Estimation questions

Question 1

Steps of doing estimation problems

Answer 1

0. clarifying on scope
1. Analyze supply and demand, decide if it’s a demand or supply estimation problem: if supply is less than demand, then it’s an estimation of supply. if demand is less than supply, then it’s an estimation of demand.
2. List the full equation in issue tree format
3. write down assumptions for each component in the equation. if you are familiar with certain things, ask interviewer for help.
4. ask interviewer if it’s necessary to explain on assumptions
5. if no questions from interviewers, then do the calculation
6. sanity check on the outcome with comparable numbers, especially using another way (demand or supply) for back on envelope check
7. if the outcome doesn’t seem right, go back to check on the variable and assumptions and their math. Note: start with the most sensitive variables first.

Question 2

How many visas are issued by US embassy in Moscow in a year?

Answer 2

Incorrect way: use Moscow population to estimate it
Correct way: since supply is less than demand, this is an estimation question of supply.
consult officers * hours that they work on issuing visa *# of visa issued per hour * working days/week * # of weeks a year * % approval rate

Question 3

How to estimate the revenue generated by a song for Youtube in the first complete year of release?

Answer 3

1. supply vs demand: Since Youtube can meet demand at any time of demand of the song, this is an estimation of demand.
2. Equation: World population * % internet access * % who use internet * % watching music video online *% living in countries with access to Youtube * % using Youtube App * % people listening to the genre * % people come across this song * % people listening to this song * # times song is played/day * 365 *% videos with ads * ads clicked * cost per click * % income to Youtube out of ads click
3. Since Youtube allows videos to be embedded on external websites, this part of revenue should be considered as well.
   Equation: # of external websites with embedded video * # of visits per site / day * % visits to view the song * # times of song played per day * 365 * % with ads * % ads clicked * cost per click * % income going to youtube
4. Assumptions:

Question 4

Estimate fuel amount bought by Swiss Airline in a fiscal year

Answer 4

S=D, one major thing to think about this number is that Swiss Airline operates a lot of international routes, beyond domestic ones, so if only using Swiss population can make the number much smaller.
Equation = Switzerland’s population * ratio of # of planes vs population * average number of seats per plane * Distance in miles flown by a plane per day * # of miles per seat flown in one gallon * price per gallon of jet fuel * 365 days = 8 million * (1/50,000) *200 seats * 1000 miles /60 miles per seat per gallon * 1$ per gallon * 365 days = 200 million dollar a year

Question 5

estimate the numbers of Gucci gowns worn at the last Oscar show

Answer 5

This is a SUPPLY estimation since a haute couture gown usually takes 2 months to finish one Gucci gown. but we don’t have data to approach from supply side, so we choose to start from demand side then have a sanity check from supply side. but since the Gucci gown is super expensive and only a few attendants at Oscar will wear them and Gucci design house can supply the numbers of gown order.
Equation = # of Oscar attendant * %female * % female wearing designer gowns * % interested in Gucci brand * % probability of these people wearing Gucci at this Oscar * % people like the latest style of gowns Gucci offers this season * % people finalizing Gucci among other brands = 400050%80%50%20%20%20% =6 gowns. Sanity check, for 6 gowns, it takes a year for Gucci to finish, it’s rather manageable.

Question 6

estimate market size of mattress in Brazil

Answer 6

1. clarify if it’s for consumer use or to include the ones bought by hotels
2. two parts to include: the ones that are being used and to be replaced; people who don’t have and want to buy their 1st mattress since they can afford now or their status from stable relationship to single status
3. also, should considering single mattress, double mattress, a spare one for guest room

Question 7

drivers of durable goods are replacement rate, a higher penetration rate, a higher target population

Answer 7

i.e. numbers of passenger cars: # of old cars replaced every year by current car owners + cars purchased by population who are gonna own their 1st car ever (i.e. teenagers who just got driver license, people who can afford to buy their first car now)

Question 8

estimate the number of personal trainers in London

Answer 8

equation = # session of training demanded per year / # sessions supplied per trainer

1) # session of training demanded per year = # of clients * # sessions demanded = population * % of age groups suitable for body trainings * % with non-sedentary life style * % using body training * % interested in using personal trainers *% people can afford personal trainers * avg. session per week * 50 weeks
2) # sessions supplied per trainer = # session per day * 7 days * 50 weeks * average % utilization rate

Question 9

Estimate the value of all tires use by the Ferrari Formula 1 race team per annum

Answer 9

S=D, the volume should include the tires used during the race and the practice preparation for the race and the backup ones. for F1, drivers don’t practice that much since they don’t get a F1 car to take spin like other sports, so the practice is limited before the race, especially nowadays they use simulator to practice a lot.