The business case everyone should solve BEFORE applying to consulting

You are the ideal candidate for consulting: first class degree in a top British University, internships in one of the most sought after investment banks in the City and strong extracurricular activities. You have a plan to succeed in consulting. Months of case interview sessions thought your School’s consulting club, intensive networking sessions, smart questions asked at McKinsey and Bain presentations…you are fully aware of the odds but you are fully committed to secure that position.

One week before the interview you stumble upon the My Consulting Coach Final Round Programme: three back to back interviews with ex consultants from McKinsey, Bain and BCG for 350$.

Instinctively you decide to keep going on your own until the end. After all, you think, I am going to get a First Class degree from a top Uni and a job offer from a leading Investment Bank without paying 1 penny for tutoring.

Why should I do it now? But, why not treating this problem as a case study?

STRUCTURE

First step in any good case study is always about laying down the structure. Basically, we need to understand whether the future benefits arising from spending 350$ in the Final Round Programme outweigh the costs.

There are several qualitative and quantitative benefits of increasing your chances of working in a top tier consultancy, but for the sake of time we will focus only on quantitative benefits. The value that the Final Round Programme can add is in increasing our chances of entering a top tier consultancy. In quantitative terms this translates into the present value of the additional expected salary you will get by increasing your chances of entering a top tier consultancy. Or, in other words, the difference in salary between a top tier and lower tier consultancy (where your chances are virtually 100%) weighed by the additional probability of entering a top tier one after taking the Programme

CRACKING THE CASE

ASSUMPTIONS

  • Probability of entering a consultancy:
    • Top tier consultancy (MBB): Likelihood varies across candidates, but for top people chances can reach 70%. They can hardly be higher, since too many other factors come into play, including fierce competition for very few spots, the "luck" factor and reactions to different interviewers' attitudes
    • Second tier consultancy: if you are a well prepared candidate with an excellent resume, you can be basically 100% sure of entering one of the many second tier consultancies
  • Additional probability of getting in a top consultancy after taking the course: The feedback from different interviewers from McKinsey, Bain and BCG will likely provide you with valuable feedback about the case and help to craft strong personal stories highlighting the aspects that are peculiar to each consultancy. You might be refined enough in your case structure and your stories that this will be a fine-tuning exercise. In this case, your probability of getting in would increase by no more than 3%. For weaker candidates this figure can exceed 10%, considering that interviewers will provide follow up cases to work on your development points on your own. Anyway, 3% to 10%
  • Salary: Whilst in a consultancies salaries start at around 60.000$, in second tier firms they are about 25% less, or 45.000$. Difference is therefore 15.000$

  • Salary growth and inflation: We can (very conservatively) assume that the yearly growth rate of your salary would be the same in both a top and a second tier consultancy, and for the sake of simplicity we make it equal to the discount rate given by inflation (~2%)

  • Years of work: We can reasonably expect people to work 35 years, e.g. from 25 to 60 years old.

SOLUTION

A risk averse candidate might argue that, given that he has limited information about whether his chances of getting in are 10%, 20% or 70%, it would be sensible to take the programme in any case. However, in order to assess whether the investment is always worth for a rational individual we should take the case of a top performing candidate, likely to get into a top three firm (MBB) with 70% chance and could benefit from the program only marginally, with his probability of entering a top tier consultancy increased just by 3%.

In order for the Programme to be worth, its benefits should exceed its cost of 350$ to make it a good investment for a rational, top performing candidate.

The expected present value of benefits in terms of salary in a given year from taking the course will be given by the following formula

(additional probability of entering top tier consultancy * delta in salary between top and second tier) * salary growth / inflation

Since we assumed salary growth to be equal to inflation, we can get rid of both of them. The equation will become 

(additional probability of entering top tier consultancy * delta in salary between top and second tier) 

This should be multiplied by the number of years you are expecting to work: 

(additional probability of entering top tier consultancy * delta in salary between top and second tier) * years of work 

Replacing formulas with our numbers from our assumptions for a top candidate

(3% * 15,000) * 35 = 15,750 $

conclusion

Best candidates already have high chances of entering top tier consultancies, around 70%. For them, the benefits in terms of additional likelihood of success provided by taking the My Consulting Coach Final Round Programme will be relatively low in percentage value, around 3%. Nevertheless, a 3% increase in their chances will conservatively translate in an expected impact of 15,750$ in terms of present value of additional salary.

Entering in a better consultancy is not only about money, but even if you only consider money, this business case shows how training is the best investment a top candidate can do.