to the case problem and check whether this is true or not through analysis. The interviewer can probe whether a candidates approach is well-structured, creative, and displays good business sense. Written interviews are frequently used by boutique consulting firms and regional offices of larger firms such as Bains China offices. For instance, in the example of a fast-food chain with declining sales, you should break sales down into price and unit volume to understand whether the client is not selling enough units of their products or whether prices have fallen (or both!). It measures efficiency and can be used by companies to make informed decisions on timelines and inventory, or whether additional equipment is needed. Here is a look at common formulas used in case interviews.

By reading this article, you now have a strong understanding of: You are well on your way toward preparing for your first case interview and entering the exciting field of management consulting. Like the opening, mastering the conclusion is not difficult. Take you time to nail this aspect of case interview preparation anyway as leaving your interviewer with a strong impression of your casing capabilities is important. This is the most typical case study interview format. It can be broken down into, Costs are the expenses incurred to make the product or service and can be broken down into, Revenue can be broken down by product or service line, customer type, or geographic region (e.g., North American, Europe, Asia). For example, does the client have a good market size in the industry? Other operating expenses for our burger restaurant would include things like advertising, the rent on the companys headquarters, and the salary of the CEO. This interview format is typically used in McKinsey cases. Break-even analysis: This is the calculation used to determine the point at which the total revenue and total costs are equal meaning there is no loss or profit. Your approach can lean on business frameworks youre familiar with during your case interview preparation. During this portion of the interview, you can ask any clarifying questions you need to. These costs are rarely part of case interviews. After Rebecca outlined her problem-solving approach, the interviewer told her that the client wanted to understand the beverage market and customer preferences to assess the potential success of the product launch. Case questions can cover any industry and multiple different types of business problems, so youre unlikely to get lucky and know the answer.

The case study interview is not as complex as it seems if you break it into 4 parts. This refers to the specific change of a variable within a specific period of time. So the profitability formula can also be written as: Profit (or Loss) = (price per unit x number of units sold) (fixed + variable costs). Hypotheses: Tentative answers to a problem or an assumption based on some evidence. During this portion of the interview, you can ask any clarifying questions you need to. Many consulting candidates find that the analysis phase of the interview is the toughest of the 4 parts. In this case interview format, a candidate will still be expected to identify and structure the key elements of a thorny business issue, and then present them to the interviewer. Is the industry highly competitive? In a case, this is mostly used in situations where a client would like to make their processes more efficient. I do not understand why (2m-8m)/8m = 25%. We suggest your start your consulting case prep a few weeks before your interview. We compare the 50 million gallon breakeven point to the 400 million gallon market size to see that we need to capture 12.5% market share. They want your help in understanding what they can do to improve sales. You can also compare it against companies in the same industry to evaluate whether its financial performance is stronger or weaker. They want to move quickly to the most likely answer and then test whether it is or is not the best answer. Now that youre familiar with the 4-part approach to a case interview, the next thing to learn is the 4 different formats case interviews can take. My Consulting Offer has helped almost 85% of the people weve worked with get a job in management consulting. In particular, successful candidates know that consulting firms use a particular type of interview question the. For example, a decline in sales volume is a symptom. Its also used in profitability cases because, in general, companies with a large market share also have more market power to do things like set prices. Depreciation and amortization are non-cash expenses that reflect the value of big assets like machinery or buildings going down over time. Rebecca repeated back to the interviewer the type of business the client was in and and their business problem. But attractive jobs are usually highly competitive, and thats definitely the case in management consulting. . You cant fix the symptom of declining sales volume until you identify the root cause behind the problem. are costs that are indirectly tied to the making of products or services. Otherwise, suggest the best place to start digging into the case. The growth of the market or of competitors. It raises questions such as: Here are some common business concepts that you need to know as you prepare for your interview. What new product or service could they offer their customers? Check out Types of Case Interviews article for more detail on these types of cases and more. The income statement has 3 major categories: Revenue, Expenses, and Profit or Loss. The interviewer is looking to see that you know how to drive the analysis of a problem. It can be used in market entry cases because industries with a lot of small competitors are generally easier to enter than ones with only a few big competitors. If the costs are higher than the revenue generated, then the company has made a loss. Were also given that the product size for drinks in this market are 16 ounces. During this portion of the interview, youll be assessed on whether you asked relevant questions, have well-reasoned insights into the client problem, and whether you could lead a case like this if you were hired by the firm. Utilization rates raise interesting issues in a case. The most common way companies make money is by selling a product or service for more than it costs to produce, thereby earning a profit. Your client wants your help solving this problem. Growth rates can be used in assessing the financial performance of a company over time. All Articles on the Consulting Interview Process, Frequently Asked Questions for Consulting, All Our Articles on the Consulting Interview Process. For example, high. You are not expected to know the exact answer to market-sizing questions. Growth rates can be used in assessing the financial performance of a company over time. You dont want to get lost down one rabbit hole and ignore other important aspects of the problem.

This part of the interview is important because gives you the data that will help you close down aspects of the case that arent at the heart of the problem you need to solve and to better understand key drivers that will point to the solution. This type of interview question mimics the analytic process a consultant might go through in a 3-month project, but it does it in 30 minutes, the time allowed in a typical interview. Using the example from above, say you decide to determine the companys market share as part of your analysis. (Note, there can be overlap between revenue growth cases and market entry cases. What regions would have the biggest impact on its revenue?. In business situations, it helps determine at which point the business, investment, or new product or service will become profitable. Conversion: 1 US gallon = 128 ounces.

How many cups of coffee does Starbucks sell in a day?, Estimate the fleet size of Delta Airlines., Estimate market size for air-conditioners in New York., Estimate market size for an anti-smoking pill in the U.S., For more information and examples, read our article on, For more information, read our article on, To find out more on this, read our article on. They could do this by building a new offering, buying another company, or partnering (joint venture) with another company that already offers what they want to sell. Best practices: Best practices are methods or techniques that are considered to be the working standards and guides in a given situation. If youre here, were assuming youre serious about investing time in preparing for a career in management consulting. quick brainstorming is useful here, but also take a step back to maker sure you consider all aspects of the clients business, its customer demand, and the competition. Youve made it to the end of our crash course on case interview prep. article for more detail on these types of cases and more.

What would be the impact on revenue from expanding their offerings?, A regional fast-food chain, serving hamburgers and fries, is experiencing increasing demand outside of its main regions of operation and wants to expand. . In business situations, it helps determine at which point the business, investment, or new product or service will become profitable. A Case Study Interview is a real-time problem-solving test used to screen candidates for their ability to succeed in consulting. We can fill 8 bottles for each gallon of electrolyte drink we produce. Also, we have tons of other resources to ensure you get an offer from a top management consulting firm. Starting with more lead time is even better. The utilization rate of equipment can be calculated by the following formula: Utilization rate (%) =Actual output / Maximum output. Also, we have an article on practicing your case interview math. You should also be aware of the written and group interview formats so that if you get one during the interview process, youre not caught by surprise. Well use this example to demonstrate all the formulas in this section. This answer should be both persuasive and logical based on all the information gathered over the course of the interview. Actual hours of operation = 12 hours 1.5 hours = 10.5 hours, Potential output = (10.5 hours / 12 hours) x 72 units. Market-sizing questions typically appear in cases where clients want to grow or expand their business such as market entry or profitability cases. You should provide insights into the case based on the data you receive and should use your insights to dive deeper into relevant aspects of the clients business. For example, a client who is in logistics would like to reduce the cost of its operations by improving the efficiency of its processes, such as by reducing equipment downtime or scheduling deliveries according to time-saving routes. Example: Our client is a fast-food retailer that has seen decreasing sales revenue over the past couple of years. Once youre confident you have enough information to understand the case and what needs to be done to solve the clients business problem, youll conclude the interview with a logical summary outlining the problem, key conclusions youve reached, and providing a persuasive recommendation on how youd help the client resolve it. Its not impossible to get a job with firms like McKinsey, Bain, and BCG (also known as the MBB firms), but it requires preparation. To assess that, they ask themselves these questions: Nail the case & fit interview with strategies from former MBB Interviewers that have helped 85% of our clients pass the case interview. Do you enjoy solving the types of business problems asked in case interviews? Issue tree: This is a common approach in consulting used to solve complex problems. In the math calculations of the analysis portion, why was it that there were 8 cans per gallon? Some quick brainstorming is useful here, but also take a step back to maker sure you consider all aspects of the clients business, its customer demand, and the competition.

It can be used to compare the profitability or efficiency of an investment or decide which of alternative investments to make. For these questions, it is good to memorize a few facts that will help you make assumptions. What is causing the sales decrease? Are you passionate about pursuing consulting as a career? During the conclusion, youll be assessed on whether you present a well thought-out solution based on the relevant facts of the case. In a case, this is mostly used in situations where a client would like to make their processes more efficient.

The term root cause is used to distinguish between symptoms of a problem, which may be obvious, and the underlying issue that needs to be solved, which may not be obvious. But youll also need to do some consulting math. And in our breakeven analysis, we find out we need to sell 400 million bottles (or cans) to break even. Top firms typically make offers to only about 1% of the people who apply. The first step you could take is to calculate the past years profit given the following information: Profit (or Loss) = ($10 x 1 million) ($8 x 1 million). You cant fix the symptom of declining sales volume until you identify the root cause behind the problem. The best way to get smarter about answering case interview questions is to master this four-part approach. For more information on business frameworks, you might want to become familiar with during your case study preparation, seeCase Interview Frameworks. Right now, you may be thinking to yourself that consulting interviews sound impossibly difficult. For any specific case, youll want to make sure you understand how that company makes money. You can also compare it against companies in the same industry to evaluate whether its financial performance is stronger or weaker. If a product required a $50,000 investment in equipment (a fixed cost), sold for $5, and cost $4 per unit in variable costs, its breakeven would be: Managers may also look at the payback period on an investment or, in other words, how long it would take to earn back the cash required to enter a new business. This typically describes how a company makes its products or services. An executive might want to know that they could break even at 100,000 units sold because if she thought they could sell more than that, it would be profitable to enter the market. But after they do, the interviewer will direct them to first address a particular aspect of the case. In the income statement there are three types of costs: Income statements generally show 3 levels of profit (loss) or earnings: Gross Profit; Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA); and Net Profit. To answer a case question correctly, you must: After your interviewer describes the client this case interview will involve and the problem they face, you should repeat this information back to them in your own words. This investment could be a new piece of equipment or a marketing campaign needed to create customer awareness of a new product. Its typically used to. Management consultancies are not the only types of firms that use case interview questions to evaluate candidates. The term root cause is used to distinguish between symptoms of a problem, which may be obvious, and the underlying issue that needs to be solved, which may not be obvious. The payback period can be calculated using the following formula: Payback (years) = Investment cost / annual profit, Using the same example, you decided to calculate the payback years of the new state-of-art machinery. This is not a common interview format but can be common for particular companies and offices. Break-even can be calculated using the following formula: Breakeven (units) = Fixed costs / (sales price variable cost per unit). This is calculated by subtracting interest and tax from EBIT. The candidate will break down the question into key parts and decide which part to probe first. The hypothesis-driven approach is a common approach to solving problems in the consulting world because consultants dont want to waste time fully researching all possible solutions. .

Note: In answering this question, I noticed that a UK gallon = 160 ounces, so if you are using UK gallons you will get a different answer! The profit or loss is calculated by taking the revenues generated and subtracting the expenses incurred over the same period of time. Sales of drinks in Coffee Bean cafes are decreasing. You can give each other mock case interviews and be even more prepared. Donations to Caring Hands are decreasing, straining the non-profits ability to help the families it targets. If you still have questions on case interview prep, leave them in the comments below. or Oliver Wyman, or with the consulting arms of the large accounting firms such as Deloitte, Accenture, PwC, Ernst & Young, or KPMG, we can help you get there. An income statement (or profit and loss statement or statement of revenue and expenses) is a record of a companys profit or loss over a specific period of time. The root cause could be high prices, poor product quality, product unavailability, or any number of other issues. Utilization rate is the percent of available time the equipment or machinery is actually used. It is a way of bucketing problems, ideas, or solutions with no overlapping between the buckets and with each item having a place in one bucket only (mutually exclusive), and with the buckets including all possible items relevant to the context (collectively exhaustive). In market entry cases, the client wants to know if they can enter a market and be profitable. If something is not clearthe clients product or industry, or the problem they want to solve ask! This case format is typically used at firms like Bain, BCG and Oliver Wyman. It is used in problem-solving to identify solutions that appropriately address the problem. Costs are expenses incurred by a company to make its products or services. What is the root cause of the significant increase in cost?, A tour company would like to reduce their costs due to the falling number of tourists over the past few years. This can be done by increasing revenue of the current product/service line, by adding a new product/service line, or by selling to a new type of customer or in a new geography.

You dont need an MBA or an undergraduate degree in economics to land a job in consulting. Profit margin can be calculated using the formula: Profit margin = (Profit / Revenue ) *100%. For example, a good place to start is the population of the U.S. or the population of a U.S. city (or country and city that you live in). For a burger restaurant, for example, the COGS would include things like the meat, bun, and hourly labor of cooks, cashiers, and shift supervisors. There are a number of frameworks you can build off of to tackle a market-entry case. When youre starting your consulting interview prep, its important to remember that the right answer is not simply a conclusion, but the methodical, the well-structured process used to reach the conclusion.

It wants to know whether raising price or selling more units is a better path to growing revenue, and how to pursue it., A local theater house thinks there is an opportunity to expand their current offerings to the very loyal client base. Ask for a moment to consider your approach to solving the clients problem. You decide to calculate the ROI on this investment. Mastering the structure phase of the interview is not as easy as the opening, but its critical to ensure you have the structured problem-solving approach that will lead you to the right answer to the case.

An issue tree is used to break down complex problems into key components in a structured manner. This is a different way of looking at the same question that the breakeven formula asks: is it worth my while to make this investment? If so, move onto the deeper dive into case interview prep below! Management consulting firms are filled with smart, driven people working to solve hard business problems. Stick with this aspect of case interview preparation until youre an expert at itit will pay off in your interviews. Remember, this clarification is an important step in the process. You can ask relevant questions that will give you data on each aspect of the problem you identified in the structure section. If looking at a more fully-loaded cost is the focus of your analysis, use EBIT.

Focus on this aspect of case interview preparation until you can structure almost every case right. Once you do, you can make the most appropriate recommendations for the client. It will also ensure that you are not quickly addressing a couple of aspects of the business problem but ignoring others, potentially ones that are critical to solving the clients problem. As mentioned above, depreciation and amortization are non-cash expenses. For example, a client who is in logistics would like to reduce the cost of its operations by improving the efficiency of its processes, such as by reducing equipment downtime or scheduling deliveries according to time-saving routes. Market share is the size of the company in relation to the size of the industry in which it operates, where size is typically measured in annual revenues. Get this right, and youll start each case off strong. If you did not remember that the client was a top-three beverage producer and answered the question as if the client was a start-up, your answer would ignore the manufacturing and distribution infrastructure the company already had in place to launch its new product. For example, entering a different geography, new demography, or new product/service line. Break-even is typically used to help companies determine the minimum number of units that need to be sold to cover all the costs used to produce those units. Does the client have the capability to offer new products/services?