Cookie and Privacy Settings

This website uses cookies to enable essential functions like the user login and sessions. We also use cookies and third-party tools to improve your surfing experience on preplounge.com. You can choose to activate only essential cookies or all cookies. You can always change your preference in the cookie and privacy settings. This link can also be found in the footer of the site. If you need more information, please visit our privacy policy.

Data processing in the USA: By clicking on "I accept", you also consent, in accordance with article 49 paragraph 1 sentence 1 lit. GDPR, to your data being processed in the USA (by Google LLC, Facebook Inc., LinkedIn Inc., Stripe, Paypal).

Manage settings individually I accept
expert
Expert with best answer

Luca

100% Recommendation Rate

44 Meetings

2,566 Q&A Upvotes

USD 189 / Coaching

6

How to proxy "sensitivity analyses" in a 45-minute case scenario?

Good morning PrepLounge community,

My case partner warned me about not considering 'sensitivity analyses' at the end of my Business Plan, in a recent case. It's hard to actually make a sensitivity analysis without a computer, but it makes sense to at least suggest some points of analysis.

My doubt is: what is a potential answer to a "sensitivity analysis" question that must be (of course) back-of-the-envelope?

Potential answer example:

I'd like to investigate two areas:

A. Thresholds/Boundaries
A1. Price threshold
Understanding the P* or the Contribution Margin* at which the NPV of my investment is = 0
--> This gives me a sense of the lowest price/CM possible to make my NPV still not negative
A2. Demand threshold (similarly for Q)
A3. Market share threshold (similarly for Mkt %)
A4. Cost threshold (similarly for Costs)

B. Volatility/Standard Deviation
A1. Price volatility
Understanding the standard deviation of P/MC
--> This can help me calculate a how many standard deviations I can 'accept' in P
A2. Demand volatility (similarly for Q)
A3. Market share volatility (similarly for Mkt %)
A4. Cost volatility (similarly for Costs)

Would this make sense? Any other aspects I should consider?

Thank you in advance!

TJ

Good morning PrepLounge community,

My case partner warned me about not considering 'sensitivity analyses' at the end of my Business Plan, in a recent case. It's hard to actually make a sensitivity analysis without a computer, but it makes sense to at least suggest some points of analysis.

My doubt is: what is a potential answer to a "sensitivity analysis" question that must be (of course) back-of-the-envelope?

Potential answer example:

I'd like to investigate two areas:

A. Thresholds/Boundaries
A1. Price threshold
Understanding the P* or the Contribution Margin* at which the NPV of my investment is = 0
--> This gives me a sense of the lowest price/CM possible to make my NPV still not negative
A2. Demand threshold (similarly for Q)
A3. Market share threshold (similarly for Mkt %)
A4. Cost threshold (similarly for Costs)

B. Volatility/Standard Deviation
A1. Price volatility
Understanding the standard deviation of P/MC
--> This can help me calculate a how many standard deviations I can 'accept' in P
A2. Demand volatility (similarly for Q)
A3. Market share volatility (similarly for Mkt %)
A4. Cost volatility (similarly for Costs)

Would this make sense? Any other aspects I should consider?

Thank you in advance!

TJ

6 answers

  • Upvotes
  • Date ascending
  • Date descending
Best Answer
Book a coaching with Luca

100% Recommendation Rate

44 Meetings

2,566 Q&A Upvotes

USD 189 / Coaching

Hello,

You are right, a sensitive analysis could be the right solution to most of pricing cases. On the other hand, you have to be able to give and answer without using a laptop and there are other strategies that can give you an 80/20 solution:

  1. Cost based - Starting from the production and distribution cost, taht is usually the lower limit of your price range
  2. Revenue based - Starting from the revenues targets that you could have, considering also the customers willingness to pay
  3. Competition based - Starting from the analysis of the competitive landscape, analysing the actual market price and the potential competitive response

The final strategy can be a mix of the mentioned, don't forget the price differentiation strategy that can be important in many cases.
Before rushing into numbers, you can also ask the interviewer if you have any data or exhibit regarding the price elasticity of the market, that would be something similar to your initial approach. At the end of the case, you could mention as "next step" the possibility to run a proper "sensitivity analyses".

Hope it helps,
Luca

Hello,

You are right, a sensitive analysis could be the right solution to most of pricing cases. On the other hand, you have to be able to give and answer without using a laptop and there are other strategies that can give you an 80/20 solution:

  1. Cost based - Starting from the production and distribution cost, taht is usually the lower limit of your price range
  2. Revenue based - Starting from the revenues targets that you could have, considering also the customers willingness to pay
  3. Competition based - Starting from the analysis of the competitive landscape, analysing the actual market price and the potential competitive response

The final strategy can be a mix of the mentioned, don't forget the price differentiation strategy that can be important in many cases.
Before rushing into numbers, you can also ask the interviewer if you have any data or exhibit regarding the price elasticity of the market, that would be something similar to your initial approach. At the end of the case, you could mention as "next step" the possibility to run a proper "sensitivity analyses".

Hope it helps,
Luca

Book a coaching with Iman

100% Recommendation Rate

16 Meetings

1,501 Q&A Upvotes

USD 159 / Coaching

Hi, a sensitivity analysis is a reasonable questions to ask in a strategy case. However, I would avoid an approach that is too complex or hard to follow by the interviewer (remember he is also not on his laptop). Usually the goal of a sensitivity analysis is to test your logic and to some extent math skill (but usually simple math). So I would suggest the following:

  1. Develop an approach for the sensitivity analysis, e.g. Pick an assumption that matter the most for the company such as traffic for a port, govt. pricing for utilities
  2. As if for these driver the interviewer has an available data if they have they will give you and usually simple numbers
  3. Re-summarize your analysis with the new answer including the sensitivity

Hi, a sensitivity analysis is a reasonable questions to ask in a strategy case. However, I would avoid an approach that is too complex or hard to follow by the interviewer (remember he is also not on his laptop). Usually the goal of a sensitivity analysis is to test your logic and to some extent math skill (but usually simple math). So I would suggest the following:

  1. Develop an approach for the sensitivity analysis, e.g. Pick an assumption that matter the most for the company such as traffic for a port, govt. pricing for utilities
  2. As if for these driver the interviewer has an available data if they have they will give you and usually simple numbers
  3. Re-summarize your analysis with the new answer including the sensitivity
Book a coaching with Thomas

100% Recommendation Rate

22 Meetings

466 Q&A Upvotes

USD 149 / Coaching

Hi TJ, that is certainly a solid expert question. On the face of it, your structure makes sense but it is likely to be too complex and there is an increased danger of losing your interviewer in this process. On the flip side, if your interviewer is very skilled in sensitivity analysis he can easily confuse you and make you feel lost. In conclusion, sensitivity analysis is a high-risk area.

It should be kept in mind that when questions on sensitivity are asked, it is to test your business sense and not your math skills. Therefore, be sure to keep it simple and avoid talking about standard deviation, abbreviations, and math terms.

Again, the interviewer wants to see that you have a solid business understanding and that you understand what are flaws in your calculations/model. Therefore, as an initial step, your list is solid, but I would recommend it to limit it to price, demand, and cost. Then you want to probe your interviewer by hypothesizing which variable has the largest impact on your model for a specific case. Then give an example, but do not do any math on this unless clearly asked. Again, you want to show that you understand the conceptual impact, so be sure to mention how it can impact the conclusion.

Hi TJ, that is certainly a solid expert question. On the face of it, your structure makes sense but it is likely to be too complex and there is an increased danger of losing your interviewer in this process. On the flip side, if your interviewer is very skilled in sensitivity analysis he can easily confuse you and make you feel lost. In conclusion, sensitivity analysis is a high-risk area.

It should be kept in mind that when questions on sensitivity are asked, it is to test your business sense and not your math skills. Therefore, be sure to keep it simple and avoid talking about standard deviation, abbreviations, and math terms.

Again, the interviewer wants to see that you have a solid business understanding and that you understand what are flaws in your calculations/model. Therefore, as an initial step, your list is solid, but I would recommend it to limit it to price, demand, and cost. Then you want to probe your interviewer by hypothesizing which variable has the largest impact on your model for a specific case. Then give an example, but do not do any math on this unless clearly asked. Again, you want to show that you understand the conceptual impact, so be sure to mention how it can impact the conclusion.

Book a coaching with Emily

100% Recommendation Rate

48 Meetings

2,133 Q&A Upvotes

USD 189 / Coaching

Hi there,

In a real case project yes we would do sensitivity analysis as needed, in the models. However, in a case interview, I think it would be very rare that interviewer ask you to actually do sensitivity analysis, given its complexity.

Maybe worth to clarify with your case partner whether he/she is saying you should suggest/mention sensitivity analysis as one of the next steps, or does he/she actually wants you to do some calculation.

What would be more common is the interviewer would expect you to do some sanity check, i.e. putting your number into context and make a quick back-of-the-envelop assessment on whether your number is in the right ball park or not.

Best,

Emily

Hi there,

In a real case project yes we would do sensitivity analysis as needed, in the models. However, in a case interview, I think it would be very rare that interviewer ask you to actually do sensitivity analysis, given its complexity.

Maybe worth to clarify with your case partner whether he/she is saying you should suggest/mention sensitivity analysis as one of the next steps, or does he/she actually wants you to do some calculation.

What would be more common is the interviewer would expect you to do some sanity check, i.e. putting your number into context and make a quick back-of-the-envelop assessment on whether your number is in the right ball park or not.

Best,

Emily

Book a coaching with Francesco

100% Recommendation Rate

3,275 Meetings

11,918 Q&A Upvotes

USD 429 / Coaching

Hi there,

are you referring to a standard case interview? You won’t have to cover sensitivity analyses there, unless you want to put as possible areas in risks and next steps. As mentioned by Emily, what you may want to do is a sanity check of your analysis, in particular after a market sizing.

Best,

Francesco

Hi there,

are you referring to a standard case interview? You won’t have to cover sensitivity analyses there, unless you want to put as possible areas in risks and next steps. As mentioned by Emily, what you may want to do is a sanity check of your analysis, in particular after a market sizing.

Best,

Francesco

Book a coaching with Antonello

99% Recommendation Rate

142 Meetings

4,793 Q&A Upvotes

USD 219 / Coaching

Hi,
case preparation will be the classical one with 2 additional points to focus on:

  • 80-20 prioritization: quickly navigate an important amount of data to find what really matters to the case resolution;
  • Executive summary: develop 1-2 pages to present that sum-up the problem and your recommendations.

I have a couple of well done written cases, feel free to text me for sharing.

Hi,
case preparation will be the classical one with 2 additional points to focus on:

  • 80-20 prioritization: quickly navigate an important amount of data to find what really matters to the case resolution;
  • Executive summary: develop 1-2 pages to present that sum-up the problem and your recommendations.

I have a couple of well done written cases, feel free to text me for sharing.

Related BootCamp article(s)

Pricing

Pricing case studies can either stand alone or be a part of another case study. You can crack pricing Case Interview in three steps: Investigate the company; Investigate the product; Choose a pricing strategy

Related case(s)

zeb case: Quo vadis, customer?

Solved 57.3k times
zeb case: Quo vadis, customer? The bank "His Earlship Charles", a domestic retail and private bank is in a difficult situation. Profits have been declining over the past years due to the ongoing low interest rates set by the central bank. Additionally, the bank is suffering from a decreasing number of customers. The board of directors is worried about digitalization and wondering, whether the bank is adequately prepared for it. Please analyze the situation of the client and develop means to sustainably increase profits. Consider the worries expressed by the board of directors.
4.6 5 4442
| Rating: (4.6 / 5.0)

The bank "His Earlship Charles", a domestic retail and private bank is in a difficult situation. Profits have been declining over the past years due to the ongoing low interest rates set by the central bank. Additionally, the bank is suffering from a decreasing number of customers. The board of dire ... Open whole case

Volkswagen Consulting Case: Wo soll produziert werden?

Solved 3.7k times
Volkswagen Consulting Case: Wo soll produziert werden? Ihr Kunde ist in einem globalen Automobilkonzern dafür verantwortlich ein neues Produkt mit einem Volumen von 140.000 Fahrzeugen über den gesamten Produktionszeitraum auf den Markt zu bringen. Bedingt durch finanzielle Anspannung liegt ein besonderer Fokus auf den Kosten.
4.3 5 76
| Rating: (4.3 / 5.0)

Ihr Kunde ist in einem globalen Automobilkonzern dafür verantwortlich ein neues Produkt mit einem Volumen von 140.000 Fahrzeugen über den gesamten Produktionszeitraum auf den Markt zu bringen. Bedingt durch finanzielle Anspannung liegt ein besonderer Fokus auf den Kosten. Open whole case

Simon-Kucher Case: GST Cruise Company

Solved 2.7k times
Simon-Kucher Case: GST Cruise Company Cruise company German Sea Tours (GST) is a successful operator of international cruises. GST currently offers several cruise trips, lasting between 5 and 24 days. Additional services can be booked on board (e.g. excursions at each destination, onboard leisure activities). Customers tend to book their tickets several months in advance. GST has had a long history of revenue growth, but in the past five years, it showed lower growth rates. Board members are not sure whether the market, in general, saw lower growth or whether the problem is specific to GST. GST recognizes that winning new customers and stimulating existing customers to book their vacations with GST is crucial for future growth and therefore has always focused on keeping a close relationship with its (potential) cruise-trip bookers. GST’s chief commercial officer (CCO) Ms. Brown has hired Simon-Kucher & Partners to assess the market environment and competitive positioning for cruise ships and to conduct a subsequent evaluation of potential growth options.
4.5 5 56
| Rating: (4.5 / 5.0)

Cruise company German Sea Tours (GST) is a successful operator of international cruises. GST currently offers several cruise trips, lasting between 5 and 24 days. Additional services can be booked on board (e.g. excursions at each destination, onboard leisure activities). Customers tend to book thei ... Open whole case

Bank envelope

Solved 58.3k times
Bank envelope Your client, Customlope, is the leader in the US secure envelope manufacturing industry. Banks buy these envelopes for operations such as money deposits and high value transactions. Next year, a new digital technology will reduce the overall number of units sold in the industry by 25%. In the short term, our client wants to maintain his current profit level without investing in the new technology. How can you help him?
4.5 5 2411
| Rating: (4.5 / 5.0) |

Your client, Customlope, is the leader in the US secure envelope manufacturing industry. Banks buy these envelopes for operations such as money deposits and high value transactions. Next year, a new digital technology will reduce the overall number of units sold in the industry by 25%. In the shor ... Open whole case

Shaving & Co

Solved 41.1k times
Shaving & Co Our client is an international CPG (consumer packaged goods) firm called Bryan, with multiple business units                  (toothpaste, batteries, skin & body care, among others). They are the global market leader in every market they play in except for the hair removal market. They came to us asking how they can also become number one in this market. How can you help them out?
4.3 5 1735
| Rating: (4.3 / 5.0) |

Our client is an international CPG (consumer packaged goods) firm called Bryan, with multiple business units (toothpaste, batteries, skin & body care, among others). They are the global market leader in every market they play in except for the hair removal market. They came to us ... Open whole case