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Annual Savings calculation?

MBB - Sky China
New answer on Feb 29, 2024
2 Answers
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Anonymous A asked on Feb 28, 2024

Hi,

How are the annual savings in this case calculated? I am not understanding how to do it

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Ian
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replied on Feb 28, 2024
#1 BCG coach | MBB | Tier 2 | Digital, Tech, Platinion | 100% personal success rate (8/8) | 95% candidate success rate

Hi there,

Thanks for the question on my case :)

Basically, there are 2 cost reduction types: Short-term/Immediate and Long-Term/continuous.

Short term cost reductions can be measured in just 1 year (so, multiply the annual expense by the reduction).

Long-term costs are considered perpetuity so should have an NPV calculation (cost saving divided by discount round), with a discount rate of 10%

Remember the listed costs are monthly so you need to multiple by 12.

The important thing here is the simplification. Like with most cases, the math isn't as thorough as what we would do in real life, but for the purposes of a 20 min case we simplify.

Hope this helps!

 

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Cristian
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replied on Feb 29, 2024
#1 rated MBB & McKinsey Coach
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Ian gave the best answer

Ian

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