Consulting mock case interview: ROI evaluation (w/ ex-McKinsey Engagement Manager)
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- čas přidán 17. 05. 2021
- Here's a consulting case interview featuring a McKinsey Engagement Manager.
🎥 Should Abu Dhabi airport build a light rail to their city center? Watch Andrea Teja, ex-McKinsey Engagement Manager and RocketBlocks Expert coach, run Sebastiano through a consulting mock case interview focused on an investment decision.
The case hinges on whether or not the Abu Dhabi airport should move forward with an investment to build a light rail train from the airport to the city center to transport travelers back and forth. It's a fun, quant-heavy case and Sebastiano does a solid job handling all the numbers!
🚀 Prepping for case interviews? RocketBlocks has the best concepts, drills, and coaching to get you more consulting offers: www.rocketblocks.me?ROI-andrea
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Hey, the solution of the case missed the portion of airplane capacity taking interconnecting passengers.
As 80% of the flights are international and Abu Dhabi is a international hub, a considerable chunk would be interconnecting passengers.
As such, The number of passengers entering the Airport would be lower than 140K and number of passengers taking cab would be much less than 26K.
Wow genuinely amazing. Especially loved how he always circled back to his framework. There is obviously safety and certainty in sticking to a good framework and contextualizing it
Glad you liked it TG
Rreally well done case. Thanks for the video.
Thank you! This was really helpful.
Amazing video. Thank you so much! The structure makes sense to me but I wonder if I could short cut by calculating train capacity (number of people who fit in the train & number of train rides per day) first, which should already be given by the known CAPEX) and if the capacity can allow for a ROI above 15% then check if there are enough passengers to fill that train capacity in the second step. Train capacity could be a limitation factor to reach the ROI goal to be identified with less efforts in my humble opinion.
so well done
This is incredible!!😮
The end seems incorrect? My calculation got to the following: they make ~140M in revenue per year. You deduct 19M = 121M per year in profit from the train (let's assume there's no depreciation cost, but that would be 1.4bn/20 years). That means you're already short on 15% ROI requirement. The ROI requires 15% of the 60% of 1400M in capex. That would mean that they need to make an ROI of 15% on 840 = total of 966M. 966M - 840M = 126M. 126M > 121M.
I had the same trouble but i think I understand what they did. First of all, it sound like the number is 19M but it is actually 90M (you can confirm this by doing 142M-90M=52M that they talked about). Then you can do one of 2 things:
Multiply 52M*20years=1040M and then calculate ROI (1040M-840M)/840M= ~24%
Or
Divide 840/20=42M and then calculate ROI (52M-42M)/42M = ~24% (the same result)
Does this seem right to you?
The note at 19:15 doesn't make sense, 360*390K = 140M and change. He doesn't say 1040M? which would be 1bn.
what about passengers switching flights?
What a pro
Is this a typical case study for entry level, or is this for a more experienced hire?
Why is he asuming all passangers flying to AD are actually going to the city? what about connecting flights? Arent they the majority of flights of this airport connecting flights?
Hi Andrea, I wrote down some observations regarding the issue tree (plus a bonus point!), would like to know what you do think.
1. Why “Life” was placed on the lower branch of the tree? If we said that ROI is PROFIT - CAPEX, the lower branch should be just CAPEX, which is an upfront cost and no duration is involved;
2. Why going straight to revenues' drivers? Revenues could have been divided in P*Q, or even better, in this specific case “# of passengers” * “Avg. Ticket price”. Then he could have proceeded with explaining the drivers involved to calculate each number (e.g. total passenger is given by the "number of flight" * "avg # seats" * "occupation rate", then we need to take into account the % of people choosing the train, etc.);
3. Same apply to costs on the upper branch, which could have been divided in “Fixed costs” and “Variable costs”, this would have helped in finding more specific and hypothesis-driven drivers... was not necessary for this case?;
4. If I didn’t hear wrong, 90% of 567 is equal to 510.3, not 518. Is this an irrelevant error? Just curious
Many thanks sir
Giorgio
I fully agree with 1 & 2. for 3: variable costs in transport can be neglected since trains are scheduled independent of tickets bought usually, 4. should be 576 if I am not wrong
Why is there an assumption that all international flights passengers will be using one of the three ways to go to Abu Dhabi (Cab, Train or Relatives)? Wouldn't there be many passengers who are simply having a stop over at Abu Dhabi Airport, who will not go to the city at all, but will instead fly to their actual destination?
yes and not all people taking the train are passengers - I assume some are also relatives & friends who send travellers to the airport. More than 50% drop travellers of by car so i guess there is a fair share of friends and relatives also taking the train (maybe + 20-30% more train passengers)
Great video guys! Why was depreciation not taken into account? Thanks!
It is probably because depreciation is non cash expense.
Plus when they were solving this case the candidate just took Revenue - Operational Expenditure and called it good in terms of profit. They did not even consider taxes (so I am assuming perhaps this is a government affiliated project and maybe wont have taxes and if you do not have taxes then speaking strictly from a project finance perspective depreciation does not really matter for your OCF calculations (operating cashflows)).
Long story short depreciation is not a cashflow.
its in the capex already, otherwise you deduct it twice - I see where your question is coming from , the initial investment deducted as one time capex is usually matched as depreciation with revenues over the 20 years lifetime to conclude a P&L statement on a yearly basis. In the case above you deduct it one time instead per year
bro that 576 was fast....
Hi can you post the math solution to this
we calculated for the % of people from airport to city, should the revenue from other way journey (city - airport) also taken into consideration?
It was already, in that the people are taking off or setting down, so the input to the airport from the city would be commuters contained within that data point
I honestly don't understand this math shit. Excel and calculator were invented a while ago. Just give me my number and let me do the analysis. This is so frustrating.
It is what it is, practice lots you will he fine
Amen
ROI=Profit/Investment cost
I'm slightly confused here. The case is in the context of the people taking the train, so shouldnt we only be concerned with the planes flying in as these are the potential people being served by the train? so If one plane flys in our out every 5 mins and that 576 planes, don't we divide that by 2 to calculate the half of planes coming in, assuming its a one in one out pattern of flights?
secondly, 13:45. On the car park maths, its 90% utilization so it should be 2700 cars an hour x 24 hours in the day, which is 65,000 rounded. Not 72,000. Take that from his 100k round prior, its 35k people taking the train.
@@jakebest5601 I think the idea is that the train takes people to the city but also bring people from city to the airport. In terms of the 3000 people. It is assumed that some people pick up more than one person so it’s averaged at 1.1 people per car
Hi, is an MBA necessary in order to proceed in the career of a strategy consultant?
Nope
No, also no point unless its from a top school
how did he reach the 26,000 people taking the train per day?
In the initial part of solving this case, you had said that every 5 minutes, there is one plane either taking off or landing, i.e. every 5 minutes, you see one plane. Then it makes 12 planes/hour including both taking off and landing. Why was it multiplied by 2 to make it 24 planes/hour instead of 12 planes/hour?
good question. I think the interviewer mentioned there were 2 runways. So I guess that would explain where the x2 multiplication factor comes from
good catch, I second that. (nonetheless great video!)
why would the runways be relevant? you still see 1 plane per 5 mins, it should be 288 a day.
@@felixshr3096 yeahhhhhh .
i agree based on the way the interviewer phrased it, it implies 12 planes per hour and 288 planes per day. seems the interviewee made a mistake. weird they didn't clarify it.
Can we use a calculator or laptop during the case interview?
No
Can I ask a question about the calculation. Why did he multiply 576 flights by 90% if the interviewer said that utilization is at 100%?
I think it was something like 90% are passenger planes. 10% are cargo planes. And out of the 90% passenger planes, you have international and local. That's at least how I interpreted it. and that may be wrong
Well, I would agree he made an assumption without explaining it.
It was about it being 576 flights if everything was constant. But taking into account peak times and off times (at night) it was readjusted to 90% of theoretical full capacity.
No numbers, nothing. How much such consultant would charge?
It's like speaking to a friend over a beer and figuring it out on the way.
Again, maybe some industry related exp, maybe it's better to consult with a guy who worked in logistics, maybe even on a railroad. We should eliminate this guesswork.
this is just the interview, to test their reasoning. the actual work is done with the data and obviously worked out, not in 20 min for a 1.5b investment. Wake up
He did not approach the capacity of the train... taking in account that there are 26,000 per day that will take the train
He doesn't need to factor in the capacity of the train, as it hasn't been built or even designed yet (it is these types of calculations that will eventually inform what the final size and capacity of the train should be). The 26,000 passengers was calculated as the 'left-over' of the people who won't take the taxi or take private transport, so the total value must be used because it seems as if we aren't assuming that people will have layovers, and therefore not need to use any transport. This strangely assumes that 100% of the people who fly into Abu Dhabi are flying there as their final destination, which is far from the truth in reality. Furthermore, existing public transport methods (like buses) and shuttles (from hotels) were not mentioned either.
@@TauMatsau fully agree on the final destination part. Capex is given so we can assume cost calculation was based on technical specs including data to estimate capacity
The population of Abu Dhabi is 1.5 million, and you assumed that 26k people would take a train daily, resulting in more than 9m annually. Who are all these millions of people going into Abu Dhabi city? Does it attract that many tourists?
Just for the record in 2014 only, AD airport handled 24 million passengers.
@@pakipower The train in the case connects AD city with AD airport. I assume the lion share of these 24mm were in transit and didn't leave the airport?