QUANTITATIVE ANALYSES: THE 4-STEP APPROACH

Quantitative analysis question is when the interviewer gives you data and ask you to calculate a number
or to calculate a conclusion (i.e., which of these options is better, whether the investment makes sense)

Misconception: many people call these questions math questions => NOT RIGHT -> wrong mindset
The problem solving -> how to get to the number (i.e., modeling to turn raw data into insights) and what to
do with it (i.e., comparison) => communication is also very important

What is analyses from consulting’s perspective?

 Conceptually, what you do in consulting project is to come up with several hypotheses and test
them. For example, your client’s TAM is going to reach 100 billion dollar in 5 years or their
customers are currently unsatisfied with the products but they are buying anyway because they
don’t have any other option; or if your client’s any specific target merge can save half a billion in
procurement cost by buying a larger bulk => Use data to test these hypothese; gather from
research, client’s database, etc. But database alone are of no use; can’t just look at green data
and take conclusion from them => need to model them into simpler information which synthesize
the data so that you can actually process it in your mind.
 But these number alones still don’t tell you anything. If I tell you that your client’s revenue are $20
billion; this will have completely opposite meaning if last year’s revenue was 18 or 22 billion =>
You also need to compare that number to something else in order to make it meaningful and to
prove or disprove any hypotheses.
Do quantitative analyses in a consulting project => need to have 2 skills: quantitative skill and
communications skills
 Quantitative skills: knowing what comparisons to make to get to the conclusion and where those
bars are to know if ST is true or false; what numbers from the real world you need to be able to
get to those comparisons and how exactly you can model them to turn raw data into the info you
need
 Communication skills: be able to discuss on the conceptual level -> can talk and explain and get
input from the team and client before and after the analyses

Get to the right number # solving the problem

=> Get to this number; know exactly what you do next and start doing it (what this 12.6M means): finding
if there would be cost increase given this volume increase; or if there would be price increase given this
volume increase; or there would be finding out if there’s capacity issues or anything like that; etc.
Now, I don’t know what is the revenue of the target but I would like to know
Assume this is a 30% increase in their revenue => This seems like a really good idea of the acquisition
because let’s say we will acquire them at a fair price; but right off the batch, we increase the revenue and
therefore, probably the value is even more than that by 30% -> this is an amazing investment by all
means

REMIND: Goal of quantitative analyses questions

 Show the interviewer your thought process so that they always know where we are, they always
know you get to the answer, that you would consider all of the variables so that you and
interviewer can discuss the issues and the approaches and assumptions and isolations.
 Get to the right number and your goal is to create a conclusion that biased towards action given
the number you’ve calculated and the case question

The 4-step approach to Quantitative Analyses

Example

Price per coffee cup: $3.75

Total cost per cup of coffee for micro-kiosk: $1
Cost to open and create the micro-kiosk (1 unit): $150,000
Yearly operating costs (rent, labor…): $200,000

Step 1: should not have no numbers, only conceptual so interviewer agree or disagree with you in terms
of logic => don’t have to dive into specific number
Step 2: Ask for data
 Look for issues that weren’t mentioned but might affect the answer (i.e., cannibalization)
 In this example, may also sell something else other than coffee (mug, etc.) => change the
structure because we would need to have something else that also cover costs and investment ->
change the breakeven
 Should also look for these other issues even if they’re not there interviewer expects you to ask for
some stuff that show them you have the creativity to think about other factors that weren’t
mentioned but might change the answer which happens all the time in the consulting job => they
want to know if they can trust you to solve the problem by yourself and not have them need to ask
you in the meeting when you present your results.
 Ask for these issues after the structure -> preferable

Step 3: Calculations
One mistake is fine -> brush it off
Make often mistakes -> careless, reckless -> red flag
Step 4: Lead from the insights
 The most important step in an analysis question -> important in consulting job’s perspective; it
makes consulting different; make their job valuable to clients; make McKinsey projects so
expensive (cuz they give guidance to the clients, they tell them what to do to get the most values
out of their companies)
 Tell the interviewer what that number you got to mean to the case and what should be done
based on it
 3 steps:
- Compare to other numbers -> to have a base to say if it’s too high, too low, too much,
whatever…
- What this means from the case question POV
- What should do next based on that
In this case:
 200K cups in 2 years -> assume 365 days/year -> around 300 cups/day
 Assume coffee shop is open 15 hours/day -> 20 cups/hour -> 1 cup/3 mins (not only in peak time
but also in 10 pm when not many people drink coffee) => too optimistic
 Looking at the coffee shop at the airport, of course, there’s a lot of movement but not necessarily
all of them are buying coffee and honestly very little of them buy only coffee and since this is only
one location we can’t really assume that we can take market share from all of the airport, only
from the surroundings so it makes sense to think of one or two specific coffee shops that would
be close to this one.
 And we can only get the customers who care about the quality of coffee -> obviously not all of
them and customers who don’t want anything else that are not going to the coffee shop and
asking for a cup of coffee and ST to eat or whatever
 That’s not a very large fraction of the customers; I would not trust that we can easily get to those
200K cups of coffee in 2 years
 What to do next: if I were to do ST next, it would probably see if we can sell ST else to increase
the average ticket of each customers. Ex, coffee bean, bags of coffee beans so that people can
take home to brew their own or can send as gift (high value-added) -> sell them at a higher price
and this might make the business worthy but it doesn’t look too promising to me from the
perspective of only selling cups of coffee
DRILL: DRINK FLAVORING MANUFACTURER

Structure the case:

Step 1: Structure your analysis
Find the difference between the costs for each supplier for each one of those cost components and then
add the all of them
Step 2: Request data

Step 3: Calculate
Step 4: Lead from your insights

KEY INSIGHTS
DRILL: SPORTS APPAREL RETAILER

Step 1: Strucuture the analysis

Structuring thought process

Step 2: Request data (ask question and request for data)

Step 3: Calculate
Step 4: Lead from your insights

Key Insights
DRILL: B2B SOFTWARE AS A SERVICE

Step 1: Structure the analysis

Step 2: Request data

Step 4: Lead from your insights