If you're in a B-School and are appearing for your Summer Placement Interviews or Final Interviews, Guesstimates play an important part in any consulting or analytics interview. It gives the panellist a peek in your problem solving and thinking abilities. The focus is more on the approach than getting the answer right. So, what is Guesstimate? As the name suggests, it's an estimate based on a mixture of guesswork and calculation.
The process of problem-solving is fairly simple. Look at the parameters that might affect the given problem and arrive at the estimated quantity. An example could be finding the number of red lights in Delhi.
If you are starting from scratch, don’t worry this article has got you covered.
Before we begin, it is important to set out the Guiding pathways on how to approach them, as stated:
1. Understand the question (Clarify) – Try and extract the exact information from the interviewer on what he wants you to calculate. In the previous example, for all you know, the interviewer might be interested in finding out the total number of red light bulbs in Delhi. Hence, it is imperative to be on the same page as the interviewer. Always ask first before you attempt any guesstimate.
2. Devise a Logical Approach (Structure) – There is no foolproof way to approach a guesstimate. You can solve a guesstimate using several approaches – top-down, bottom-up, process mapping, layout centric, or critical comparison. The trick here is to go with the approach that helps you minimize your assumptions, a simple rule of thumb while you approach guesstimates.
3. Decide which Approach to take (Analyze) – Once you have devised the approaches, it is time to decide which approach you want to use. Ideally, think of 2-3 steps ahead of you in the approach you decide to use and see how it works.
4. Put the numbers and the assumptions (Conclude) – This is the final and the trickiest step. Once you get this right, you have cracked the guesstimate. However, once you practice enough, you develop a knack for solving it.
Let us now look at the various filters that we could apply to breakdown our problem in a systematic fashion:
Filters to zero in on the exact Customer Segment:
- Rural-Urban (Geography-wise)
- Gender Split
- Age Split
- Income Split
For Example: How much sunflower oil is used in India in one year?
Here, a good idea would be to use Geographic wise filter, as the consumption of sunflower oil is largely dependent on the region.
Typically, we can break the region into 4 categories:
Each of these regions can be further broken down into Tier I, II, III & IV regions. Now, we can use this filter and proceed further by making logical assumptions backed by past experience.
Note that whatever, you have calculated for one region can be used for other regions by using a suitable multiplying factor.
Strategies to solve a Guesstimate:
There are various strategies to solve a guesstimate. Let us look at a few common ones:
1. Pareto Principle (80:20 Rule): The idea behind this strategy is to split what we are calculating in terms of majority and minority. The basic idea is to calculate the major portion first, sideline the minority, and compute it later.
2. Process Mapping: It is about deciding whether to use the push or pull approach. The same problem can be approached from consumption and production side
For Example: Find the amount of chocolate used in India in a day.
We can have 2 approaches for the same.
Consumption side: Estimating the number of end consumers (to avoid double-counting) and the units consumed by each consumer.
Production side: Estimating the amount of cocoa produced, chocolate factories in a city and extrapolating it by appropriating the share based on the population of the country.
3. Data-centric Approach: Appropriating the right numbers in the structure when it is ready. To find numbers of an unknown category; you could assume a safe figure by considering a similar category.
4. Layout and then fill the numbers: Prepare a comprehensive exhaustive layout for the guesstimate and then start filling in the numbers.
5. MECE (Mutually Exclusive and Collectively Exhaustive): Ensure that the buckets do not overlap with each other and are comprehensive when taken together.
Types of Guesstimates based on Approach to the Solution:
1. Household Approach: The category let's say, Cars are bought as a household purchase and hence we calculate the number of cars as per the number of households.
2. Population Approach: Example: A category like a pen is bought for individual consumption and is based on the number of people. Hence, we proceed with the guesstimate about the number of people.
3. Structural Approach: Example: To find the number of airplanes landing in India in a single day, the bottleneck would be the runway as it controls the entire operation.
Elements of a Typical Solution:
Clarify the question statement, have no ambiguity
Ask preliminary questions – gather information but do not try to solve the case
Reiterate objective function – be precise
Take time to think
Give detailed operating system with a possible hypothesis
Proceed with a framework (give mini summaries), ask questions to gather data
Understand what is the current set up of the company
Provide conclusion and recommendations
Example: Guesstimate the number of cigarettes consumed in India in a month
A good starting point is to use the population of India i.e. 1.2 billion and segment it using the age filter as it is an important criterion and would help us breakdown the population into two broad categories.
Here are the key considerations we took to arrive at the figure:
(i) The use of geographic filter as the availability and consumption of cigarettes as a product category is different in the rural and urban areas. It is more prevalent in urban areas.
(ii) Typically, 70% of India is rural and 30% is urban. Hence, we used the multiplying factor of 0.3 and 0.7.
(iii) Typically, the male population consumes more cigarettes than the female population in both the rural and the urban landscape. This assumption is backed by our everyday observations.
(iv) Smoking is more prevalent among the older age and the bulk of the population starts smoking while they start working.
(v) Using these assumptions, we work out the average cigarettes consumed in a month and add them to find the total number of cigarettes.
The Clinching Parameters:
1. Structured Thinking: The importance of this point can’t be stressed enough – as this lays the edifice for solving a guesstimate. This is a trait, which is appreciated by the interviewer.
2. Sharp Communication: Remember the 3V’s – Voice, Veracity, and Vocabulary. These traits come into play while you present your solution to the interviewer.
3. Smart Creativity: Build your own stories for making small assumptions, but be logical.
With all the aforementioned things in place, you are now Guesstimate ready for your interviews.
All the best!
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