What are some typical ways to interpret the math result you get from calculations? 1. Compare to historicals if you have it 2. Propose comparing to benchmarks or industry averages..what else could you say? Someone suggested saying you will stress test assumptions (for eg if you assume profit margin remains the same)..do You need to give multiple interpretations or as long as you give one interpretation it’s fine?
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Most importantly: does the number make sense? Is that what you would expect? And does it have an implication or insight to your specific goal?
Regarding comparisons, there are many options beyonf what you mentioned. You can try to take the overall number, divide it again by population/number of clients and then try to compare it to similar goods or things that you would expect to be in the same order of magnitude. You can compare it to other macro references (e.g. GDP, average salary, etc.).
Lastly, you can ask: if x is true (being x the number you estimated) then the logical implications would be y. Are those implications reasonable/believable or not?
Hi there,
It really depends here.
For a lot of calculations you just need to intrinsically know.
A breakeven should be in the single digits, and ROI should be in the double-digits, etc. etc.
Apart from that, yes, you need to compare/contextualize. That can be across the company (the company as a whole, other products, etc.) or to competition, to name a few.
Hi there,
This is indeed an interesting question which is probably relevant for quite a lot of users, so I am happy to provide my perspective on it:
- First of all, this obviously does not solely apply to McKinsey but all companies and case studies you are conducting.
- Generally speaking, it really depends on what information you are provided with and most of the times, you will know intuitively how to put the results into context. From my perspective, there are 3 ways to put it into context:
- Internally, comparing to historical figures (e.g. the cost ratio of a specific costs type compared to the past)
- Internally, comparing to current figures (e.g. the revenue uplift of a single initiative on the company-wide revenues)
- Externally, both compared to a single competitor or industry averages
In case you want a more detailed discussion on how to best approach quantitative questions, please feel free to contact me directly.
I hope this helps,
Hagen
Hey there,
The interpretation of the number depends mostly on the question(s) asked.
Potential ways to interpret could bet:
- Relate to the (dual) goals of the case
- Discuss assumptions made when setting up the logic
- Discuss if the result seems feasible and sensible, and if not, what conditions should change that it could become feasible
- Compare to the total or averages (e.g., of revenue or cost)
- …
There are no right or wrong answers here, as long as your argumentation makes sense and is well communicated!
Cheers,
Florian
Hello,
Contextualizing the result is important, and there are many ways of doing this. The ones you pointed out are fine. The most important thing is that you make some takeaway that is related to your case objective - does this result help you achieve the goal? Is it far below/above what you need or expect? In other words, the interpretation should be a “so what” for the case, not just an interesting observation.
It depends.
It depends on what are you trying to solve for?
Here is a laundry list (some you already listed out):
- Does it make sense? e.g. Is your client's annual sales more than the GDP of US? This comes from experience, industry understanding, etc. Your verdict doesn't need to be factually correct, it just needs to show your sensibility.
- How does it compare to the real deal? Here you recommend looking at benchmarks, competitors, historicals etc.
- How does it move about? If you are calculating profit - you can think about how much sales would be required for a breakeven only. Or how much the profit would change with a +/- 10% change in sales etc.
If you are working on solving a profit problem, your comments should revolve around how your calculation impacts profit. If you are solving sales volume - then it needs to revolve around that. and so on.
Happy to work with you on figuring out where you are hitting a block.
Hi!
Especially for market sizing, it's important to sanity-check your results, e.g. compare the result to the average expense for product X (e.g. luxury ties) in a specific market (e.g. Italy) and see if it makes sense.
Hope this helps.
Best,
Anto
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