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Management Consulting 101 Estimation example & tips with mental math
One of the biggest aspects of case interview and the those consulting tests is the estimation question. Strong skill in math will help you tremendously. Not only that you always do appropriate quantitative analyses, but you can also save a lot of valuable time and gain significant confidence. Sometimes, that’s really what matter. Estimation example can help you practice and improve upon that.
Since elementary school, we all are taught with the precision calculation methods. Growing up, we start to use calculators and many people just purely use excel for daily work. But the type of calculation in consulting is quite different and many people struggle with it even though it’s not necessarily that hard.
So what’s different about consulting math?
First, there’s a lot of it. In a normal day, a management consultant encounter with many more calculations than most profession out there.
Second, most of calculations in consulting need really fast response … a really quick act of pulling out the calculator and inputting numbers is already considered too long. Imagine you are interviewing a key client expert and getting some really intriguing figures … You need to instantly doing some mini analyses in your head and incorporate that to ask the best next question, without any delay.
Well, those two above are both bad news, but here’s a good one. Fortunately, most of the time we don’t need to be 100% precise. Up to 5% margin for error is acceptable. Most case interviewers accept this. And most questions in the PST have answer choices far enough away from each other.
This profoundly change the way we approach most math calculations in consulting contexts. Many times, we can trade a tiny bit of accuracy for a lot more speed. So throughout my time with McKinsey, I developed for myself a system that enable me to do math much more effectively. With a little practice, eventually you will be able to do quite precise calculations with just 2 – 3% margin. Now let me share it with you.
It’s all about ESTIMATION and ADJUSTMENT.
In the estimation phase, we round the number into the simple version we can easily work with, In the adjustment phase, we take the result and adjust up or down for the rounding we did earlier. Depending on the level of accuracy required, we can spend more or less effort on this adjustment phase. With casual calculations, ballpark adjustment can give us 5% margin just fine. With tighter situations, a few tricks will give us a much more precise answer, with some trade-off in time of course.
Let’s begin the party with a MULTIPLICATION estimation example.
8710 x 594
Why don’t you try this problem and see how fast can you do it and with what margin of error?
Step 1.1: Putting always those “zero”
We will have a nice simplified version of: 8.7 x 5.9, taking out 5 zeros in total.
Step 1.2: Rounding
8.7 is now become 9 (so it needs some downward adjustment latter)
5.9 is now become 6 (so it needs a tiny bit of downward adjustment latter)
Step 2.1: Multiplying
9 x 6 equal 54
Step 2.2: Adjust
It’s important to adjust the rounding before putting in the zeros.
Ballpark version: 54 adjust down would be 51. So the final answer is 5,100,000
More precise version: 8 x 6 is 48 | 9 x 6 is 54
- So 8.7 x 6 is somewhere between, closer to 54 of course. Even more specifically, 8.7 is two third way from 8 to 9.
- So the final answer is somewhere 2 third way from 48 to 54 too. 52 seems to be a good estimation. And adjust a little bit down for the 5.9 (instead of 6), 51.5 seems right!
- Putting the zeros in, we have 5,150,000.
The correct answer is 5,173,740.
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Disclaimer: I am using excel to randomly generate these calculations.
Computation using my method is very similar! Just try to do it every day, your adjustment skill will be amazing!
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