## What is it?

This is the most common question type in the McKinsey PST (~35%). You will be tested on your ability to understand the facts/data itself, often in the form of graphs and tables.

## Question formats

• Which of the following values is the best estimate of ...?
• Which of the following statements is valid, based on the data ...?
• What is the current ranking of options 1 to 5?

## Example

The table below shows the sales development of the Topstar business unit across the main markets.

US\$ M 2008 2009 2010 2011 2012
US 240 282 343 405 469
Germany 144 165 186 204 237
Italy 45 58 58 75 82
China 60 69 67 71 74
Japan 58 50 50 56 58

Which of these markets showed the fastest sales development (in %-terms) from 2009-2012?

1. US
2. Germany
3. Italy
4. Japan

## Method

1. Read the question - pretty straightforward, as you are asked to identify the country with the highest growth rate.
2. Read the answers - there are 4 countries to be compared.
3. Go back to the table and compare the growth rate between 2009 and 2012 only in those 4 countries. Simplify figures as much as possible and run precise calculations only if you find out that the difference between two countries is not high enough to guarantee a reliable result through simplification.
4. Now, you need to first define the calculation you need to solve in order to get market growth, which will be:

$\frac{\text{Sales}\textsubscript{2012}\ -\ \text{Sales}\textsubscript{2009}}{\text{Sales}\textsubscript{2009}}$

Then start with the first option (the US). Approximately, the growth in the US will be $\frac{470-280}{280} = \frac{190}{280}$, which is much higher than 50%, as it is around 70%.

Move on to other countries, comparing them solely with the US. Germany will be approximately $\frac{240-165}{165} = \frac{85}{165}$, very close to 50%. Cross out Germany.

Moving on to Italy, the calculation will be $\frac{80-60}{60} = \frac{20}{60}$, which is lower than 50% again. Cross out Italy.

In Japan, the growth was from 50 to 58, therefore there is no need for lengthy calculations to cross it out.

## Tips & Tricks

• Begin with an end in mind. Before performing any calculations, be clear on which formula/equation you need to use. In the PST there is not much time for trial and error. Spending just a few more seconds on identifying the right formula to use from the very beginning will save you much more precious time in the calculation phase.
• Minimize the number of calculations. When going through your solutions, you will be surprised by how many calculations can be avoided or approximated mentally. The key question you should ask yourself before performing any calculation is: does it affect the answer? It might sound silly, but it is definitely relevant and useful. Here are just two of the most useful techniques to avoid useless calculations:
• The anchoring technique. When looking for the highest value among several possible answers, run calculations for the first answer and use that value as a threshold value. If other answers look immediately lower, do not perform any further calculations.
• The selection technique. Select the only the essential calculations. For example, the question below asks you to rank the effectiveness of 5 solutions:
1. 1, 2, 4, 3, 5
2. 1, 2, 3, 4, 5
3. 1, 3, 2, 4, 5
4. 1, 3, 2, 5, 4

Calculating whether solution A is the most effective is a complete waste of your time – it is the least answer-changing analysis. Then go on calculating which is the most effective between solution B and C. And so on and so forth.

• Master quick percentage calculations. Growth rates and percentages are extremely common across the PST. You will surely encounter questions in which you’ll have to calculate growth rates over multiple time periods. This is theoretically feasible by hand, but extremely time-consuming. If, for example, the revenues of a given company are growing at a 5% per year rate for 4 years, in order to get a precise result, you'd need to calculate the four years compounded growth rate:

$(1 + 0.05) * (1 + 0.05) * (1 + 0.05) = 1.27 = 21% growth over 4-year period$

You cannot afford going though such a time consuming process in the PST. It would likely take you more than two minutes and you will not have time for completing the answer to your question (usually the PST asks you for much more than calculating percentages).

You will be able to solve this kind of problem by using the following simple shortcut. Multiply the yearly growth rate by the number of years during which it will apply and you will get an estimate of the compounded growth rate:

$\text{5\% per year}\ *\ \text{4 years} = \text{20\% growth over 4 years}$

There are few caveats to bear in mind when using this technique:

• When using positive growth rates, the growth rate will be underestimated. The above estimation is 20% vs. 21% growth from the real figure. When using negative growth rates, it will overestimate the compounded growth rate.
• The higher the yearly growth rate and the number of years to which you are applying the technique, the less precise it becomes. For instance, 5 years of growth at 5% per year corresponds to a 27% compounded growth rate while our shortcut would give us a compounded growth of 25% (5% per year x 5 years).