Comparing costs across companies without doing %

Question

If Company A's total cost is 20M and company B's total cost is 16M..and cost sub-component 1 in A is 4M while, cost sub-component 1 in B is 1.6M, is it fair to compare these costs and deduce that we need to find ways to lower the 4M, WITHOUT doing a % calculation (I.e 4M/20M , 20% of total cost vs 1.6M/16M, 10% of total cost)..since the total costs are pretty close (20M vs 16M) can we skip the % calculation here? Or would interviewers expect you to do that before making such a conclusion?

Answer 1

Hi there,

Yes and no.

First, General Advice: Generally, if you can eyeball something and point out that insight, do so prior to doing math! However, then suggest calculating the exact number "If that would be helpful/useful". As in, propose calculating the math and don't make the independent decision to skip it...let them guide you here as to whether it will prove to be useful later or not.

Second, Advice for this Scenario: Do that math! 4M/20M is 20%, 1.6M/16M is 10%. That is literally why we practice fast math! You should be able to eyeball this and say 20% and 10%...there's no need to drop everything and spend a minute doing it. In this specific scenario, eyeballing and doing the % calcualtion is one and the same...you're expected to be able to see these percents right off the bat.

Answer 2

% conversion always brings to the life your analysis/insight/recommendation. In this case, you must do the % conversion & compare apples to apples. Between A and B we would know what % of the total cost is the sub-component.

Generally you will never be penalised for doing such conversions but obvsiouly dont do it unncessarily.

Answer 3

Hi Anon,

This is all about thresholds and judgment.

In the particular example you give - the differences are huge.

The total costs of both companies are different from each other by 20-25%
For Company A - the cost component 1 is 20% of total cost (4M/20M) while for Company B - the cost component 1 is 10% of total cost (1.6M/16M). While this still leads to the fact that cost in Company A is "higher" - your target cost will be 10% of 20M which is 2M. By your approach - the target cost would have been 1.6M which is 8% of 20M (even lower)

If your example had 200M and 196M as the total costs (same 4M difference) - then the story would have been a lot different. The "relatively" smaller difference here would not have mattered and you could have simply taken 200M as the basis for calculating percentages.

Regardless - calculating the percentages does add value to the analysis and shows that you are thinking in the right direction of comparing apples to apples.

Hope this helps!

Agrim

Answer 4

Hi, I would avoid it only if you can see a relevant difference/insight without running calculations

Hope it helps,
Antonello

Answer 5

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