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Anonymous A
on Feb 28, 2021
Global
I want to receive updates regarding this question via email.

Determining Whether a Venture is Worthwhile

Outside break-even analysis, what else shoud I consider to determine whether a venture is worthwhile? 

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Top answer
Ian
Coach
on Feb 28, 2021
Top US BCG / MBB Coach - 5,000 sessions |Tech, Platinion, Big 4 | 9/9 personal interviews passed | 95% candidate success

Breakeven is not the best way to determine this...

NPV is because it take into account Cost of Equity/Capital, Hurdle Rates, etc. etc.

Take a look here:;

https://www.preplounge.com/en/consulting-forum/net-present-value-9411

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Clara
Coach
on Mar 01, 2021
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello!

Breakeven is a bit simplistic, although in many cases the interviewer will directly indicate you in that direction. 

However, the right way would be NPV: 

  1. Calculate future cashflows, either year by year or at perpetuity
  2. Calculate NPV: bring to the present the value of the future money

Hope it helps!

Cheers, 

Clara

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Deleted user
on Feb 28, 2021

Hey, can you define what you are referrring to as "venture" please..market entry? Acquisition? Investment decision?

Broadly speaking, there should be an uplift/improvement in the following areas:

  • Customer Experience
  • Channel mix
  • Revenue
  • Cost Reduction
  • Employee satisfaction
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Luca
Coach
on Feb 28, 2021
BCG |NASA | SDA Bocconi & Cattolica partner | GMAT expert 780/800 score | 200+ students coached

Hello,

The most common KPI used in business case is NPV. Another interesting index could be the ROI but it's not very common.

Anyway, interviewer will usually suggest you what to use in order to evaluate the investment when you will ask about the client's target.

Best,
Luca

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Ken
Coach
on Feb 28, 2021
Ex-McKinsey final round interviewer | Executive Coach

I would classify this as a market entry case. In addition to the economics/financial returns (e.g., break-even), I would look broadly at whether the market is attractive (e.g., market dynamics, competitive landscape, customer preferences, etc.) as well as feasibility/path to execution/risks.

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Break-Even Analysis
The break-even analysis helps you find the point at which a company’s total revenue equals its total costs. This analysis allows you to determine the number of product units that need to be sold to reach profitability, given the product’s price and costs.🔎 In this article, we’ll show you how to tackle the break-even analysis in a case interview. Enjoy reading! What is Break-Even Analysis?A break-even analysis is crucial for assessing a company’s profitability. It illustrates the relationship between profit, revenue, and costs, helping to calculate the break-even point (BEP). It's essential to understand the concept of fixed and variable costs.👉 Make sure to check out our article on fixed and variable costs!The formula for calculating the break-even point is:When fixed costs are greater than zero, it’s critical to have a positive contribution margin per unit (i.e., the price must be higher than variable costs) to reach a break-even point. 
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