Consulting mock case interview: ROI evaluation (w/ ex-McKinsey Engagement Manager)

good morning sebastiano good morning andrea so um we are a little bit short on time so if it's okay for you we'll start directly with the case that works for me thanks okay so basically our client is the director of abu dhabi airport and they would like to build a train that connects the airport directly to the city and we know that the capex for this type of construction is 1.4 billion dollars and we know that the government is going to subsidize 40 of these capex if and only if we can demonstrate that there is going to be a 15 return on investment on the rest the 60 so our clients want to know is this possible yes or no okay thank you so just to see if i captured correctly all the the the numbers uh we are we will be working for the director of abu dhabi airport which is evaluating a project to to let's say to build an air uh train from the airport to the city of abu dhabi and the cap the forecasted capex for this project is 1.4 billion and the government is willing to subsidize 40 if the project can show an roi higher than 15 on the remaining part exactly okay okay and i just to to understand um i i assume that there is no train as far as i know there is no train at the moment in abu dhabi airport that is correct there is no train that connects the airport to the city great so i'll assume that at the moment there's only probably taxi public transport and private transport and is the train going to serve only this specific route or is it going to be a longer line and this is going to be just a chunk of the longer line for now we consider it just going point by point so it's actually super quick city airport airport city okay okay and just to to better understand that is there any other objective that the client doesn't mind together with this train or no they just want to know can we achieve 50 ri on 60 of the capex yes or no okay okay so just to to align here i think this is my last question statement is pretty clear um in given the ro the waves formulated the roi i would like calculate this as the profit minus the capex that we will spend over divided all divided by the the capital that we will spend the client agrees with this definition absolutely that that is the way that is the way we we could look at it absolutely okay then uh may i take just a couple of minutes to to to align my thoughts please do thank you so as you saw the candidate did the first part of the case pretty well here so he did a recap so he restated the prompt of the interviewer he asked for clarifying questions so try to understand the situation better what is the scope you don't want to give the right answer to the wrong question and now he's starting the structure really important the structure has to be messy and he has to be between you know 90 seconds you know something around the 1 minute and 30 seconds that is the time you want to have to do your structure and freeze okay so uh just to the way i the way i would start looking at this is by let's say analyzing what elements are needed for us to proceed and in particular i'm not sure with my camera you can see my structure probably not very well but the idea is i would look starting from the roi which is our main target i would then look into costs and profit which is the two building blocks of our problems then for the cost we will need mostly the life of the investment and the and the the investment itself which we have and for the profit side we will need revenues and costs and in particular for the revenues we might need to understand mostly the number of people are going to take the train the price of the tickets and all the other revenue stream which might be fine subscription or maybe bar maybe some other subsidies from advertisement and so on and from the cost perspective we might also have elements such as maintenance and labor cost and depending on the structure of the company other elements that might be related to maybe i.t and other other functions i like it given the structure and the type of industry i would assume a life that is at least 20 years like something around maybe 20 to 30 because it's a big that is the time of the investment around 20 years okay good so i will let's assume 20 years we have the capex already and in terms of um of revenues so we will probably later go into the price i think the first the key element here is understanding really how many people would be interested in taking this plane so the volume of customers and the revenue stream so most likely biggest revenue stream i think would be from the ticket price absolutely okay there could be some minor one you know food beverage but let's consider tickets yeah okay okay then uh do we have an estimate of the maybe a number of the number of people that are interested in taking the train otherwise we can start looking at the some to some data maybe internal data or external data for related to the passengers that the airport serves every the volume of traffic they're here okay uh of course we don't have the data because otherwise the case would be so easy but let's put it this way if you were at the airport and sitting there you could see that there are two uh routes so the plane can take off or or um arrive on two different uh routes and basically every five minutes there's going to be a plane that you know lands or take off so two independent routes each for either taking off or landing and every five minutes there is one plane you could actually see one plane where would you go from here okay um so from this i i would start estimate the number of planes that we that that can land every time and or can take off so you can start estimating the number of planes which would mean 12 12 flight per hour per truck and so 24 flights um which will mean in 24 hours 500 and sets 576 176 flights per per day uh however this in the ipod is that everything is constant which the probably some peak hours i mean i know abu dhabi is an international airport but it we might want to consider maybe some capacity reduction during the night and so on this would be the first building blocks and the second would be knowing the type of planes and the passenger planes because i given the ammo rates we might have also cargo planes and then i would divide into international flights and maybe regional flights let's say big and small plane that's the idea and maybe some private jets so i i like this approach let's consider 90 percent of the 576 like a good number and given that number we can look just at local or international so let's not consider the one that you said cargo private and let me tell you that 80 percent is actually international flights and 20 is actually local flights uh international flights have uh double of the capacity of a local flight and a local flight has 150 seats on average okay okay now uh from my previous background in in this topic i remember that the capacitization is very very high typically for airplanes and if i'm not mistaken it was like far above 80 percent in pre-copy times so um first of all if we have any data here or about the capacity otherwise we can assume even even a hundred percent maybe yeah let's consider a scenario poscavit because otherwise it's going to be too difficult we're in 2022 pandemic is over let's consider 100 capacity utilization okay so good that thanks for that that was also one of my my question about the covet recovery and so given these type of planes uh we know so we have 576 flights at 90 percent it will mean um five five hundred and eighteen uh flights per day and so these will each flight will have so 300 passenger for international and 150 for the local now we know that 20 of flights are local so i will calculate the average number of passenger per plane which is basically the weighted average between the two so it's um 240 for the international plus 30 for the local is 270 passenger per plane which will mean we're gonna have 518 into 270. um good so we're gonna have let me just run these numbers 130 under almost 140 000 passengers if you can round up the number a little bit one month yes we can consider 140 000. okay so it's 140 000 [Music] passengers per day yes okay so these are this is the overall passenger traffic let's say uh i the the i'm assuming that these numbers do not include like cabin crew and pilot which can be also a smaller percentage of the negligible plane good so uh given this number now i would assume what types of transportation you're having so some people will probably take the cap some people will take the bus and others might be interested in taking the plane i mean assuming we are in steady state already the people know about the train and so on so do we have a current estimate or maybe how many people are taking the cap at the moment yes so that is a really good point we know that 30 of this number actually takes the cap and the rest partially will take the train and partially you know we'll go with relatives of friends that will pick them out so how would you go from here okay so well we know a little 30 percent is taking the cap at the moment let's assume that the percentage might stay might stay the same right so we're talking here 30 42 000 passenger a day on the cab yes and then the rest which is like approaching my hundred thousand to be split between private and trained now um for the private so that could be we could either run a survey here or look into similar airports to understand what what are the options those are two viable options uh otherwise i mean those would be my preferred one otherwise we might look maybe into the current capacity as we did for before looking at the tracks you might look at the current capacity of the airport in terms of maybe parking area they might have run some estimate too yeah however i would i would rather go with the first one if we have any data from us let's uh let's say again that you you are in the airport and you look at the parking spot and you see that there is the capacity for 1 000 1000 cars so 1000 spots and a car can stay in the parking slot 20 minutes maximum and the it is usually at 90 percent utilization the the the parking spot right sorry i understand the percentage how much do you say 90 utilization of the product is very high uh all right so um here i would assume so so we have basically a thousand cars in 20 minutes means uh they can stay only 20 minutes so let's assume that most of these people are gonna pick up passengers and not just colleagues or gone there for work yes and then given this assumption we will have approximately 3 000 cars per hour into 90 percent which is 2700 vehicle per hour and so these will some of the people might carry more than one passenger so these numbers might be higher do we have any estimate let's consider you know roughly 1.1 you know let's consider let's be close well then it's going to be back to the 3 000 people per per hour more or less which will mean approximately in a day sorry let me run these numbers it's going to be 72 [Music] 72 72 000 people per day right correct that will be picked up by relatives yes so what is the rest yeah so we said 42 000 for the cab approximately 72 000 here for the for the for the private vehicle so for the train i mean given that we are approximated a bit the number so we we're going to have uh give me one second approximately 20 26 000 passenger a day for the train approximating a bit the number so sorry i didn't hear the number uh 26 000 passenger a day yeah almost yeah that is correct okay i don't know if you have uh because i approximate the number i can run the precise calculation if you want no no it's fine it's it's uh it's fine so uh 26 000 people per day taking the train where we go from here okay so we have 26 000 people now given going back to my structure uh we did assuming that this is the main revenue stream we need to understand the ticket price now for the ticket price um the well we can again either look at benchmarks or run a survey but the way i would probably do it is by analyzing like thinking about the consumer he he or she can either take the train or take the cap so the train has to be more advantageous than the cap in terms of price since we can easily know the price of cabs uh then we can we know that the range of the the train is going to be somewhere in like in some some somehow lower than this and so they can i remember when the cam price from the airport to abu dhabi is 20 dollars okay so i would assume a price that is like maybe around giving also my knowledge in italy is like 15 euros so i would assume here is around 15 right let's go with something okay good so 15 now we have 15 dollars into 26 000 let me just run this number so this is this is 390 000 a day thousand dollars a day okay so now this is we need we need to do now we need some information about to going again back to my structure we need we have the life we need to calculate we need some yearly cost if we have any cost items to to calculate the roi i mean otherwise let's say that the opecs are around 19 million per year okay so if that's the opex we include all the items that we can think of or is can i assume this is the full opex that we need it does not include depreciation okay okay okay uh which is which actually helps us because in the roi we will have to take off the capex so uh what i need to calculate now is the yearly profit we have the numbers on a daily basis and then i just need to convert this on a yearly basis and around the month just allow me some time to run the numbers so this should be approximately [Music] 142 142 million dollar a year in terms of revenue and now we we said we have 90 million dollar of opex assuming that this number stays the same for 20 years let's say for a 20 years life it's actually it's a very quite profitable business to be real uh so this will mean uh 42 so 52 million dollar a year into 20 and so this will be one it's 100 like 140 million which is like 140 million so it's 114 is the overall profit in 20 years we will have to subtract 0.6 percent of the capex which was 1.4 so it's 840 million which will be approximately uh 200 million divided again what by what we have spent which is again 0.4 uh pattern 0.6 percent of the capex which is again 140 million so overall it's going to be the the roi is going to be 200 over 840 which is is above the the threshold that that that we had of for sure is about 15 so we are having i'll run this number it's gonna be something about 20 percent so if you need the exact number otherwise the project let's uh let's say that this is fine we you're going to meet him meet the ceo meet our client in one hour so what is our final recommendation there okay yes uh just can i take a minute to subscribe to the recommendation thanks please so this is the end of the second part of the case after the first part that we said before this is the second one the main part the one in which you actually run the case um sebastiano did the math correctly he went back to the structure he actually led the case so the interviewer this time just asked him question like okay where do we go from here and then to sebastiano the interviewee was able to um to go back to his structure and go along now starts the last part of the case that is the struct that is the recommendation the recommendation is a slide the final slide you're going to present to the ceo ask for a moment take a few seconds put your thoughts keep your answer and reply as if you were in front of the ceo of a company that is your client unfreeze so um for our for our clients we've we have analyzed the the roi of the project under the hypothesis of the government be willing to fund 60 percent of it if an roi over fifteen percent is shown uh we definitely recommend to proceed with the project because the according to our calculation the roi is 24 which is far above the minimum threshold the profit per year is going to be approximately 52 million dollars and as next step we would recommend to run some scenarios and sensitivity analysis to understand what are the most impacting parameters what are the biggest hypotheses and how can these eventually erode our profitability in particular some other post copied scenarios and sensitivities on the opex and ticket price okay thank you very much thank you so this is the end of the case i think sebastiano did a great job he absolutely crashed smashed the case he passed this is the proper way you do it consider always three times three phases of the case and run it my last uh my last words would be if you want to start to prepare for consulting be focused be ambitious and believe in yourself sebastiano would you like to add something thank you andrea no i think you expressed all the items and best of luck for your preparation bye guys see you on rocketblocks

Channel: rocketblocks

Views: 6,697

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Keywords: consulting interviews, case interview prep, consulting mock interview, bcg interview, bain interview, mckinsey interview

Id: H1ywJzM-o10

Length: 23min 1sec (1381 seconds)

Published: Tue May 18 2021