Professional Documents
Culture Documents
Question:
Your client owns and operates a chain of kidney dialysis centers. Dialysis is a process
where patients are connected to a machine; their blood is cleaned and then put back into
their body. Patients who need this procedure have serious health problems and once they
require dialysis, they need it 3 times a week for the rest of their life. Your client has 1/3 of
the market and there is one major competitor that has 1/3 of the market share. The
remaining market is made up of independent doctors that own/operate their own small
dialysis center. Your client has grown through acquisition of smaller operations and the
market is at equilibrium (i.e. there are no other acquisition options). Theyve asked you to
help them grow their profits.
Costs:
Ask what the major cost items are: building leases, equipment (dialysis machines),
labor (nurses, technicians), supplies and materials (drugs, needles), promotions.
Fixed costs are $300k/year
Variable costs include the drugs sold to patients and amount to $45k per year
Things to mention if asked: the building and machines are already leased, wages are
generally competitive. Overall, our costs are lower than our competition.
Revenue:
Medicare pays $300 per treatment
Private insurance pays $3000 per treatment
Prices are determined by the market, so the company has little control over influencing
price.
Patients:
90% of patients have Medicare, 10% have private insurance.
Profitability:
Each patients receive 52 weeks x 3 treatments/week = 156 treatments per year
Each Medicare patient provides 156 x $300 = $46,800 in revenue; $46,800 $45,000 =
$1,800 profit/yr
Each privately insured patient provides 156 x $3,000 = $468,000 in revenue; $468,800
$45,000 in costs = $423,000 in profit per year (enough to pay for the annual fixed
costs of the entire center!)
Once the candidate realizes that one privately insured person covers the yearly
expenses of the entire operation, ask them how many Medicare patients a center would
have to treat to cover their fixed costs: $300,000/$1,800 = 167 patients
Note: this section could have been solved using breakevens directly (167 for Medicare, 1
for privately insured)
Ask the candidate what they think our client can do to increase the chances that doctors
will refer privately insured patients to us instead of our competitors:
Market our centers to doctors who have private patients (using data from geographic
area, demographics, hospital information).
Because privately insured people are more likely to be wealthy, improve the facility to
make it feel more like a spa so that we can differentiate our treatment centers from the
competition.
Look into launching a marketing campaign to build brand awareness so that patients
will go to their doctors asking to be referred to our centers.
Build relationships as soon as doctors graduate from school so they have a loyalty to
our client.
Work out an incentive structure where doctors are rewarded for referring patients (if
thats legal).
Question:
Youre the governor of Hawaii. A tragedy on the level of 9/11 has just occurred on the
mainland US and air travel has been shut down temporarily. How would you think about
the issues that youre facing?
Initial thoughts:
Basic needs okay? Yes, food and water comes on boats.
Basic government functions okay? Yes, lets say its okay.
Conclusion is that economic impact will be biggest issue. Assume governor is concerned
about tax revenue.
In the following sections, the candidate needs to estimate loss in taxes. Only numbers in
bold should be provided to the candidate. All other numbers should be generated by
the candidate:
Because only US tourism affected, candidate needs to estimate the number of tourists from
US to Hawaii:
300 million people in the US
Only the top 1/3 will be able to afford a vacation = 100 million
People take a major vacation every 5 years, which is 20 million people.
Of those 20 million, assume 15% go to Hawaii, leaving 3 million people (no matter
what the candidate comes up with, be sure to give them this 3 million number to work
with)
Now the candidate must estimate the average amount each person spends while in Hawaii:
Assume that the average person stays for an average of 7 days, 6 nights.
Hotel: 6 nights @ $300/night = $1,800; but assume triple occupancy so the total per
person is $600
Food: Average breakfast+lunch+dinner = $10+$20+$50 = $80 per day x 7 days = $560
Recreation: Suppose the average person spends $500 in additional recreation activities
(renting a surfboard, touring local sites, etc)
Total per person = $1660, well round it to $1700.
So $1700 x 3 million people = 5.1 billion per year in revenues, well call it $5 billion.
Ask the candidate what the loss in revenue means to the government:
With such a drop in tourism, unemployment will increase meaning that unemployment
claims will increase, but the governments unemployment funds may be affected
Ask the candidate what the government should do to address this loss in revenue
Because the rest of the world is not affected, Hawaii should focus on marketing
internationally (particularly in Asia):
o If the candidate brings this up, ask them what they would want to know if they
were to do this?
They should make sure that they have the ability to measure the return on
their marketing dollars. Make sure that their dollars are able to generate
new tourism dollars
They should also be sure that they target markets that have a lot of potential
new customers; for instance, if Japanese market is saturated, they should not
advertise in Japan
The government could work out deals with airlines and hotels to provide discounts to
help tourism, but they would have to make sure the increase in tourism dollars is
greater than the discounts given.
Receive aid from federal government
Cut non-essential government programs
Issue bonds / borrow money
Question:
(1) Our client is a manufacturer of liquid trailers. These are the liquid storage units you see
being pulled behind tractors on the highways, and are used to transport petroleum. How
would you estimate the size of the liquid trailer market in the United States? What kind of
numbers do you think you could realistically find.
(2) After having answered #1: Assume the demand for gas increases by 5% a year. Also
assume each trailer lasts 20 years. What would be the demand for new trailers next year?
(3) After having answered #2: What if Liquid Haul has 20% of the domestic market, how
much of that demand would be attributed to Liquid Haul?
(4) After having answered #3: What if Liquid Hauls demand was higher than 3,000
trailers? What are some of the possible reasons for this?
Question 1:
Option #1 seemed to have more attainable numbers, so estimated:
Question 2:
Question 3:
Question 4:
Question:
Our client is a processed food manufacturer based in Australia. Their market position is
very strong (theyre either #1 or #2 in each food segments). They were acquired by a
private equity firm a year ago for $1 per share. However, in the last year, share prices have
dropped to 50 cents. Our goal is to help the food manufacturer regain profits.
Exhibit 2:
Shows Revenues and EBIT (Earnings Before Interest and Taxes = Profit) over the last 3
years
Key takeaway: From these two graphs we surmise that the majority of the growth is
fueled by acquisitions that is why our client has seen declining profits with increasing
revenue, despite operating in an industry (foods) thats driven by economies of scale.
Exhibit 3:
Shows the source of Growth in Year 1 and 2.
Key takeaway: It shows that the majority of growth came from acquisitions, so Year 3s
EBIT
Q: Where do you think the food manufacturer is making these acquisitions and why?
The purpose of acquisitions is to increase margins and grow revenues. They most likely
would have made purchases in the food segments in which they have small RMS, and
profits would be larger (meaning not in commodities such as flour or sugar). So that
would be in cookies and cakes.
Q: How much cost would our client need to cut to meet the industry margin of 15%?
Remember : current Profit is $100m and current Revenue is $2.0B (Exhibit 2)
In other words, the industry margin of 15% indicates that Profit should be $300m on
$2B of Revenue. However, Profits are only currently $100m. So, the client will need to
cut costs by $200m in order to increase Profits to $300m.
RMS chart of the food segments that our client is currently in:
Growth
5
$ Million
Acquisition
4
O rga nic
3
0
1 2
Year
Question:
How many gas stations are there in Japan?
Follow-up question: If you had 2 hours to refine your data, how would you spend them?
(i.e. which assumptions are most important; the drivers)
Work in tanks filled, since we will deal with the amount of time it takes to fill a tank
Under 100% utilization, that would equal 10 pumps * 12 * 24 = 3000 fill-ups per gas
station per day
To figure out utilization, divide up the day and make some assumptions
0:00 6:00 = 5%
6:00 10:00 (around rush hour)= 50%
10:00 16:00 = 20%
16:00 20:00 (around rush hour) = 50%
20:00 24:00 = 20%
Take the weighted average = (6*.05 + 4*.5 + 4*.2 + 4*.5 + 4*.2)/24 = 25%
So there are 25% of 3000, or 750 fill-ups per station per day
Follow-up question: 6600 seems low. Go through each assumption and do a gut-check
Over a 24-hour span, are gas stations really 25% utilized? Probably not
% car ownership and fill-ups per month will be big drivers
Since business use is so large, the ratios used in that equation are also quite important
Question:
Our client is a leading home building company. This year the company had annual revenues
of $3B, and sold about 10,000 houses. Given the state of the economy, they have seen
home prices fall dramatically, and thus, lost significant revenues. How low can they go on
their price? Additionally how bad is the business going to get, and when can we expect it to
turn around?
Possible answers: Prices are primarily impacted by demand, supply and costs. Costs
include price of land that the home sits on, raw materials used, labor, project management
and contracting fees, marketing costs and commission on sales, interest expense, tax,
insurance, property mgmt fees etc.
Sub-question 2.) Lets say our marketing budget was $250 million and the client paid $1
billion for the land bank. How would you go about estimating the other costs?
Possible answers: I was surprised by the high marketing expense. My suggestions included
labor rates, no. of labor hours per home, estimate cost of raw materials per house,
estimated fees for project management, etc The interviewer nudged me to consider an
approach which uses cost per square foot on an average. Whats the size of the avg. home
and prevailing costs per sq. ft.
Sub-question 3.) Average house size for client is 1500 sqft and cost to build is $100/sqft
Possible answers: Building and associated cost per house = 100*1500 = 150,000. Hence for
all houses as a whole costs = $1 billion (land) + $0.25 billion (marketing) +
$150,000*10,000 = $2.75 billion. That earns the company a profit of ~8%
Answer: The current revenue of $3B is divided by 10,000 houses i.e. price per house =
$300,000.
Sub-question 5.) Are there other costs that you might have missed? Do you think this is a
good year?
Possible answers: Interest cost on the $1 billion, management fees, taxes and legal costs,
costs associated with delay etc My guess was housing development was an industry
commanding 15 20% margins (said I had seen it in my country) and 8% with some
additional costs to consider, was low.
Answer: Pre-purchased land is already a sunk cost, so the builder should be willing to drop
to cost to the sum of variable costs. Maybe even be willing to ride out a small loss, if the
economic outlook improves.
Possible answers: Asked for additional data on change in demand and supply to which he
said the year earlier prices were $400,000 per houses and demand was 25% higher. I drew
this supply demand curve and said the supply elasticity was dQ /Q / dP/P = -2.5/12.5 / -
100/400 = 4/5 = 0.8.
Possible answers: Household income, employment levels, interest rates, ability to get a
loan, tax incentives etc.
Sub-question 11.) Do you know what the current unemployment rate is?
Possible answers): Assuming another year of downturn a slow recovery for the economy
and a growth rate of 5% for demand it is probably going to take 5-6 years to get to older
levels of profitability unless the company cuts some cost cutting. (I was not too
convinced/happy about this part)
Possible Answers:
Stay in business at least until point when prices fall to level of variable costs
(recognizing that land is a sunk cost)
Promote remodeling/renovation/expansion services, rather than from scratch
building, in response to peoples declining ability to pay
Limit selection available, and seek volume discounts (i.e. only offer 5 kinds of counter
tops, instead of 50, and try to set up deals with the 5 suppliers)
Look to expand in hot international markets
Diversify in to commercial property development (not just housing)
Get in the business of building things that might be promoted through administrations
stimulus package interviewer kind of poked fun at me, and said like building
bridges? and I said, no, but maybe town halls, fire stations, rest stops, toll booths etc.
I think I was more than a little off base, but got points for creativity, and responding to
his challenge.
Question:
Our client is a large sports goods store. The sporting goods industry is stable; however,
they are experiencing decreases in revenues from their sport machines department
particularly treadmills, and elliptical machines. What explains this decline, and what can
they do about it?
Results:
Break even sales of 5 per month with additional sales force
This represents a 4% increase which matches industry growth rate
INTERVIEWER: What do you think explains the decline in sales for the client?
INTERVIEWER: The industry grew at 4% last year and is expected to grow at the same
rate. One of our key competitors had a good year clocking an 8% growth rate. Prices have
remained stable and that is not an issue. Who do you think compete with our client?
CANDIDATE: Direct competitors include specialty sports shops, big box retailers, and
online retailers. However there are several substitutes or indirect competitors including
gyms, fitness centers, athletic clubs, Wii etc. Have the spurt in popularity of any of these
impacted the sales of our client?
INTERVIEWER: No
CANDIDATE: Is the key competitor a similar sports goods store? And can I assume that
were advertising at similar levels, if not more heavily than our competitors? The key
influencers in the purchase decision for such equipment are fitness enthusiasts and
coaches. Does our client advertise to them specifically?
INTERVIEWER: Yes the key competitor is very similar to our client and advertising levels
havent changed. Good suggestion about targeted advertising though.
CANDIDATE: Has the clients competitor introduced a new product or are there any quality
issues with the clients products?
CANDIDATE: Lets talk about the store experience, and how these machines relate to our
bottom line. Im guessing that since they are bigger ticket items, they are very profitable for
us. I would like to know where they are located in the store, and if we might look into store
layout to see if customers are easily able to see our machine offering.
INTERVIEWER: Customers are making it to our machine aisles, but just not purchasing.
INTERVIEWER: Good point. We dont have one yet: how would you establish one?
CANDIDATE: I would like to evaluate the marginal benefit of adding dedicate sales
personnel. Do we have any data on the labor rates?
INTERVIEWER: The salary of the employee $15/hour. And assume operating hours to be 8
per day and operating days to be 250 per year.
CANDIDATE: That results in 15*8*250 = $30,000 of additional costs per year. Will this be
the only added cost? And what are the profit margins on the equipments?
INTERVIEWER: Profit earned from each sale of a machine on an average is about $500.
What other costs are you referring to?
CANDIDATE: There will not be an increase in fixed costs. But I am concerned about other
variable costs like health benefits and additional overheads.
CANDIDATE: Breakeven analysis ($30,000/$500) implies that the client needs to sell an
additional 60 units/yr to cover costs. What is the current sales level to compare this with?
INTERVIEWER: The client currently sells 125 units per month in individual stores. Do you
think the additional level is achievable?
CANDIDATE: Our client is a major sports store and is seeing dismal sales within the sport
machines department. After consciously eliminating several alternatives we have
concluded that customer service is an area that the client needs to focus on. Hiring
additional personnel might sound like a costly solution but given low sales conversion
rates and the handholding customers need to make the buying decision, BCG would
definitely recommend it. A break even occurs at 4% additional sales. Some suggestions:
Tie the salaries of the sales personnel to actual sales made
Attractive incentives to personnel for sales beyond the targeted 4% increase
Market the product heavily to coaches at fitness centers and fitness enthusiasts as they
are gatekeepers to the purchase decision
Question:
The client is a global health care distribution company with $90B in revenues. They
currently distribute pharmaceuticals and medical equipment, and are considering
expanding into vaccine distribution. Size the market and determine if and how they should
enter this market.
Question:
The state Medicaid office has called on Deloitte to help them with the new claims
processing unit. Claims have been paying out incorrectly, and the client would like you to
find out why. After some initial investigation, the Deloitte team has discovered that the
problem is not just technical. In fact, there is also a training issue with the people in the
department. The incentives are outdated and misaligned. Analyze the situation and walk
us through your findings and recommendations.
The interviewers like to see your framework/structure on your page and will offer
suggestions from there. Make sure that you show the interviewers your work while you go
through the case.
The 2nd round is with two interviewers. Don't get thrown off if they aren't as friendly as
the interviewers in the first round. They want to see how well you perform under
pressure. You may not get much feedback while going through the case, but you will
probably receive feedback immediately following the case.
STAKEHOLDERS
Doctors
Medicaid Office
o Directors
o Managers
o Claims Processors
Patients
Who is most directly affected? Most likely the Claims Processors, as they will have to
change their behavior. However, the Managers will also be greatly affected, and have their
bottom lines change the most, as they will have to train and manage the Claims Processors,
as well as be ultimately responsible for their performance
INCENTIVE ALIGNMENT
It is important to discuss and brainstorm how you would change incentives to align claims
processors with better performance. Possible ideas (there are more and probably better):
Pay people incrementally for correctly paid out claims
Punish people incrementally for incorrectly paid out claims
Train people for quality, not quantity
Manage around quality metrics (correct claim %), not quantity (claims processed /day)
o Probably some hybrid of the two would be best
Change hiring process to focus on accuracy, not quantity
TURNOVER
How would changing the staff dramatically affect output? Probably for the worse, as youd
have to retrain all new people, and have many new problems. So, it is best to try to keep
turnover down.
Question:
Our client is a national distributor of media (VHS tapes, DVDs, Blue-Ray discs, etc) with
$12.0B in revenues. The clients profitability has been affected by an increase in Accounts
Receivable (A/R). Theyd like you to diagnose the problem and make a recommendation.
The key is to ask about sales force incentives. The sales force is incentivized at the point of
sale and is not penalized for returns, so salespeople have been stuffing the shelves. The
solution involves improving the compensation structure by basing commissions off sales at
the retail end or by reducing commissions for returned products.
Calculations:
Based on the change in A/R days (average days it takes to collect on accounts: 90 days to
120 days), you can calculate A/R ($3B increased to $4B).
Question:
Alpha Capital is a private equity firm that is looking to buy a high-end male fashion retail
chain, named BNG. This is a private retail chain, and was started in California 20 years ago.
Alpha Capital is looking to see a 25% ROI in 3 years time. They want us to help them
decide whether to buy BNG, and to assess BNGs economic growth in 3 years.
Q1: What factors would you look at to assess BNGs prospect of growth?
Context
o Macroeconomic Factors
o Industry size / growth rate
o Competitive Landscape
Positioning
o Consumer Perceptions (e.g. what is the size and growth rate of current
demographic? Can brand be leveraged to appeal to different/wider target?)
o Pricing (potential for optimization?)
o Channels (e.g. potential to sell in department stores?)
o Product (potential to expand product line to wallets, etc.? lower-end line?)
o Brand awareness (especially outside California for potential growth)
Operations/Organization
o Strength/Incentives of management team
o Efficiency of operations (potential to manufacture overseas?)
Q2: The owner of BNG is willing to sell the chain for a one-time payment. The chain
currently experiences 20% profit, and will earn $60million next year. What factors should
Alpha Capital look at to determine the maximum price to pay for BNG?
Q3: Calculate the maximum amount Alpha Capital would be willing to pay for BNG.
To receive 25% ROI, Alpha Capital would be willing to pay $31.6 million.
Q4: BNAs 10 stores have been experiencing dramatically different revenue. What do you
think are the causes for this variability?
Location
o Consumer population/demographics
o Foot traffic - walk-by (mall) vs. drive-to (strip mall)
o Proximity to competitors
o Marketing support (are there local marketing campaigns?)
o Proximity to supply chain possibility of stock-outs?
Human Resources
o Quality/ experience of store managers / salespeople
External Drivers
o Macroeconomic conditions
o Competitive pressures
o Fashion trends
Internal Drivers
o Products variety, quality, etc.
o Marketing communication
o Channel selection location of stores, lower-end line in department stores?
o Operational efficiencies manufacture overseas?
Q6: (Exhibit B) shows the price sensitivity graphs for 1. Belts/shoes and 2. Shirts & Pants.
We see that BNG is in the inelastic portion of a double-kinked demand curve for
belts/shoes, and they are in the elastic portion of the demand curve for shirts/pants.
From this chart, what do you think BNG can do to increase their profits?
Firstly, they should increase price on belts/shoes
Instead of a current revenue of Price * Volume = 1 * 1 = 1, they could increase price to
1.2 and volume would only lower to 0.9, so they would have revenues of 1.2 * 0.9 = 1.08
This would increase profits by AT LEAST 8% because they would boost revenue 8%
while decreasing variable costs through selling less product.
Secondly, in shirts/pants, they could decrease price to 0.8, which would increase
volume to 1.8, for total revenue of 0.8 * 1.8=1.44, BUT we cannot tell whether this
would increase total profitability unless we knew more about their cost structure
One tactic could be to:
Decrease price of J/S/P to increase traffic into stores
Increase price of B/S to extract more profits
What do you think is the meaning of the two kinks in the belts/shoes demand curve?
These kinks are our competitors price points. Perhaps our competitors have a high-
end line of belts/shoes as well as a low-end line of belts/shoes.
Q7: BNG is considering opening 14 new stores. The CEO wants you to tell him what factors
are the most important for him to consider as he opens these stores.
Summarize findings.
Question:
The government of Sania offers all of its citizens free health services. The country has
achieved middle-income status. Its citizens have good life expectancy and low infant
mortality rates. There are 30 primary care facilities, and 2 hospitals, all of which are public
and maintained by the Ministry of Health. To get treated by specialist doctors in private
practices, patients have to pay a high out-of-pocket fee.
For the last 5 years, health expenditures have risen at 10% a year. Government revenues
have only grown at 5% a year.
The Prime Minister, Minister of Health, and Minister of Finance asked McKinsey to help
solve this funding problem, and to increase the sustainability of the Sania healthcare
system.
Q1: What factors would you look into to improve the sustainability of funding of Sanias
healthcare system?
Increase funds
increase taxes
o increase types of taxes, tax immigrants?
o increase contribution/amount
shift budget allocation
shift health insurance partly to employers
Decrease costs
introduce co-pay system (will also lead to decrease in demand)
increase productivity (doctor training, technology)
increase efficiency (doctor training, technology)
improve technology and automation
promote preventative/early diagnoses/family planning
change doctor prescription/diagnoses/referral behavior (possibly by restructuring
doctor/hospitals reimbursement incentives, increase enforcement/institutional checks
of coverage)
increase private specialists or referral to privates
decrease coverage for elective treatments
Q2: What do you think are the drivers of demand for healthcare services?
Patients
aging population (demographic shift)
increase in population (long life expectancy, immigration)
increase in wealth levels (increase frequency and quality demanded of health services)
poor lifestyle/habits
changing awareness/preference for health services
increase in demand for elective procedures
Doctors
changing treatment patterns
o increase in # of referrals
o increase in # prescriptions
o increase in # of tests
o more expensive, newer treatments
Technology
more expensive technology/features
more expensive pharmaceuticals
new diagnostic equipment that can test new diseases
External
requirements by employees for tests
shift in diseases from infections to terminal illnesses (heart disease, cancer) or
pandemics
resistance of diseases to vaccines
Q3. (Give Exhibit A) Please see this chart. Calculate what would be the growth in Sanias
healthcare costs in 10 years. Feel free to ask me any information youd need.
Q4: If the government installed a co-payment scheme, what would be its impact?
Patient
change behavior: decrease # of visits/person
decrease kinds of patients (some patients may not be able to afford co-pay)
long term: may increase patients if diseases are undiagnosed today
Cost
decrease total healthcare costs for government
Others
possibly increase revenue if the co-payment goes to the government
political repercussions (citizens wont be happy)
opposition from employers and workers
could affect economy?
Q6: What are some of the risks associated with this co-pay scheme?
Patient
poor patients cant afford it
increase dissatisfaction
Cost
growth in healthcare costs still cant be covered by this scheme
may see growth in costs in the future as diseases are left undiagnosed today
Planning
risks in planning and implementation
o timeframe
o cost
o logistics/training
Political unrest
Q7: What are some of the issues to look into for planning out this scheme?
Population
idle services/manpower due to decreased demand
Change management
publicize scheme + persuade citizens
train personnel
Question:
Your client is a large pharmaceutical company. Your main contact, John, is the CFO.
John joined the company just a few months ago and hired Monitor to perform an analysis of
the Finance departments organizational structure. This is the first time the company has
worked with Monitor.
You and your teammates have conducted interviews with most of the members of
the Finance Department. You have also spoken with some of the Finance departments
internal customers. You and your team have pulled together a deck that summarizes the
findings from your interviews. You have already met with John and walked him through
the findings, in preparation for the upcoming meeting with the CEO (scheduled for next
week). John seemed to be generally happy with the deck we presented; however, as you
and your team prepare to leave the client site, John pulls you aside and asks to speak with
you in private, while the rest of your team exits the building.
John: Im concerned about the findings youve pulled together in the deck.
Specifically in Slide 13, I think the information is incomplete and should be taken out. The
quotes on the slide state that I am a source of stress in the department, which I think is
completely false. Who made those comments anyway?
How would you handle this situation? What would you tell John? (You may be
asked to role play, or you may be asked to talk through what you would do.)
The interviewer is evaluating whether you fit in the Monitor culture. Your response should
be natural and should reveal how you would genuinely react in this situation. Your
response should show your integrity, courage, tact, and sensitivity to the situation.
The client role-play interview is just one portion of the 2nd round interview process with
Monitor. There is also a group interview and a feedback session. Although this is a
qualitative interview, it is important to take it seriously and consider all the perspectives
involved.