My view: Clarify the objectives and lay out the framework as you do nicely, but focus on the financials. You waste way too much time in the first 30% of the case - in the real world you will not have that much time.
Just a quick q! Why is the candidate directly using profit margin to calculate the profit from the additional customers but using the revenue-cost framework for the profit from the existing customers? Got a bit confused here
Good observation; both methods are acceptable. Doga must have chosen to use gross margin because the additional number of patients would not increase the fixed costs, only the variable costs. In these instances, we often refer to gross margin for ease of calculations. Whereas in the other scenario (revenues from pathology services), it's a totally new business, hence it makes sense to lay out in detail the entire cost structure. Hope that helps!
Would this be considered MECE if the points under the Risks bucket mirror a lot of the points under the Strategic Fit bucket i.e. adoption of new processes and customer demand? Would it not be better to instead split the first bucket into Capabilities and then Market (which would incorporate customers and competitors), so along with the Finance bucket gives you 3 buckets?
I agree that the candidate could've had a more MECE framework if he hadn't touched on the processes under the risks (as eventually, he proposed looking at similar things). We recommend having a risk bucket so that candidates can brainstorm ideas not yet covered in the first and second columns of the framework. It's also a good way to show the interviewer that you can and plan to look at some downsides/caveats as you find a solution to the client's problem. It's often difficult to mention risks embedded in the capabilities, market, and financial assessment columns. But in practice, as you move along the case, you can refer to risks here and there, based on your assessment. You don't always need to wait until the end of the case.
Good question. In this case, the candidate deducts CAPEX from the operating profit, not the net profit. But he could've been more clear with the definition of profit during the financial assessment. In terms of using ROI as a better measure: I'd say it depends on the client's initial financial objectives. In this case, they're looking for a $30M total profit. Hence, he didn't need to use the ROI formula. But if the client didn't state a quantifiable objective at the start, then as a candidate, you can certainly propose to use ROI!
They didn't use discounted cash flow in projecting the financials, is this accepted or even the expectation in case interviews? In addition, is it overkill to account for the % utilization of hospital facilities and personnel? They mentioned an additional 10k patients that would generate profits to justify the investment. On the other hand, the hospital must already have this slack to absorb the expected new demand and realize the additional profits. Otherwise, they would have a parallel investment on increasing hospital capacity.
Thanks for your questions! 1) DCF: In real-world scenarios, DCF is the best method to project financial feasibility. In case studies, working at the DCF level isn't that common; candidates mostly work at the operating profit level. However, as a candidate, you can propose working at the DCF level and see if the interviewer is open to it. 2) % utilization: You are absolutely correct. The candidate assumed that the hospital group has the capacity to serve additional cancer patients. This assumption could have been verified during the interview. It's not overkill; verifying such assumptions with the interviewer can earn you bonus points!
First, McKinsey gives all the info in the prompt, their prompts are giant … the only representative cases of the real interview are the cases on their website… he asked a lot of “clarifying” questions in the beginning that are not for clarification… clarifying questions should be brief to clarify a term, capture a missed number etc… not to uncover hidden information or start solving the case in the clarifying questions! The interviewer won’t let you go that far with the clarification questions! Second, this is definitely a vague structure and not tailored to the case… you cannot call hospital patients , customers! They are patients… competition is comparable hospitals and labs… I would Substitute risks with benefits to the patients and to the hospital and should add cost comparisons for in house vs out of house (using third party!) under financials …
curious, why didnt you discussed about the loss in income from existing third party pathology services? dont the hospital profit from this third party services as well?
Great point! I'm not sure if the interviewer mentioned it in the case, but we assumed that Pudong Hospital does not generate any revenue from their pathology referrals. Of course, the candidate should have clarified this.
the profit calculation assumes that profit factor remain the same over 5 years period.. what will be a good multiplier factor? Profit margin expected to increase or decrease YoY?
In a real-life scenario, the revenue and costs would increase at around the same rate, and margins would likely stay the same. In the actual case interview, it might be a good idea to check with the interviewer if we should keep price, quantity, and costs constant over the next 5 years. In most cases, for simplicity, you can keep them constant. However, if the interviewer pushes you to consider a different solution, you could run an NPV analysis for 5 years with a discount rate of 10% (which is the most common WACC rate).
Hi, hope you are doing well. I have a question. why do we add 10 K on 100K in the second part of calculation? we have already considered profit from this 10 K in the first part separetely.
Happy to elaborate! The candidate structured his analysis by revenue stream. In the first approach, he focused on the incremental profits generated by cancer treatment services. The client already serves 100K patients; however, thanks to a full-suite service, there will be an influx of an additional 10K patients. This is why he incorporated the figure of 10K in the first approach. In the second approach, the focus shifts to profits derived specifically from the new pathology services. He discovered that 110K patients would require this service, hence the inclusion of the 110K figure. In summary, the client is experiencing increased profits from two sources: a 10K-patient increase for cancer treatment and 110K patients for the pathology service. I hope this explanation is helpful!
@@james37959 An additional profit of $50M comes from cancer treatment and $95M from pathology services, hence $145M in total. However, due to the $100M initial investment cost, the NPV comes down to $45M.
Thank you for your reply, wouldn't the cancer patient treatment services just fall under the pathology services? As the cancer patients are using the pathology service If that makes sense. The additional cancer patients using the service would end up paying 1000k for both cancer treatments and the pathology service. Or are the cancer patient services and pathology services separate. @@Prepmatter
@@Prepmatter why is the $100M initial investment cost not included in the earlier cost calculation, when the $91M/year cost is calculated? as in, how does that $5M/hospital cost differ from the costs included in that other figure?
Thanks for a great video. My calculations are not matching the above and I am worried I am missing something. According to my calculations, the profit over 5 years is $425 million. Here is why: Fixed costs per year: (10 staff x $200k salary) + $1.5M software + $0.5M insurance = 4M/year Variable costs per year: 110k patients x $100 = $11M/year Thus, total cost per year = $15M/year Revenue per year: 110k patients x $1000 = $110M/year Therefore Profit per year = $110M - $15M = $95M PER YEAR Now, multiplying this profit over 5 years, (95 x 5), it is $475M over five years. Adding to this the uplift calculated at the beginning: $475M + $50M = $525M over five years. Subtracting the CAPEX from all hospitals: $525M - $100M = $425M net profit. Have I overlooked anything?
I just answered it myself lol! The fixed costs were listed per hospital however the variable costs were listed across all hospitals. I'll leave the corrected calculations below if it helps someone: Fixed costs per year across all hospitals: ((10 staff x $200k salary) + $1.5M software + $0.5M insurance) x 20 hospitals = $80M/year Variable costs per year across all hospitals: 110k patients x $100 = $11M/year Thus, total cost per year = $91M/year Revenue per year: 110k patients x $1000 = $110M/year Therefore Profit per year = $110M - $91M = $19M PER YEAR Now, multiplying this profit over 5 years, (19 x 5), it is $95M over five years. Adding to this the uplift calculated at the beginning: $95M + $50M = $145M over five years. Subtracting the CAPEX across all hospitals: $145M - $100M = $45M profit over 5 years.👍🏼
Doga, the interviewee, is actually performing the case live. Considering he is a former BCG consultant with four years of experience, it may feel as if he's walking through a script. However, he's just a good performer :)
If you are referring to Visha, the interviewer, she refers to the case study occasionally to provide data points, which is quite common in real-life case interviews. However, Doga, the interviewee, is performing the case live. His polished performance might give the impression of a script, but considering he is a former BCG consultant with 4 years of experience, it's expected that he would perform above the level of an average candidate.
Hi Ansh, it is indeed a live case interview. We've made several edits, such as adding feedback and framework visuals, to ensure that it's easy to follow.
I am an engineer working in chemical company, case study framework is really useful and adaptible to all kinds of jobs.
You can download the written version of the case for free here:
prepmatter.com/course/get-the-offer?lesson_uuid=67c440e9-ad0a-4c18-9082-2b84424ed51c
My view: Clarify the objectives and lay out the framework as you do nicely, but focus on the financials. You waste way too much time in the first 30% of the case - in the real world you will not have that much time.
Just a quick q! Why is the candidate directly using profit margin to calculate the profit from the additional customers but using the revenue-cost framework for the profit from the existing customers? Got a bit confused here
Good observation; both methods are acceptable. Doga must have chosen to use gross margin because the additional number of patients would not increase the fixed costs, only the variable costs. In these instances, we often refer to gross margin for ease of calculations. Whereas in the other scenario (revenues from pathology services), it's a totally new business, hence it makes sense to lay out in detail the entire cost structure. Hope that helps!
Would this be considered MECE if the points under the Risks bucket mirror a lot of the points under the Strategic Fit bucket i.e. adoption of new processes and customer demand? Would it not be better to instead split the first bucket into Capabilities and then Market (which would incorporate customers and competitors), so along with the Finance bucket gives you 3 buckets?
I agree that the candidate could've had a more MECE framework if he hadn't touched on the processes under the risks (as eventually, he proposed looking at similar things).
We recommend having a risk bucket so that candidates can brainstorm ideas not yet covered in the first and second columns of the framework. It's also a good way to show the interviewer that you can and plan to look at some downsides/caveats as you find a solution to the client's problem. It's often difficult to mention risks embedded in the capabilities, market, and financial assessment columns. But in practice, as you move along the case, you can refer to risks here and there, based on your assessment. You don't always need to wait until the end of the case.
I have one question, why are we deducting Capex from net profit? If we were to compare Capex to profit wouldn't ROI be a better measure?
Good question.
In this case, the candidate deducts CAPEX from the operating profit, not the net profit. But he could've been more clear with the definition of profit during the financial assessment.
In terms of using ROI as a better measure: I'd say it depends on the client's initial financial objectives. In this case, they're looking for a $30M total profit. Hence, he didn't need to use the ROI formula. But if the client didn't state a quantifiable objective at the start, then as a candidate, you can certainly propose to use ROI!
They didn't use discounted cash flow in projecting the financials, is this accepted or even the expectation in case interviews? In addition, is it overkill to account for the % utilization of hospital facilities and personnel? They mentioned an additional 10k patients that would generate profits to justify the investment. On the other hand, the hospital must already have this slack to absorb the expected new demand and realize the additional profits. Otherwise, they would have a parallel investment on increasing hospital capacity.
Thanks for your questions!
1) DCF: In real-world scenarios, DCF is the best method to project financial feasibility. In case studies, working at the DCF level isn't that common; candidates mostly work at the operating profit level. However, as a candidate, you can propose working at the DCF level and see if the interviewer is open to it.
2) % utilization: You are absolutely correct. The candidate assumed that the hospital group has the capacity to serve additional cancer patients. This assumption could have been verified during the interview. It's not overkill; verifying such assumptions with the interviewer can earn you bonus points!
First, McKinsey gives all the info in the prompt, their prompts are giant … the only representative cases of the real interview are the cases on their website… he asked a lot of “clarifying” questions in the beginning that are not for clarification… clarifying questions should be brief to clarify a term, capture a missed number etc… not to uncover hidden information or start solving the case in the clarifying questions! The interviewer won’t let you go that far with the clarification questions!
Second, this is definitely a vague structure and not tailored to the case… you cannot call hospital patients , customers! They are patients… competition is comparable hospitals and labs…
I would Substitute risks with benefits to the patients and to the hospital and should add cost comparisons for in house vs out of house (using third party!) under financials …
McKinsey casing is interviewer-led, the title tells you this is not McKinsey
super helpful thank you
curious, why didnt you discussed about the loss in income from existing third party pathology services? dont the hospital profit from this third party services as well?
Great point! I'm not sure if the interviewer mentioned it in the case, but we assumed that Pudong Hospital does not generate any revenue from their pathology referrals. Of course, the candidate should have clarified this.
the profit calculation assumes that profit factor remain the same over 5 years period.. what will be a good multiplier factor? Profit margin expected to increase or decrease YoY?
In a real-life scenario, the revenue and costs would increase at around the same rate, and margins would likely stay the same. In the actual case interview, it might be a good idea to check with the interviewer if we should keep price, quantity, and costs constant over the next 5 years. In most cases, for simplicity, you can keep them constant. However, if the interviewer pushes you to consider a different solution, you could run an NPV analysis for 5 years with a discount rate of 10% (which is the most common WACC rate).
What office is this interview for?
This is a mock case created by the Prepmatter team. It represents a typical case study asked by BCG and other consulting firms.
Hi, hope you are doing well. I have a question. why do we add 10 K on 100K in the second part of calculation? we have already considered profit from this 10 K in the first part separetely.
I also don't understand the calculation. Did you come to 95 million or 145 million?
Happy to elaborate! The candidate structured his analysis by revenue stream. In the first approach, he focused on the incremental profits generated by cancer treatment services. The client already serves 100K patients; however, thanks to a full-suite service, there will be an influx of an additional 10K patients. This is why he incorporated the figure of 10K in the first approach.
In the second approach, the focus shifts to profits derived specifically from the new pathology services. He discovered that 110K patients would require this service, hence the inclusion of the 110K figure.
In summary, the client is experiencing increased profits from two sources: a 10K-patient increase for cancer treatment and 110K patients for the pathology service. I hope this explanation is helpful!
@@james37959 An additional profit of $50M comes from cancer treatment and $95M from pathology services, hence $145M in total. However, due to the $100M initial investment cost, the NPV comes down to $45M.
Thank you for your reply, wouldn't the cancer patient treatment services just fall under the pathology services? As the cancer patients are using the pathology service If that makes sense. The additional cancer patients using the service would end up paying 1000k for both cancer treatments and the pathology service. Or are the cancer patient services and pathology services separate.
@@Prepmatter
@@Prepmatter why is the $100M initial investment cost not included in the earlier cost calculation, when the $91M/year cost is calculated? as in, how does that $5M/hospital cost differ from the costs included in that other figure?
Thanks for a great video. My calculations are not matching the above and I am worried I am missing something.
According to my calculations, the profit over 5 years is $425 million. Here is why:
Fixed costs per year: (10 staff x $200k salary) + $1.5M software + $0.5M insurance = 4M/year
Variable costs per year: 110k patients x $100 = $11M/year
Thus, total cost per year = $15M/year
Revenue per year: 110k patients x $1000 = $110M/year
Therefore Profit per year = $110M - $15M = $95M PER YEAR
Now, multiplying this profit over 5 years, (95 x 5), it is $475M over five years.
Adding to this the uplift calculated at the beginning: $475M + $50M = $525M over five years.
Subtracting the CAPEX from all hospitals: $525M - $100M = $425M net profit.
Have I overlooked anything?
I just answered it myself lol! The fixed costs were listed per hospital however the variable costs were listed across all hospitals. I'll leave the corrected calculations below if it helps someone:
Fixed costs per year across all hospitals: ((10 staff x $200k salary) + $1.5M software + $0.5M insurance) x 20 hospitals = $80M/year
Variable costs per year across all hospitals: 110k patients x $100 = $11M/year
Thus, total cost per year = $91M/year
Revenue per year: 110k patients x $1000 = $110M/year
Therefore Profit per year = $110M - $91M = $19M PER YEAR
Now, multiplying this profit over 5 years, (19 x 5), it is $95M over five years.
Adding to this the uplift calculated at the beginning: $95M + $50M = $145M over five years.
Subtracting the CAPEX across all hospitals: $145M - $100M = $45M profit over 5 years.👍🏼
honestly doesnt look to be a "live" case interview. Every question he asks leads to a new data ??
Doga, the interviewee, is actually performing the case live. Considering he is a former BCG consultant with four years of experience, it may feel as if he's walking through a script. However, he's just a good performer :)
what is her name? drop @
just reading from a script
If you are referring to Visha, the interviewer, she refers to the case study occasionally to provide data points, which is quite common in real-life case interviews. However, Doga, the interviewee, is performing the case live. His polished performance might give the impression of a script, but considering he is a former BCG consultant with 4 years of experience, it's expected that he would perform above the level of an average candidate.
@@Prepmatter in that case hats off to him :)
This is not live 😂😂
Hi Ansh, it is indeed a live case interview. We've made several edits, such as adding feedback and framework visuals, to ensure that it's easy to follow.