expert
Expert with best answer

Sidi

100% Recommendation Rate

323 Meetings

1,798 Q&A Upvotes

USD 319 / Coaching

Investment Decision Case

Anonymous A asked on May 01, 2019 - 2 answers

Hi all,

I recently had my second round at one of the MBB firms with Partners/Principals, including the group head for the practice I was interviewing for (this is a lateral hire from IB). One of the interviewers, who is also the recruiting director, was out sick that day, which is why we had to reschedule another round.

I received very good feedback, however I was told I need to tackle the cases in a more structured way.

According to the headhunter what will now happen in the next and final round is that I will have to solve the same case again (they want to see what "lessons learned" I took away).

Therefore, I would be very grateful for a good "framework" / structure to solve the below, very broad question: "Mr XYZ has inherited a significant amount of money and wants to invest in an ore mine in Australia. Should he do it?"

How would you approach this?

Many thanks all!

2 answers

  • Upvotes
  • Date ascending
  • Date descending
Best Answer
Sidi
Expert
updated his answer on May 02, 2019
McKinsey Engagement Manager & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 100+ candidates secure MBB offers
Book a coaching with Sidi

100% Recommendation Rate

323 Meetings

1,798 Q&A Upvotes

USD 319 / Coaching

Hi!

The first thing you need to understand is what the actual purpose of a case structure is.

Structuring a case does NOT mean to come up with a nice looking list of areas that you want to look into. This is not a structure - it is just a bucket list (albeit a structured one). A case structure is a LOGIC! It is the logic according to which you will answer the client's question, and the qualitative areas which you will explore are just a byproduct of that logic.

This is the big misunderstanding (or non-understanding) that has been planted into the minds of candidates since books like Case in Point or Case Interview Secrets have been published years ago.

So here is a rough outline on how to think about the above mentioned situation:

1. Always start with distilling the Core Question: "Should the client invest into purchasing the mentioned mine in Australia?"

2. Identify criterion to make this decision: The additional value we can create over the our investment horizon has to be significantly higher than the investment cost. Moreover, the required capabilties to deal with the mine need to be in place and the risks need to be manageable.

3. Map out the potential value bucket by means of a profitability tree: what are the levers of value here? Calculate profit that can be expected if the mine is purchased and run ad infinitum or sold at some point in the future; compare Scenario A (mine purchased) to Scenario B (money used for best alternative). For this, you use a classical driver tree which disaggregates profits into its sub-components (both revenue side and cost side), and then you add a couple of examples (don't try to come up with an exhaustive list!) in terms of qualitative elements that influence these numerical drivers (e.g., market demand, price development, capacity of the mine, costs of operation)

4. Derive annual value (delta between Scenario A and B). If the mine indeed generates annual profits, you then divide the purchasing price of the PTA plant by this additional yearly profit. This gives you the break even point (point in time after which the investment becomes profitable). If this point comes earlier than the investment horizon, then this is a beneficial investment and the client should proceed with the purchase (purely based on financials).

5. Don't forget to assess capabilties and compile potential risks and mention them in your summary

This kind of thinking is based on first principles, and not on a "framework mindset". The beauty about it is that at the core, this is transferable to ANY strategic decision situation where a client wonders whether he sould do XYZ. As a corollary, it is completely unnecessary to have different frameworks in mind for situations like direct investment, market entry, product launch, M&A etc. The core assessment that needs to be conducted is absolutely identical across all these situations.

The caveat here is just that it usually takes a little bit of time to properly internalize this - but once it becomes second nature, navigating through a case becomes quite easy because you have a robust way of thinking that "automatically" creates the roadmap towards the solution.

Cheers, Sidi

(edited)

Vlad
Expert
replied on May 01, 2019
McKinsey / Accenture / Got all BIG3 offers / More than 300 real MBB cases / Harvard Business School
Book a coaching with Vlad

98% Recommendation Rate

356 Meetings

5,116 Q&A Upvotes

USD 229 / Coaching

Hi,

At the beginning of the case, I would ask the clarifying question: Why is he thinking about this investment now. What is the objective and the criteria for success?

Then I'd look at:

Industry

  • Size
  • Growth rates
  • Profitability
  • Segments and growth rates
  • Regulation

Competition

  • Market shares of competitors and their segments (see the next point) and growth
  • Concentration / fragmentation (Fragmented market with lots of small players is less mature and easier to enter from a scratch. Concentrated market is hard to enter but has potential acquisition targets)
  • Unit economics of the players (Margins, relative cost position)
  • Key capabilities of the players (e.g. suppliers, assets, IP, etc)

Company

  • Revenues and growth rates
  • Profits
  • Unit economics (Margins, costs) on each product
  • Key capabilities (IP, products, etc)

Returns

  • ROI / NPV if that's the objective
  • Exit time / multiple if the objective objetive
  • Existence of buyers
  • Risks

Best!

Thanks Vlad, this is very helpful (and much more structured what I did in the last round haha). Can I just ask one follow-up: would you go through these points in the above order? Or not too relevant which one you approach first? Many thanks again — Julian on May 01, 2019