Guide To-Guesstimates PDF

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CONSULTING GUESSTIMATE CASES

ofConsultingCaseStudyTraining
The questions in this chapter are representative examples of Guesstimate Cases. In essence,
thesequestionsinvolveashortcaseoranalysisinwhichyoumusttrytoestimateavalueyou
probablyhadneverconsideredestimatingbefore.Thekeytothesetypesofproblemsistobreak
them down into logical pieces, walking the interviewer through how you are approaching the
problem,andthentrytodetermineappropriateassumptionsforthevalueofkeyfiguresineach
ofthosepieces.
Guesstimatecasesaregenerallyusedaspartofafirstroundinterviewtowarmacandidateup
forafullBusinessSituationCaselaterintheinterviewprocess.Guesstimatecasesarealsoused
as a way to test quantitative ability, numerical thinking and judgment, and an to arrive at
reasonableassumptions.
With some practice, guesstimate cases are not difficult and once you get accustomed to them,
theyareactuallyquitefun,eventhoughatfirsttheymightseemalittlescary.Guesstimatecases
willalsoformpartofmanyfullcaseinterviews,soitisimportanttomasterthem.
HerearesomequickexamplesofGuesstimateCasessoyoucangetabettersenseofwhatweare
dealingwith:
GuesstimateCaseStudyExamples
WhatisAirFrancesweeklyrevenuefortheParistoNewYorkleg?
WhatvolumeofbeerissoldatanaverageLALakersbasketballgame?
Whatisthemonthlyrevenueofyourhairsalon?
HowmanyschoolteachersarethereinChicago?
Whatisthemonthlyprofitofyourfavoriterestaurant?
HowmanyflatscreentelevisionshavebeensoldinAustraliainthepast12months?
HowmanyiPhonesarecurrentlybeingusedinChina?
AretheremoreiPhonesinoperationintheU.S.orinChina?
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HowmanytreesarethereinNewYorkCity?
HowmanyavocadosareusedtomakeguacamoleperdayinMexico?
WhatistheRevenueforthesmartphonemarketinIndia?
Hereareafewkeypointstokeepinmindwhenansweringthesequestions:
There is rarely, if ever, a verifiably correct answer or one way to tackle a
Guesstimatequestion.Thegoalistomakereasonable,logicalassumptionsandifyou
arewrongonyourassumptions,thatistotallyfineafterall,someofthefiguresusedto
maketheestimationarequiteobscureandyoudonothaveaccesstothedataduringthe
interview.Theinterviewerisawareofthat.Ifyoucanlogicallyexplainhowyouarrivedat
yourassumptions,andhighlightwhichofyourassumptionsseemthemostimportantto
research,youredoingwell.(Asanexample,fortheChicagoteachersquestion,youmight
notknowthepopulationofChicagotostartwithitisabout2.7million.However,evenif
yourestimateis1millionor10million,yourlogicinestimatingthecorrectanswercanstill
besound.)
Asyouprogressthroughthecase,roundassumptionnumbersupanddownsothat
thecalculationsarelessdifficult(alsousepercentageswhereapplicablethatareeasyto
calculatewithoutacalculator).Intheaboveexample,use3millionevenifyouknowthat
Chicagohad2.7millionpeople.Keepthenumberssimple,astheinterviewerwillbequite
impressedifyougetaresultthatisreasonablyclosetohisorherestimate.
Importantly,aswithallcases,be very structured in your approach and write out
your numbers and assumptions in a clear manner. Be sure to clearly label the
unitsandvariables.Thisisalsoimportantiftheinterviewerfollowsupwiththequestion
What if we changed that assumption? This question is not an indication that youre
bombing the Caseit might simply mean that your initial assumption was off, or the
interviewermightbetestingyourabilitytothinkflexiblyunderpressure.
Staycomposed,asthesecasesshouldnottripyouup,especiallywithsufficientpractice.
Theyareallquitesimilarafteryouhavedoneafewpracticequestions.
Communicate your process and answer succinctly and articulately.Donotbe
afraidtoacknowledgemistakesduringtheprocessitshowsmaturityandcomposure.
Virtually all of these questions can be grouped into TopDown or BottomUp (often
referredtoasGroundUp)questions.Insomesituations,theycanevenbeboth.
TopDown Questions:Questionsthatinvolvestartingwithanentirepopulation
(in other words, the top level) and then breaking it down until you arrive at an
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answer.Forexample,considerthequestionaboutthenumberofschoolteachersin
Chicago. A simple way to approach it would be to start with the population of
Chicago, then estimate what percentage of the population is of student age, and
thenestimatethenumberofstudentsperclass.Usingthis,youwouldarriveatan
estimate of the number of school teachers, because at any given time there is
(generally) exactly one teacher per class. To show your ability to be creative and
thinkoutsidethebox,youcouldalsoattempttoaccountforretiredteachersand
substituteteachers.
BottomUp(GroundUp)Questions:Forthesequestions,ratherthanstarting
fromthetopwithahighlevelfiguresuchaspopulation,thebestapproachisto
startfromthebottomsomelowlevelstatistic,suchasRevenuepercustomer,
andbuildyourwayuptotheanswer.Forexample,considerthequestionpertaining
tothemonthlyrevenueofahairsalon.Inthiscase,wedrecommendyouworkout
the revenue for a week and then multiply that by four (or if you are quick at
multiplication,4.3).Youcouldstartwithanassumptionregardingtheaverageprice
perclientvisit,andthenestimateweeklyvolumebyassumingthenumberofchairs
inthesalon,thenumberofhoursitisopenperweek,andtheaveragenumberof
clientschairperhour.Toshowyourabilitytobecreativeandthinkoutsidethebox,
youcouldalsoaddrevenueforhairsalonproductssold.Youmayalsowanttobreak
the estimate into male and female clients, as male clients at hair salons tend to
spendlessmoneypervisitbutalsotakelesstimeonaverage.
StepbyStepApproachtoGuesstimateQuestions
Step 1:Askquestionsiftherequestisnottotallyclear.Takeaminuteortwotodecide
how to structure your answerthis is the period in which you determine whether it is
BottomUporTopDownquestion,howyouwillbreakthequestiondownintopieces,and
the assumed values you will use for each of those pieces. Though you can interact and
directquestionstoyourinterviewer,inthesecasesitisnotusefultoaskforhelponyour
assumed values as often his or her guess will be an educated guess, just like your own
guess.(Andevenifyouassumedvalueisoffthemark,itisfarlessimportantthanbeing
abletostructureandarticulatetheresponse,correctlycalculateananswerbasedonthe
assumedvalues,andprovideinsightforwhichassumptionsyoudideallyliketoresearch
further.)
Step2:MentallydoublechecktheGuesstimatedvaluesthatyouwillapplytothepieces
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of the calculation you developed in the first step. Note that in Guesstimate Cases, a
populationfigureisverycommonlypartofthesolutionprocess(whetheritbetheU.S.
population,anothercountryspopulation,acitypopulation,orpassengersonanairline).
OftenyouwillneedtosegmentthispopulationintheChicagoschoolteacherexample,we
would need to estimate the number of children of student age. Keep in mind that any
population be segmented in a number of ways. In the context of using a TopDown
approach,thekeysegmentstousetypicallyare:
Gender
Age
Geography
Income&assets
Step 3:Performthecalculationstoarriveatananswer.Remembertouseestimationto
makeyourmatheasy.Also,ifyoufindthatyouareestimatingmultiplefigurestomakethe
math easier, try to balance rounding up with rounding down. For example, if an
answerinvolvesmultiplying44by5,300,youwillgetamoreaccurateanswerwith50
5,000 = 250,000 (one rounded up, and the other rounded down) than 40 5,000 =
200,000(bothroundeddown).(The exact answer is 233,200). This effect tends to get
largerifyouhave3ormorenumberstoround,soalwaysbemindfulofthedegreeand
directiontowhichyourestimatemightbeoffduetoroundingerror.
Step4:Identifyanyadditionalcreativeelementsthatcouldfurtherrefineyouranswer,if
relevant.Forexample,inthehairsaloncase,wesawthatRevenuemightbeboostedfrom
thesaleofhaircareproducts.Additionally,youshouldtelltheinterviewerwhichpiecesof
your estimate seem most vital to research furtherthose that seem to have the highest
degree of sensitivity in determining the correct answer, or those in which you have the
most uncertainty as to whether your estimate was reasonably close. In the Chicago
schoolteacherexample,ifyouhadnosensewhatsoeverofthepopulationofChicago,you
might indicate that youd like to look up that number and that your answer depends
heavilyuponthevalueyouchoseforthatassumption.
GuesstimateCaseExample#1
HOW MANY CUPS OF COFFEE WERE CONSUMED IN THE UNITED STATES IN THE PAST WEEK?
Startbyclarifyingthequestion,thenidentifythevariablestoapplytothisproblem.
Numberofcupsinthepastweek:Thisequalsnumberofcupsperday7(for7days
per week). Mention to the interviewer that your assumption treats each day equally,
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althoughyouwouldgetpointsformentioningthattherearelikelyfewercupsconsumed
ontheweekend,aspeoplearenotintheofficeandingeneralmightfeellessofaneedto
drinkcoffee.
Percent of the population that drinks coffee: this would be an educated guess.
Assuming300millionpeopleintheU.S.,wecouldfurtherassumethat20%arechildren
that (we hope) do not drink coffee. We could also guess that another 20% of the
populationdoesnotdrinkcoffeeatall(perhapstheypreferteaorotherbeverages,orjust
water).
Number of cups per day:hereourguessisthatoftheremaining60%ofpeople,half
drink2cupsperday,aquarterdrink4cupsperday,andaquarterdrink1cupperday.
Thisaveragesoutto20.5+40.25+10.25=2.25cupspercoffeedrinkerperday.
Thereforethecalculationis:
60%2.25300,000,000=405millioncupseachday
405 million cups 7 days per week = 2.84 billion cups per week (you could
roundittoapproximately2.8billioncups)
Note:theinterviewercouldthenaskquestionsaroundhowmanycupsaredrunkathomeorthe
office versus bought from a store, or other similar variations. The interviewer might also ask
yourthoughtsoncoffeetrendsandalsohowmuchrevenuethiswouldmean,etc.
WHAT WAS THE REVENUE FOR FLAT SCREEN TELEVISIONS SOLD IN AUSTRALIA IN THE PAST 12 MONTHS?
Yourfirstthoughtmightbe,WhyAustralia?IamnotapplyingfortheSydneyOfficeof
McKinsey! Interestingly, more and more questions have a global component as
Consulting becomes more global in nature (for example, advising firms on entering or
performanceinforeignmarkets,orworkingdirectlywithforeignclients).Whileyouwill
notbeexpectedtoknowAustraliaspopulation,yourestimatewillsaysomethingabout
yourabilitytothinkandyourlogic.
Population of Australia: Approximately 23 million people. (Editors note: I once
receivedaCaseStudyquestioninvolvingthisfigureandmyestimatewasfartoohigh,but
I still did well on the case because my thought process was transparent and otherwise
accurate.)
Assume that the average household is 3 people. It is worth noting that families
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probablyhavemorethan3people,butthisisbalancedoutbypeoplelivingalone,suchas
students and young professionals. Here is a good example of rounding: you can say 8
millionhouseholds(whichisalittlemorethan23million3).
Assume households replace their televisions every 4 years. The interviewer
mightsaythatseemsreasonableoryoushouldtryahigher/lowernumber.Youmight
alsonotethatyoubelievetherewasnothingspecialaboutlastyearintermsoftelevision
salesnomajorproductinnovations,sluggishbutgrowingeconomy,etc.
Assumeanaverageof1flatscreentelevisionperhousehold.Somehouseholds
mightnothaveany,butothersmayhave2oreven3.
Therefore, (8 million households) (1 TV per household) (4 years/purchase) = 2
milliontelevisionspurchasedinthepastyear.
Assumeanaveragesalepriceof$600.Again,theinterviewermightsaythatseems
reasonableoryoushouldtryahigher/lowernumber.Heorshemayevenaskyouto
breakthisdownintogroups,suchashighendflatscreensandsmallerflatscreenswith
differentaverageprices.However,$600seemslikeareasonableaverageacrosshigher
endTVs,whichmightcostmorethan$1,000,andsmallerflatscreenTVs,whichcansell
for$200orevenlower.
Therefore, 2 million $600 = $1.2 billion annual Revenue for television sales in
Australia.
Toshowyourcreativityandbusinessthinkingyoucouldhavealsodiscussedthemarket
forresoldusedtelevisionsandtheRevenuethatcomesfromthat(thismightreduceyour
estimate of the market size by reducing the average sale price if the interviewer insists
that the question should only include new televisions, then keep the average sale price
constantbutreducethenumberofpurchasinghouseholdseachyear).
Theinterviewermightthenaskyouafollowupquestion,suchasdiscussyourthoughts
abouttrendsintelevisionsales,justtoseehowyouthinkonthespot.
HOW MANY IPHONES ARE CURRENTLY BEING USED IN CHINA?
Start by clarifying the question. In this case you might want to confirm whether the
questionishowmanyiPhonesareinoperation,orhowmanyarebeingusedatthatthis
current moment. (The interviewer would probably explain that he or she means in
operation.)Oncethequestionisclarified,identifythevariablestoapplytothisproblem.
PopulationofChina:Approximately1.4billionpeople.
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There are several different approaches from this point one approach is to make
assumptions around the number of people that can afford iPhones rather than
consideringthenumberofhouseholds.
Based on very basic knowledge of China, even though the country is experiencing
extraordinaryeconomicgrowth,youmightassumethatthemajorityofthepopulationis
stillverylowincomeandcannotaffordaniPhone.Thus,youmightestimatethat20% of
thepopulationcouldaffordaniPhone.
Therefore,thetotalpotentialmarketsizeis20%1.4billion=280millioniPhones.
Whatpercentofthistotalmarketsizeispenetrated?Therearemanycompetingproducts
that are cheaper, but perhaps youve read that the Chinese are very brandfocused and
that Apple has an extremely trusted and desirable brand in China. Therefore you
estimatethat20%ofthissegmentiscurrentlyusinganiPhone.
Using these estimates, 20% 280 million = 56 million iPhones are currently being
usedinChina.
AfollowupquestionmightbesomethingalongthelinesofAretherearemoreiPhonesin
operationintheU.S.orinChina?Wellleaveyoutotryandfigurethatoneoutyourself.
Another followup question might be how you would check the accuracy of your
assumptionsandresponse(inthiscase,perhapsbyreviewingtheAppleannualreportor
telecomindustryreports).
GuesstimateExample#4
WHAT IS THE REVENUE OF PEUGEOTS SOLD IN FRANCE PER YEAR?
PopulationofFrance:Approximately60millionpeople.
Assumeanaveragehouseholdis3people.Thisleadsto20millionhouseholds(60
million3).
Assume20%ofhouseholdshavenocar,astheyareinurbancitiessuchasParisor
Lyon.
Oftheremaininghouseholds,assumeanaverageof1.5carsperhousehold.
Therefore,thereareapproximately80%1.520millionhouseholds=24millioncarsin
France.
Assuming a replacement rate of every 6 years,therewillbe(246)=4 million
carsreplacedperyear.
Ofthese4million,howmanyarePeugeotbrand?YoucouldsuggestthattheFrenchare
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quitepatriotic,soperhaps 20% of the 4 million cars purchased each year are

Peugeot.
Therefore,youestimatethat(204million)=800,000Peugeotcarsarepurchasedin
Franceperyear.
Ofthe800,000,assume70%arenewcarsand30%areusedcars.
Assumethattheaveragepriceis$30,000fornewcars,andusedis$10,000
forusedcars(thisisassumingsimilarpricing,currencyadjusted,tothatofU.S.cars).
Usingtheseassumptions,(560,000$30,000)+(240,000$10,000)=$16.8Billion+
$2.4Billion=$19.2Billion.
Therefore,totalRevenueofPeugeotcarssoldinFranceperyearisapproximately $20
Billion.
WHAT IS THE REVENUE FOR THE BOARD GAME MONOPOLY SOLD IN INDIA PER YEAR?
Startbyclarifyingthequestion.Inthiscase,intelligentquestionsmightbe:
IsthereanIndianversionofMonopoly?(Interviewer:Yes.)
If yes, how long has it been on the market in India? (Interviewer: The Indian
versionhasbeenonthemarketsince2006.Priortothat,theBritishversionwas
soldinIndia.)
Fromthis,perhapstheinterviewermightfurtherexplainthatinIndiathereis
a childrens version and the regular version, and she would like you to
estimate the revenue of the children version, which targets 815 year old
children.
Oncethequestionisclarified,identifythevariablestoapplytothisproblem.
PopulationofIndia:Approximately1.2billionpeople.
Percentofpopulationthatisaged815inIndia:Assume15%.
Totalpopulationof815yearoldchildren:180million.
Assumed percent living in areas where the board game is available for sale:
50%
Assumedpercentofsuchchildrenplayingboardgames:20%
Assumed number of board games purchased per child in this age range per
year:2
Apotentialquestionatthispointfortheinterviewer:HowpopularisMonopolycompared
toothergames?(Interviewer:Itisgainingalotofinterestandisapopularboardgame
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withanestimated10%share.)
Average price for Monopoly: Assume Rs 600 (The interviewer will probably
provide the number otherwise, you might need to estimate based on U.S. prices and
dollarrupeeexchangerates)
Usingtheseestimates,theannualMonopolysalesinIndiaareasfollows:180million
50%20%210%Rs600=Rs2.16billionannualRevenue.
Interviewer:IftheexchangerateisU.S.$1to60Rupees,howmanydollarsisthat?
2.16billion60=$36million.
TotalRevenueforthechildrensversionofMonopolyinIndiaperyearappearstobe
approximately $36 million. Note that because of the large chain of assumptions
made,thisestimatecouldbeoffsignificantlyinparticular,theestimateishighlysensitive
tothepercentagebreakdownassumptionsfortherelevantdemographic(percentof815
yearoldslivingwherethegameisavailablepercentofthoseindividualswhoplayboard
gamesnumberofboardgamespurchasedbythosecustomersannuallyetc.)
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CONSULTING GUESSTIMATE CASES

quitepatriotic,soperhaps 20% of the 4 million cars purchased each year are

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