Question:

I am a military officer with upcoming interviews at both Bain and McKinsey and this helps a ton.

Going over the profit/loss framework I wondered something–what about # of units produced (as opposed to sold) in the cost side of the equation?

I mean, you have Revenue and Cost both broken down by # of units sold.  But doesnt that assume the company sells everything it produces?

What if revenue per unit went way up, cost/unit went way down, # of units sold stayed the same from past years, but this year the company decided to make 200% more of the product expecting an increased demand–but only sold its usual amount.

Wouldn't the cost incurred of producing the extra inventory weigh on the company's bottom line?  Or, am I just messing up basic accounting principles?

Is the cost of producing unsold merchandise or carrying large amounts of inventory not associated with profits in the traditional accounting sense?

Forgive me if my question is elementary–I am an engineer with no business experience.

My Reply:

You raise in insightful question… in the interview process, generally we simplify the process to assume the two are the same.

In real life, if we had a qualitative reason to believe production doesn't equal sales, then we would probably calculate those separately.

Financial accounting (what you need to show to wall street) counts costs for goods produced but not yet sold, as "inventory" which is technically an asset because it has some unrealized worth.

Managerial accounting – business operators, think in terms of cash. So they think more in terms of total production cost divided by units sold which encompasses the scenario you describe (even if the terminology is a little inaccurate).

If you had some reason to suggest a hypothesis that the scenario you describe is happening during a case interview, you would want to ditch the profit framework breakdown I've used in my handout and used a different type of break down such as

cost = overhead cost + total production cost

total production cost = produced and sold + produced but not sold

And do a break down that way instead.  My frameworks include common ways to segment numbers, but it is not dogma… you have to adapt as you go depending on the specifics of the case.

-Victor

First,I just want to say thanks for making this available.  I am a military officer with upcoming interviews at both Bain and McKinsey and this helps a ton.

Going over the profit/loss framework I wondered something–what about # of units produced (as opposed to sold) in the cost side of the equation?  I mean, you have Revenue and Cost both broken down by # of units sold.  But doesnt that assume the company sells everything it produces?  What if revenue per unit went way up, cost/unit went way down, # of units sold stayed the same from past years, but this year the company decided to make 200% more of the product expecting an increased demand–but only sold its usual amount.  Wouldnt the cost incurred of producing the extra inventory weigh on the company's bottom line?  Or, am I just messing up basic accounting principles?  Is the cost of producing unsold merchandise or carrying large amounts of inventory not associated with profits in the traditional accounting sense?

Forgive me if my question is elementary–I am an engineer with no business experience.

I'd be interested to know how international experience or language skills are perceived in management consulting in the US. It seems to me (I may be wrong…) that there are relatively more foreigners in banking. I don't know whether it's the difference in nature of the work that favors diverse backgrounds, or is it that banking appear more attractive to foreign talents.

My Reply:

Applying for jobs in consulting internationally is actually very tricky. First, it is important that you have language skills in the country in which you will be recruiting. So if you are looking to join the Tokyo office, you need Japanese language fluency. If applying to Madrid, you need to speak Spanish.

At McKinsey, I found my colleagues were very international in nature. I worked with Germans, Australians, Japanese, and more. However, all of them were transfers. So the German I worked with was hired in Germany, worked in Germany for 2 years before moving to New York.

If your educational and job experience background is one country, say Germany, but you are applying for a job in say France, you may not get a first round interview for the simple reason that the person who happens to be reviewing your resume or CV may not be familiar with the Spanish education system, major employers, etc.. In this case, you are much better off applying to the office where there will be people who can correctly understand and appreciate your background.

In an ideal world, the application reviewer would ask a colleague with a background similar to yours to evaluate your application. In reality, we are busy people and there are plenty of applicants whose backgrounds we do understand without any extra work.

I had one person who could not get a single interview in the country of her choice (which was not her home country). I suggested she apply to the same firms in her home country, and she did very well – and ultimately got an offer from McKinsey.

This advice is not all obvious and reflects the fact that people in these firms are the ones doing applicant evaluations. It's impossible for one person to have the background knowledge to be able to evaluate every application from any part of the world. So its important to figure out who has that background, find them, and make sure your application enters their hands.

I have recently become interested in management consulting, and I realized that I'm at a disadvantaged position without an MBA degree. When I applied to grad schools, I did not realize that in the US, many companies (management consulting in this case) almost recruit exclusively from MBA or PhD programs, especially during economic downturns. I believe I have the right qualifications (GMAT Quant 99 percentile, background in economics, Ivy League school master and 3-year investment banking), and I believe if I had wanted to (or foreseen the need to…), I would've been able to get in a top MBA program.

But when I asked a BCG recruiter if I could join the coffee chats they organized for B-school students, the answer was "no". Booz and Deloitte only have positions in public consulting open for my school, both of which require US citizenship, which I don't have. Up to now, I have only received an internship interview invitation from McKinsey. A lot of companies don't have formal internship programs for non-MBA master students.

I'd like to maximize my chance of getting in the industry, but I'm a bit frustrated that I can't get through to HR. What would your advise be for someone like me? Send unsolicited emails to HR?

One thing I learned when looking for my first job was to network and to reach out to alumni. However, things work differently at grad school (and in the US…) – B-school alumni are not accessible to a non-MBA student like me. I feel that I've hit a wall, and I almost wanted to start applying to business schools. Although on the other hand, if I do manage to become a consultant, I probably would enjoy my current degree more – I am interested in business, but I am also interested in international relations and public policy and there aren't that many places where you can learn these things.

In Europe and Asia, it's not imperative to have an MBA to enter the industry. It almost seems to me that doing an MBA is a "signal" a student sends to employers – he/she is not only qualified, but also serious about consulting by investing 2 years worth of time and money in a degree that tends to lead to a job in consulting. Or is it that most of the companies simply don't have the resources to cast their nets wider, except McKinsey?

My Reply:

Most firms recruit MBA candidates because 1) it's easy, 2) the success ratio is higher. Many firms, the main exception being McKinsey, just aren't setup to recruit non traditional hires on a formalized and systematic basis. This will vary somewhat by region, and I sense BCG is doing a lot more of this in certain parts of the world than they used to.

I'm not surprised you are hitting a wall with Human Resources. This is because HR people in consulting firms are often assigned to specific recruiting efforts – 1 person in charge of Harvard, 1 person in charge of Stanford, etc.. So when you apply with a non-traditional background, it is not in anyone's job description to evaluate your candidacy.

Also, even if they did like your application, they would have to setup an interview schedule just for you. When the recruit at a school, they will set up an interview day for dozens of applicants. It's a lot more efficient on their end.

That being said, what should you do?

The simple answer is to network. Use every resource you have to meet actively working consultants in the firm you're trying to get into. This DEFINITELY works… and it works VERY well. But it is a lot of work.

Basically, request "informational interviews" from friends of friends… or friends of family members. If you set a goal to do 20 of these, I'm pretty sure you will get a first round interview (assuming a strong resume / CV) out of it. I know many people who have taken this route successfully.

My Reply:

This will vary a bit by firm, so I'll speak primarily about McKinsey which was really the first firm to aggressively seek out non-MBA's.

The standard for analytical problem solving skills is the same for all entry level roles (undergrad candidates and grad school candidates) from all educational backgrounds. So is your thinking logical? The answers must be a "yes" regardless of your business or non-business background.

That being said, it is not expected that a JD or MD would know a lot of business terminology. So if you got the right idea, but you used the wrong term, that's okay. It won't be held against you.

It would help to have a general idea of how business works.

Companies sell stuff to customers. The money they make is called sales. What they pay employees and suppliers is called cost. A company is profitable if sales exceed costs.

Every market has suppliers and buyers… or supply and demand. It's better for a company if there is a lot of demand, and very little supply.

I'm being serious about this.  You do need to know business at this common sense level, otherwise you won't be able to use common sense + logic to figure out the rest.

I suggest reading a few issues of Business Week or the Wall Street Journal to just get a feel for what topics come up a lot.

I just got an offer from McKinsey. Any suggestions for how to do well at McKinsey?

My Reply:

Here are a few general rules of thumb:

1) You are hired for being analytical, you are promoted for being good with clients.

2) #1 reason a new Associate doesn't make it, they're an arrogant bastard, that insists they are right (even if they are right) with a client, and alienates a client. This is a CLIENT SERVICE business. This is not a solve a case study business. If the client is unhappy, that is bad thing. Never forget that.

3) Anytime you tell a client anything, it had better be a 100% accurate and confident answer. If you don't know the answer, then you confidently say you do not know the answer. Never BS or make something up, it will come back to haunt you. A consultant can never be found to be wrong. If you have an opinion, but don't have the facts to back up a point of view, you must say this is just an opinion or it's just a hypothesis that you haven't yet been able to test with real data.

4) With a new client engagement, make friends and build relationships with lots of clients quickly. Relationships are key.

5) Never show a partner a slide or exhibit with a computation error in it. Partners and engagement managers are not their to proof read your work for math errors. If you can't get 2 + 2 right, you will immediately create a problem where those above you lack confidence in your abilities. Triple check all of your math, all the time… even if its 3am in the morning. If you do make an error, be the first to catch it, fix it, and if others have already seen it… be sure to point it out to them, before they point it out you.

I just received an offer to join a European McKinsey office as an intern. Without the methods presented in your training videos and other material I doubt that I would have been able to get this offer. I am therefore very grateful that you have been providing the material on your site for free and will more than happily make a donation to www.kidpower.org

I had a question for you about your 4 frameworks versus Marc Cosentino's 11 frameworks from Case In Point. Cosentino specifically mentions that using a case question framework like the "4 C's" or "5 P's" is looked down upon by interviewers; however, your business situation framework is very similar to these.

But in my opinion, compared to your frameworks, Marc Cosentino's case questions frameworks seem less logical and a bit more haphazard.

Given that plenty of people have had success using your case system, I'm inclined not to believe Cosentino when he says that a "4C" or "5P" framework is not a good idea. I was wondering if you had any thoughts about this.

My Reply:

I'm not familiar with Cosentino's frameworks, so I can't comment on them specifically.

First, there is more than one way to be right.

Second, which framework isn't that important as long as it's an appropriate one. The big mistake in using frameworks is picking one that is totally irrelevant and trying to force fit the framework when common sense says it doesn't apply. For example, one common framework that MBA students use (because it's taught in business schools) is Michael Porter's Five Forces framework. It's a very useful tool for understanding industry dynamics and competitive issues.

It would be completely wrong to use five forces if the data suggests the customers hate the product you're currently selling and fundamentally doesn't want what you're selling. Trying to force an industry analysis into a situation where the qualitative data suggest that understanding customers would be more useful is a mistake. The five forces framework is not on my list of case interview frameworks – as it's only relevant some of the time.

If I gave a case to an applicant where the five forces framework would make sense to use, but they didn't use it… but addresses many of the relevant issues anyways, I wouldn't hold it against them. They got credit for noticing what was important given the data available, whether they used an industry standard label like "five forces" was not particularly relevant to me (because I could always teach them the terminology, but can not teach someone to be inherently  analytical or logical)

Third, my business situation framework is very similar to the 4C's… thought I always forget what the 4th C is. In my opinion as someone who went through the interview process successfully, had a great career at McKinsey as a consultant, and interviewed McKinsey applicants, most cases and consulting engagements involve issues with customers, competitors, and the client/company. (which I think  are 3 of the 4 "C's").

The thing to keep in mind is that from an interviewer's standpoint, the case interview is really not that important. The candidates ability to actually DO the consulting work on the job IS important. And in just about every consulting project I had at McKinsey, someone on the team was doing research and analysis on the customers, competitors, and the client's internal operations, capabilities, and team. In my 3 years there, I very easily spent 2.5 of those years on one of those 3 topics.

I personally am not a huge fan of the 5 P's – Product, Price, Place, Promotion (I have no idea what the 5th P is in this case) – which is the marketing framework I assume you're referring to as I think it over-simplifies the decisions needed to come up with a marketing strategy or plan. I don't know how much of that is just my personal preference vs. a broader dislike amongst interviewers. I can say I never used the framework on the job at McKinsey, but definitely spent 90% of my time as a consultant on either customer, competitor, or client operational issues. So maybe, I might agree a little on this point.

Fourth, while I am not familiar with Cosentio's 11 frameworks, the point of disagreement I will have is that I think it's too many frameworks. Of the 4 frameworks I use, I really only use 2 of them (business situation and profitability) about 80% of the time I'm using a standard framework at all. It is very hard to remember a lot of frameworks… let alone master all of them.

When I interviewed, I used the two primary frameworks I mentioned earlier in probably 50 out of the 64 case interviews I had. The other cases were either really unusual where no standard framework worked, or were only of the estimation question variety.

Fifth, it's important to realize that while a standard framework is helpful for starting a case interview, it is only useful as start. The purpose of the framework is to start off comprehensively, until you stumble upon (a really appropriate word) some piece of data that prompts to formulate a more specific hypothesis… and then to ask for data to test that hypothesis. At this point, I will generally stop using the framework (at least for the time being), explore that particular hypothesis, and if time permits or data suggest I return to the original framework, I might do so.

For example, I might start with a profit and loss framework. I might find that revenues have fallen, specifically a decline in # units sold (as opposed to declines in price points) causing profits to fall with them. At this point, we need to figure out WHY unit sales have fallen.  The Profit = Revenue – Costs framework does not answer this question.

In this particular example, I would look at unit sales for the company vs. the industry to test the hypothesis that the decline in unit sales is a client specific problem vs. an industry-wide problem. Then I might transition to the business situation framework, and if the issue were a client specific one… I would probably start with the customer analysis part of the framework first and then the company analysis. If the data points to an industry-wide problem, I would use the same business situation framework but start with the customer analysis first, and the competitor analysis 2nd.

So in practice, frameworks are used in a very flexible and fluid way. And it is quite common to end a case interview very differently than how you initial thought to start it. Again, this reflect real life consulting as well. How I'd approach a real client situation could be very different than how I end an engagement 6 months later.

Finally, I will say that Cosentio's coverage of estimation questions in his book Case in Point is excellent. I skimmed the book awhile ago and that section of the book jumped out as excellent. It was the main reason I did not cover this topic in the original video series since he did such a good job, I didn't think I could do a better one – so I didn't bother trying. If memory serves, I probably did disagree on the frameworks for the main case interview type questions and thought I'd contribute my perspective to the community at large. You can see the original case interview training videos here.