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Calculating on an incremental basis

case math
New answer on Jul 13, 2021
3 Answers
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Anonymous A asked on Jul 13, 2021

I hear mixed opinions on this. Some say if you are calculating the change in profits (say revenues increased 20% and costs decreased 10%), it is better to calculate on an incremental basis (I.e find 20% revenues and then add 10% costs to get change in profits). But others say this might be hard to follow for a client and you may lose points for not being client friendly, so it's better to calculate old profit , then new profit and subtract the two to get the difference. That's easier to understand and follow when you communicate it. The example used here is simple but there may be calculations where there are multiple cost and revenue components that are changing. So is it better in general to avoid the incremental basis calculation (to avoid mistakes and be client friendly)

(edited)

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Francesco
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Content Creator
replied on Jul 13, 2021
#1 Coach for Sessions (4.000+) | 1.500+ 5-Star Reviews | Proven Success (➡ InterviewOffers.com) | Ex BCG | 10Y+ Coaching

Hi there,

In math questions there may be multiple ways to find an answer. If you follow a formula that is correct and not significantly more complex than the one the interviewer has in mind, you should be fine.

What many candidates do wrong is that they don’t explain the logic of the math before starting the computation. This is important because:

  1. Will give the chance to the interviewer to correct any logical mistake, if present
  2. Will give the chance to the interviewer to suggest a simpler approach

In conclusion, you can use any of the two methods you presented in your example. The important thing is that you align on the logic in advance, so that the interviewer has a chance to comment and possibly suggest a different approach.

Best,

Francesco

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Ian
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replied on Jul 13, 2021
#1 BCG coach | MBB | Tier 2 | Digital, Tech, Platinion | 100% personal success rate (8/8) | 95% candidate success rate

Hi there,

I believe this question has just been asked! (If I'm interpreting your question correctly).

https://www.preplounge.com/en/consulting-forum/calculating-on-a-per-unit-basis-or-total-basis-10836

It completely depends on the case!

The most important thing to understand before you calculate anything is why am I calculating this?

If you need profits on a per unit basis in order to understand how good x product or x company is compared to the other options, then calculate it on a per unit basis! If you only need total profits in order to evaluate an investment, get an NPV, etc., then do that! Some cases may need both, so you need to take the "long route".

Again, first figure out what you need to calculate and why. Then, take the most direct approach to that number.

In terms of whether an interviewer will let you go the "wrong way", it depends on both them and you. Fundamentally, you need to lay out your math beforehand. If you do this, most interviewers will autocorrect you. If you don't do this, it's more likely they will let you proceed without correcting you.

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Adi
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Content Creator
replied on Jul 13, 2021
Accenture, Deloitte | Precision Case Prep | Experienced Interviewer & Career Coach | 15 years professional experience

Completely agree with Francesco here.

Also, if I am the client I would like to know the % change from current baseline. So yes, establish the baseline and definitely do the % change calculations as its a powerful insight.

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