Future profit calculation question

BCG Platinion: Oil & Gas Upstream Technology McKinsey Digital
New answer on Jan 11, 2022
4 Answers
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Anonymous A asked on Jan 10, 2022

After calculating the future cost after transferring all BAs and DVs to Australia. Why the profit calculation considered the benefit 80M (80% of business) although collocation of everyone to Australia will make the benefit 100% of business (100M) ?

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Luca
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replied on Jan 10, 2022
BCG |NASA | SDA Bocconi & Cattolica partner | GMAT expert 780/800 score | 200+ students coached

Hello there,

You should consider that “benefit of colocation” as a 10% boost of the revenues of that specific office, if IT sources will be placed in the same country.

Since the business size of Australia is 800M$, you have to consider that as baseline to calculate your “benefit of colocation”. 

Your choice is to put 100% of your IT sources in Australia, that does not mean that 100% of your business will come from australia too (in other words you will still have 200M$ from Indonesia).

I hope that now it's  more clear, otherwise I think that Ian will be happy to help you further

Best,
Luca

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Anonymous A on Jan 10, 2022

Yes it’s clear now. Thank you

Hagen
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replied on Jan 11, 2022
Bain Project Leader and interviewer for 7+ years | >95% success rate | mentor and coach for 6+ years

Hi there,

First of all, congratulations on reviewing your cases so thoroughly!

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:

  • I would advise you to consider that “benefit of colocation” as a 10% revenue increase of that specific office in case IT will be placed in the same country.
  • Moreover, since the business size of Australia is $800m, I would advise you to consider this business size as the baseline to calculate your “benefit of colocation”. 
  • Lastly, I would advise you to think about that even if your choice is to put 100% of your IT sources in Australia, that does not mean that 100% will come from Australia either (i.e. you will still gain $200m from Indonesian business).

In case you want a more detailed discussion on how to best approach quantitative questions during case interviews, please feel free to contact me directly.

I hope this helps,

Hagen

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Ian
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replied on Jan 10, 2022
MBB | 100% personal interview success rate (8/8) and 95% candidate success rate | Personalized interview prep

Well, it appears Luca knows my case well :P

He's exactly right. Customers don't change when we move support functions. 

Especially in today's world, location of operations/business doesn't “matter” to top-line revenues. Here, we're purely focused on better serving the business from whichever location is optimal!

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Clara
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replied on Jan 10, 2022
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

COuldn´t have said it any better than Luca!

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Luca gave the best answer

Luca

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BCG |NASA | SDA Bocconi & Cattolica partner | GMAT expert 780/800 score | 200+ students coached
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