McKinsey PST 01: Generic Approach

This is the first theory session of the Problem Solving Test Course. I explain why the McKinsey PST resembles a consulting engagement, split the questions into 4 groups, introduce a generic 5-step solution algorithm, and show how it works on an official McKinsey PST.

[TRANSCRIPT]

In this first theory session of the problem-solving test course I will explain the generic approach to solving the test questions. I will explain why McKinsey PST closely resembles consulting engagement and why you should deal with it accordingly. We will also split the questions into four major categories or groups and finally we will discuss an algorithm which we will use for tackling the PST questions.

So, what do we know about the PST?

It’s a test, administrated by McKinsey & Company to weed out weak candidates before they proceed to a live interview. The test lasts 60 minutes or any cases 75 minutes and consists of 3 business cases and 26 questions. The test is actually similar to GMAT and GRE, but is a bit trickier. Only about 30% of candidates pass it and you need to get about 19 questions right.

What is so difficult about it?

The time limit is very stringent. If you have 3 hours to solve the test it will not cause any problems and you would not be watching this video, then there is too much information available for solving the test questions, some information is just redundant. Also, you need to be super-efficient in problem solving and know, what you are doing every moment of the test, and finally, there are a lot of small details, you need to pay attention to.

Does the setup sound familiar to you?

If you get into a management consultancy this is what your day to day work will look like: lots of information, time pressure, intellectually demanding problem-solving sessions; you will need to split complex business into small questions, find solutions to each and then carefully assemble the details into the big picture

So here are the major points of the PST

It resembles the consultant engagement. McKinsey uses it to check if the candidates have potential to become good consultants. And how would you pass the test then? By acting like a consultant

I will help you do that

Firstly, consultants like planning and structure

In private equity due diligence engagements, for example, which are the most challenging in terms of time constrains teams extensively use predefined plans and check lists.

Secondly, consultants always follow the “80/20” rule.

Do the 20% of work which brings 80% of the impact. We will also search for quick rather than straightforward, time-consuming solutions.

Thirdly, consultants enjoy feedback.

Feedback is the breakfast of the champions, right? I will share extensive feedback on your performance in the practice part of the course. Let us use the structuring skills to tackle the first problem of the course bringing in order test questions.

The questions closely reflect the flow of formal logic: “premise”, “fact” and “conclusion.” The test questions are split roughly uniformly among these types.

Premise questions fall into two subgroups and both groups require logical reasoning or inference, but not calculations. The first subgroup is “Root-cause reason” questions in which you need to find an explanation to a specific fact. Questions like: Which of the following, if true, would best or would least explain the data X in exhibit Y, all fall in to this category.

The second subgroup is “Supporting analysis” or “Supporting information.” In these questions you need to find best addition analysis or best addition information leading to specific fact. For example: Which of the following ideas would not help address fact X in exhibit Y.

Fact questions fall into four subgroups. The first one is estimation, which is data question not requiring precision. The second is precise computation, obviously a question requiring precision. Then there is a word problem, which is a building an equation or formulae and solving it, based in the data it the text and exhibits or tables. And another is ranking, which is the fourth subgroup and which is the easiest subgroup, where you need to rank several options their value.

Conclusion questions fall into two subgroups – those requiring calculations and those not requiring calculations. This question types require different approaches, for example, in conclusion questions you do not need to read all options if you have found the right one. Where in precise questions you need to read everything to make sure your option is the best one.

At this point you might wonder: have we consider all question types? Actually, there is one more group, I call it “Last 13%” of “everything else”

We should make our list of question types MECE.

Here it is.

Recommendations, Formulae and Client interpretation

Luckily, they benefit from the same problem-solving algorithms, as the previous 3 types, so we want have to learn too much extra stuff. Each of this question types deserves in depth discussion and we will get it soon in theory session.

Ok, now when we understand what questions we expect from the PST, let us look at the generic approach to solving this test.

We are in consulting setting here: lots of information and little time. How do consultants’ serf through the paths of documents and spreadsheets they get from their clients? They come up with hypothesis and systematically check them with data points. Hypothesis are crucial questions which point to a specific piece of information. This way, consultants only deal with what matters most, rather than everything

In PST questions play the role of hypothesis, thanks god we don’t need to come up with them, we just need to use them as guidance for the information we need

This is why our consultant generic approach to the test runs as follows

Step #1 : read and understand the questions, but do not read the options yet

Step #2 : index the data, using questions as guidance

Step #3 : for each question study options and pick the best one

Step #4 : after a set of four or five questions – track the time

Step #5 : record your answers to your answer sheet

Let us now look at each step in more details

Step #1 understand the questions

We need to read the set of 4-5 questions first and figure out what’s going on in these questions

We need to circle key words:

Subjects and their actions

Numerical data

Inclusion and exclusion comments

Reference to exhibits and texts

We also need to figure out, whether the questions ask positive piece of information (best, most, will, true, can, etc.) or the negative piece of information (least, will not, false, cannot etc.)

Also notice if the questions need computations?

This is important, because computations are usually more time consuming

Step #2 Index in the data

We need to skim the text and skim the exhibits and tables

We don’t need to read them in details, we just need to understand, what’s going on in the text, and what’s going on in each paragraph of the text

When skimming the exhibits and tables we need to pay attention to titles, units of measurements, axes and connections among exhibits

Again, we are not looking for trends, we are not looking for a specific detail, we just need to understand what’s going on in the text or in the tables or in the exhibits, we just need to index the data, so we can come back to them if needed

Step #3 Pick the best option

We need to check if the answer options are similar, if they are, perhaps, we can run just one calculation without checking all four of them and conclude about what’s the right answer

Also, if the answers options are too far apart, we can understand that some options are just unrealistic, too big or too small and get read of them

This is especially true for fact questions

Also, in certain questions some options are ridiculously hard while others are very simple

When you find the ridiculous hard option – don’t check it, skip it and move on and check other options, because it might be the case and its more likely the case, that the simplest option will be eliminated and, in this case, you will end up with ridiculously hard, but unchecked option is the correct one

Also, remember that correct options are based on data, rather than your experience or intuition or whatever

Make sure that all the answers you mark are actually based on piece of data in an exhibit, in a table, or in the text

Now if using the elimination technique, we were able to eliminate 3 out of 4 options – great we have your answer, and you can move on

If you’re left with 2 or 3 options you’ll need to use some question specific techniques which we will discuss in the future theory sessions of this course

Step #4 Track the time

The worst thing strong candidate can do – is get stuck on the difficult question for 10 minutes, solve it correctly, but then skip other 5 easy questions

Remember, that the total number of correct answers counts, not the difficulty of the questions you answered

Always devote some time to everyone of the 26 questions

There are extremely difficult as well as ridiculously easiest ones, you need to conquer all of the letter as well as the some of the formulae and then you will pass the test

Here is the GMAT technique you can use to track time

You split the 26 questions into 5 question blocks, and you assign some specific time limits to each question groups

For example, you need to solve the first 5 questions in 10 minutes, the first 10 questions in 22 minutes, the first 15 questions in 34 minutes, the first 20 questions in 46, and all the questions in 58 minutes, so still have 2 minutes to relax

Then what you do is check timing after each checkpoint of each question block, for example, you solved 10 questions and you look at the time

If you spent more then 22 minutes solving these 10 questions, you need to speed up, meaning you need to skip some really hard questions in the next 5 and try to come up with quick answers or educated guesses

On the other hand, if after 15 questions you spent less then 34 minutes you can slow down a bit and devote more time to difficult questions or maybe even go back

In this fashion you will be able to cover all the 26 questions of the PST within 60 minutes and devote some time to each and every question

Of course, this time is not obligatory, so you can decide to spent more than 10 minutes for first 5 questions, but a few minutes on a following questions, it depends on your own preferences

Just make sure that time is distributed more uniformly among the 26 questions and that you will have to deal with all of them

Step #5 Record the answers

This step might sound obvious, but it is very easy to neglect, but thinking on this way – you’re a consultant and you’ve created a brilliant business solution, but you have not prepared the PowerPoint for the client meeting

Will your partner will be happy with your performance? I guess no

Same thing here

What counts – is what recorded on the answer sheet, so make sure that answers are there, before the time is up

The answer sheet is somewhat tricky

Devoting just 2 minutes to all 26 questions is poor decision

Once you’re in a hurry it is easy to make a stupid transferring tickle and miss five or ten otherwise correct solved questions

Transfer your answers one by one or in blocks of four or five questions, but not all 26 questions at once, and definitely not at the end of the test

Ok, now let’s see how this theory works in practice

Here’s the official PST A 2012

Question #1

According to the CEO of the Kosher Franks, which of the scenarios presented in Exhibit 1 would satisfy FoodInc’s requirements?

So, we make a note that we will need to look for CEO and requirements

Question #2

Which of the following measures, if done alone, would definitely not help address the objectives of the CEO of Kosher Franks

So, we make a note that we need to find the objectives of the CEO

Question #3

Which of the following statements is valid based on the data in Table 1

We make a note – valid and Table 1

 

 

Question #4

Which of the following values best estimates of the Kosher Franks revenue in year 4 under scenario C in Exhibit 1

So, we make a note ­ best estimates, Kosher Franks revenue, Year 4, Scenario C and Exhibit 1

The next step is indexing the data

Paragraph #1

Kosher Franks is the company that sells hot dogs and other packed meat products, such as salami and lunch meat in the United States.

So, it tells us about the business of the company and we find out that Kosher franks sells hot dogs and other packaged meat products

If we need to go into more detail about the company, we know that we need to go to the first paragraph

Paragraph #2

Kosher Franks customers are large grocery store chains or grocery distributers, who sell to small chains or independent grocery stores across the US

The prices depend on many factors

So, this is the customers and prices

Paragraph #3

It introduces table #1 and we are able to read it right now

So, table #1 brings us information about revenue and revenue growth for Kosher Franks

Revenue this year and average growth over the past 5 years

The units of measurement are millions of USD and percent

And different row indicates different product type

Paragraph #4

Kosher Franks manufactures all of its own products and invests significantly more resources than its competitors to ensure superior quality

So, the paragraph is about the competition and reputation, and brand

Paragraph #5

Kosher Franks was founded almost 100 years ago and until recently was run as a family business

However, after almost a decade of poor sales growth, the company was acquired last year by a major conglomerate

So, this paragraph is about history

Paragraph #6

The CEO of Kosher Franks has asked a McKinsey team to help him identify ways to improve sales growth, with the target of 10% annual, while maintaining good levels of profitability

This is the CEO goals

And we remember that this is important for questions one and two, so we definitely fo deeper in detail once we started solving those questions

Exhibit#1

Scenarios for growth of Kosher Franks sales over the next 5 years and units of measurement is percentage of Year 0 sales

Ok, so Year 0 sales is 100%, so Year 1 sales under scenario A is 111%

Year 3 sales under scenario D is 114%

So, I guess this will be important for question 4

Now, when we have indexed the data, we need to start solve each question separately

Question #1

CEO of Kosher Franks satisfy FoodInc’s requirements

Now, lets look at FoodInc’s requirements and they are: improve sales growth with maintaining good level of profitability

Actually, all of the scenario’s here show sales growth, right?

Because, all of the points are higher that 100%, so this is not very helpful for us

Let’s read on. He states, that 10% annual sales growth should be the target

This seems to me more useful, because, in some of the years the growth is less than ten percent and some years the growth is more than ten percent

Let’s read more, just in case

In five years’ time, he wants to be able to look back and see an annual sales growth 10% or more for each of the previous 2 years or Kosher Franks will no longer be a part of FoodInc

Ok, that’s interesting

We need to look at years 3 ,4 and 5, just to make sure that growth of year 3 to year 4 is more than 10%, and year 4 to year 5 is more than 10%

Now check all the scenarios and see which one fits these criteria

Scenario A

This is the blue line, 129 in year 3, 136 in year 4

The growth is 7/129, which is definitely less then 10%

So, the scenario A is out

Scenario B

105 in year 3, 116 in year 4, and 130 in year 5

The growth between year 3 and year 4 is 11/105, which is more than 10%

The growth between year 4 and year 5 is 14/116 which is also more than 10%

So, both of the requirements are satisfied and B is our answer

Here we don’t need to read the scenarios C and D, because there is just one correct answer, so skip them and move on

Question #2

Which of the following measures, if done alone, would definitely not help address the objectives of the CEO of Kosher Franks

We remember, that objectives of the CEO are improving sales and maintaining good levels of profitability

Improving sales growth – is our first criteria, and profit margin ­ is our second criteria

Let’s look at option A – lowering the price of select Kosher Franks products

Would it help revenue? Well, it might, if people start buying more of the products, so we say probably yes

Option B – introducing new products into Kosher Franks range

That might help increase the revenue and we are not sure about profit margin, because we don’t know the profit margin of these products, so here is a question mark

Option C ­ removing a category of products from the existing Kosher Franks range

This one definitely will not help increase the revenue, because, we are taking a part of the sum

Example, if we ha d three product lines A, B, C and now we get rid of product line C, that means that we left with line A and B, and the sum of A and B is definitely less than sum of A, B, C, so this will not help the growth and this seems to be a good candidate for a right answer

But let’s look at option D, just in case

Option D – increasing the advertising of Kosher Franks products in mass media

Advertising might help, because it brings more customers

So, among the four options, C will definitely not help to address the objectives of the CEO and this is our answer

Question #3

Which of the following statements is valid based on the data in Table 1

Let’s check all the answer options one by one

Option A – revenue for “other products” was more than $20 million five years ago

Selecting row “other products” in Table 1

$15.1 M this year with decline of 7.0% per anum over 5 years

So that’s translates into decline of 7*5 = 35% or perhaps even more

I’m not sure, because it might be close to $20M 5 years ago, so Id rather skip this option and see if other options are easier to solve

Option B – hot dog revenue was more than $350M five years ago

Selecting row “All beef hot dogs” with $366.7M with growth of 4.2% per anum over the last 5 years, so it means the growth of 21% or more

So, we have a proportion here $366M is 121% and $350M is 100%

Is it true, that 366 is 21% more than 350 ­ of course its not true

That means, that B is false, and its not a valid conclusion

Option C ­ sales of sliced meat grew by no less than 1.2% in each of the last 5 years

Selecting the row “Sliced meat” with growth 1.2%, but we have here an average annual revenue growth, so there might be years with in which growth might be more and years were growth were less than 1.2%

So C option is unknown and it cannot be a valid conclusion

Option D ­ total sales for Kosher Franks did not grow at all in the last five years

We look at 4 rows and this means that these 4 rows cover whole revenue of Kosher Franks, and we also see that there is huge bucket ($366.7M) called “all beef hot dogs” and this bucket grew and everything else is just smaller ($135.7M) than the first bucket

So that’s means, that the growth of the first row is enough to make sure that the whole revenue of the company grew, so D is false and revenue of the company grew in the last 5 years

So, we are left with option A, which is difficult to check, but which is correct one and the only correct one, by elimination

Question #4

Which of the following values is the best estimate of the Kosher Franks revenue in Year 4 under Scenario C in Exhibit 1?

The options are pretty far apart, which is good (441M/495M/549M/603M)

Which means we won’t need to be very precise in our calculations

By the way what we need to do in our calculations?

We need to take the revenue this year and multiply it by growth under Scenario C up to Year 4

Revenue this year is 366 + 65, which is about 430 + 55, which is 485 +15, which is about 500M and then the growth under the Scenario C up to year 4, where Year 4 is 120%of Year 0, so the growth is 120/100 is 1.2

So, the answer is 500*1.2 = 600

Now let’s see at the options and we will see that option D is closest to this answer, because others are way smaller

So, we cross them out and our answer is D

The next step is track the time and we are looking at clock and make sure that we spent not more than 9 or 10 minutes for this question

If we spent more than 9 or 10 minutes we need to speed up a bit and probably skip some time-consuming questions in the next block of 4 or 5 questions

The next step is to record our answers

And we are done with these four questions

All we need to do now is repeat the same algorithm for the remaining 22 questions and we will be fine

Let’s recap what we have learned today

Our approach ­ we will treat the PST as a consulting engagement, namely using structuring approach looking forward for 80/20, work crazy hours and leverage the feedback

Question types – there are four of them: Premise, Fact, Conclusion, Other

Each type has its own solution algorithm which we will deal with in the following theory sessions

Solution steps

Understand the question

Index the data

Pick the best option

Track the time

Record the answers

Alright, that’s all for today. If you have any questions ­ please leave them in comment section and ill be happy to reply

Thanks for your attention and until next time

 

 

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