Practice cases
Sample case question #1
Question: How much does a NYC cab driver make in a day?
This question asks for what a cab driver "makes". It's important to note that this is not the same thing as revenue received during the day. Since the driver has expenses, what he/she actually "makes" is the revenue net of cost. For this reason, it is probably a good idea to break this case question into two parts: revenues and costs.
REVENUES: You should begin by calculating the demand for a driver's services. One way to do this is to make a simple assumption about the number of fares they will have during the day, and the average amount of money they will make on each. That's a reasonable approach for coming up with a quick answer, but does not give you a chance to show off your creativity in problem solving.
A more sophisticated approach would be to move beyond overall averages, and break the day into distinct chunks ("segments"). The value of using a segmentation framework is that you can make more reasonable assumptions about each of the individual segments. But be careful not to overdo it-you can easily break the day down into so many pieces that the problem becomes unwieldy. It's up to you to find the right balance between granularity and expediency. This is one of the things your interviewer will be looking for.
For this question, you can break the day down by times of day (e.g., rush hour versus non-rush hour), by length of rides (e.g., short trips versus long trips), or by some other meaningful dimension. Your choice about what you consider to be meaningful is something else your interviewer will be paying attention to.
Now that we've broken the day into chunks, we can make more accurate assumptions about each. For example, if we decided to think about the day in terms of rush hour versus non-rush hour, the number of fares per hour would probably be quite different. Furthermore, the size of the fares could be materially different. The assumptions you make about each segment will also be important, and can provide the basis for discussion about your answer-particularly if it doesn't look "right".
Once a segmentation scheme to determine customer demand has been developed and discussed with the interviewer, it is simply arithmetic to aggregate up the segments to arrive at a day's worth of revenue. (Don't forget to include tips as revenue above and beyond the fare earnings!)
COSTS: It's a good idea to list all of the likely costs for the driver and estimate what they would run for a day on the street. Material costs might include:
- Car and Medallion rental (if not owner)
- Depreciation of Car and Medallion (if owner)
- Gas
- Insurance
- Taxes
Some of these figures are not well known by everyone. You need to be able to make reasonable estimates, and regularly check your estimates for consistency and reasonability while solving the case. However, it is expected that you do know some of the data necessary to solve the case, or can figure it out from other facts you know. Candidates that are relatively well read and have a good memory for facts tend to develop better estimates and structure better solutions.
Aggregating all of these costs for a day will leave the interviewee with a total daily cost number, which can be subtracted from revenues to yield the day's profits (i.e., what they "make").
REASONABLENESS CHECK: Now that you have an answer it is important to check the reasonableness of your answer, typically by applying information not already used in your solution. One way to do this is by annualizing your daily number. Assume that the cab driver works X days a week and Y weeks a year (typically 5 days a week and 50 weeks a year are good general assumptions, although many cab drivers work longer hours than the average American) and calculate the driver's annual pay. If it is $5K, you are probably too low, and if it is $1 million, you are either too high or interviewing for the wrong job. Incidentally, one of the fastest (and most creative) ways to solve this problem is to start with an assumption about annual salary, and then work down to the day! (Note: In this case, the reasonability check would require taking your daily wage and determining the necessary revenue and likely costs to generate the income, then determining if there is enough "demand" at normal prices to generate the revenue.)
No matter how you solve the problem, your interviewer will be looking for a reasonability check. Don't wait to be asked.
The "correct" answer turns out to be in the $125-$175 range. At least in the New York City area.
Sample Case Question #2
Question-Part I: You are a partner in a small law firm specializing in divorce. You are your partners decide that you want 1-800-DIVORCE as your phone number. You call the number, and you find that its owner, a shoemaker facing an extreme liquidity crisis, is willing to sell you the number right now for $100K. Should you do it? Yes or No? Why?
This is a traditional market-sizing question. The key here is to be systematic, gradually growing from the case level and taking a bottom-up approach to determining the total value of having the "designer" telephone number. Think about the discrete elements you will need to answer the question:
- How many potential new divorce cases will a designer phone number generate?
- What is your estimate on the number of annual divorce cases?
- For what proportion is the phone number itself likely to influence the selection of their attorney?
- What other factors might affect your estimate on the potential?
- How much new revenue and income will this increased demand generate?
- What's the value (i.e., profit or revenue) of a case?
- How many cases can the firm handle now?
- How many additional cases could the number produce?
- How will this new number affect costs and resource requirements at the firm?
- How many lawyers are there in the firm?
- How much excess "capacity" do you have at the firm? (i.e., how many more cases could you handle without hiring more lawyers?)
- How easy (or costly) will it be to hire more lawyers, if needed?
Will you be doing more advertising with your sleek new number? What would the costs be (generally)? Unless the case question is fairly unambiguous, you probably should ask some clarifying questions. For example, you know this is a "small" law firm. Does that mean 3 lawyers? 20? 100? Obviously, the answer will affect the economic viability of buying the number. When you have blanks like this to fill, you have a choice about whether you want to ask your interviewer for additional information or just make assumptions. If you're going to ask for more information, be careful that your questions are germane to clarifying the major ambiguities, and that you do not spend the first half of the interview asking for data.
Once you have built up the total yearly increase in profit from the number, it is easy to calculate what the number should be worth to you. But remember what was asked: "would you pay $100k for the number?" If you've made reasonable assumptions, you should have more than enough fodder to say "yes" or "no"...
Question-Part II: Since you jump too quickly at the $100K offer (your negotiation skills are perhaps less developed than your problem solving skills-at least for now), the shoemaker says, "Oh, did I say $100k? What I MEANT to say is that I'm going to call 3 divorce law firms and take bids from each of them. Since you called me first, I'll let you make the first bid. What's the number WORTH to you?" (Ignore game theory and bidding strategies here-we just want a straight answer as to the number's worth to your firm.)
This should be easy to tackle based on the thought process for Part I. In this case, you also need to remember that the phone number doesn't magically disappear at the end of the year-it will be around for the life of the firm, and therefore you will derive benefit from it for years to come. This also means you can amortize your purchase cost over several years.
Your interviewer will be looking for creative thinking as well as how well you use analytical techniques to solve the problem. For example, knowing that the number will continue to provide benefits to the firm is creative. Knowing how to estimate the long-term value of a stream of benefits through a Net Present Value analysis is both creative and analytical. Try to demonstrate both whenever possible.
Most answers for a 20-lawyer firm turn out to be between $500k and $1.5mm, largely driven by assumptions about the effect of the number on case demand.
Sample Case Question #3
In this case, you will be given a situation and asked a series of questions about the situation.
Situation: Imagine that there are two ice cream stands that service a hot beach on the Jersey Shore during the summer. The two stands are identical in every way-product, pricing, size, staffing, etc.-except that two brothers, Jon Bon and Richie, who can't stand each other, own them. Each brother wants to maximize his profits and put his sibling out of business. The population of beach-goers is evenly distributed across the entire beach, and customers do not care about which stand they are walking to. The only thing they DO care about is proximity-they'll go to the closest stand every time.
Question #1: Where will the ice cream stands end up on the beach?
Answer: They will end up back to back at the center of the beach. If this was not the case, one brother could out-fox the other brother by moving his stand so that it faced the majority of the beach-goers. The only way this doesn't happen is if they are both in the middle of the beach facing 50% of the crowd. (Free markets fans: Note that this is a representation of a perfectly competitive marketplace.)
Question #2: Say a young entrepreneur named Bruce (all his friends call him "Boss") raises enough money to buy both Jon Bon and Richie out. Where will the stands be now?
Answer: Since Bruce appears to be a good businessman, he will probably move the stands so that they are 1/4 and 3/4 of the way down the length of the beach so that he can minimize the distance that any one beach-goer will have to walk to get a sundae. This could also stimulate an increase in overall ice cream demand.
Questions #3: How do you think that this situation parallels American politics? It's not a perfect metaphor, but where do you see the similarities? How do you think this varies between party primary elections and national elections?
Answer: Think about this one. Shoot us an email if you'd care to share your thoughts (info@novantas.com). By the way, the power of metaphor is vital to advisory work-we are always applying our knowledge from a wide range of industries or disciplines to the project work that we do.