GUESSTIMATES

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Do not neglect this section and be thoroughly prepared with the same. A guess estimate can be asked in
multiple ways, even while solving a normal profitability case. Once you have completed the guess-
estimate then try to include the following to make your analysis much richer –

a. Verification of data – Identify a few sources from where you can get the right numbers to further
refine your estimate.

b. Sensitivity Analysis – Conduct a basic sensitivity analysis and identify the most critical
assumptions you made.

Such an extended analysis shows that you have thought through all the assumptions made and are not
arbitrarily using any number to estimate. Although the numbers do not matter here but having a basic
sense of the numbers used, knowledge of conversion scales and identifying the potential areas of
over/under estimating helps a lot.

Guesstimate problems can be solved through three methods (with certain other variations):
1). Top Down Method
2). Bottom Up Method
3). Employing a proxy

Tips:
1). When you receive a guesstimate question, please make sure you scope it down so that applying a
method becomes easy
2). Use simple numbers and round off intelligently so that you don’t get stuck on account of calculations
3). Please try to write the guiding formula you are going to use and explain it to the interviewer so that
while you are performing the guesstimate, he follows you.
4). Whenever you make an assumption, please take a buy in of the interviewer asking “ Does that make
sense ?”
5). Whenever you make and assumption, please make sure that the actual no. can be found out through
a public information source, so even if your assumed no. is not correct, it can be correct. Be sure to state
the same.
6). Try and be MECE (Mutually Exclusive Collectively Exhaustive), just like in solving cases, at each step

Example 1: Estimate the no. of auto rickshaws in Delhi

Whenever you encounter such problem, please be sure to ask the interviewer whether he wants you to
solve the problem from supply side or demand side.

From Demand Side

You actually go about determining the actual demand of auto rickshaws. The steps followed could be as
under:

1). Formula: No. of auto rickshaws = (Total No. of Auto Passenger Trips to be travelled per day in
Delhi)/ (No. of Trips/Auto/day)*(No. of Passengers/Trip)* Utilization factor

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2). Now in order to calculate Auto passenger miles, we would divide the trips into trips into trips made for
regular usage ( done by professionals ) and occasional trips, and use top down method to calculate
each
3). We would first figure out trips done for professional usage by figuring out how many people use auto
rickshaws for professional usage on a daily basis, using filters such as income.

Top down Method

Population of Delhi = 1.2 Crores

% Working (say 1 per household) = 1.2/4 = 30 lacs
Auto Fare per day =Total kms* km rate = 20*15 = Rs. 300
Total monthly expense = 300*30 = 9000
Assumption (A person can at max spend 10% of his income on auto rickshaw) = 90000 Rs per month
should be his income)

% people in urban Delhi in that income bracket (10%) = 3 lacs

% People who shall be travelling by auto = 1-% people who use own vehicle-%people who use metro
= 40%

No. people who would use auto on a regular basis for professional usage = 3 lacs*0*40% = 1.2 lacs

Hence no. of passenger trips from professional usage = 1.2*2 trips/day = 2.4 lacs auto passenger trips

Similarly, we can find out for occasional usage ( we can also employ 80:20 rule as well, saying majority of
trips are for professional usage, lets add 20% to account for remaining trips, but such justifications should
be backed well with data)

On no. of trips an auto makes, you can use the following formula
= (Average speed of an auto) * No. of operating hours* (Idle time)/ Average distance per trip
And verify this no. by using your judgment whether it looks practical or not

You can similarly find out, the other terms in the main formula and figure out the number.

From Supply Side

1). In order to verify this you can employ supply side through following formula
= (Average Total No. of autos sold in Delhi/year)*( Average life of an auto)

2). You can find out the first term by looking up the sales numbers of all the major auto players for past
few years ( In the interview you would have to assume or ask) and average life of an auto also is a similar
information

Similar Problem: Estimate the Airplane Fleet size of Air India

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Example 2: Estimate the two wheeler market in India

Please make sure you ask whether the market has to be estimated in no. of units or You can again
approach this problem from supply side and demand side. You need to clarify the same with the
interviewer.
Demand Side

1). We would divide the demand into : New Demand ( new users) and Replacement Demand ( Existing
Users)

Replacement Demand = ( Total No. of Two Wheelers Currently in India)/ ( average replacement
period)

New Demand = (Population segment Growth Rate) * Total no. of two wheelers currently in the
country

2). Two wheelers can be of two kinds: Domestic (owned for personal usage) and Professional (owned by
professional agencies such as dominos, police, postman)

3). To estimate for personal usage, we would employ top down method

4). Start with population of India, 1.2 Billion

5). Urban (30%) and Rural (70%), which implies 0.36 Billion Urban and 0.84 Billion Rural

6). No. of Urban Households 0.36/4 = 90 Million and No. of Rural Households = 0.84/6 = 140 Million

7).Now we need to figure out how many can afford a two wheeler and remove the elite population that
only owns four wheelers. Hence, we shall have to find out the income level and figure out the number of
two wheelers in households hence.

8). Lets say that no. comes out to be 30 Million

Now , based on the current no. we can find out the expected replacement demand

Replacement Demand (Domestic) = 30/4 = 7.5 Million

New Demand = 30*2% (growth rate of eligible population segment)
= 0.6 Million
Hence total domestic market = 7.5+0.6 = 8.1 million/year

9). To calculate Professional Demand, we can use proxy and bottom up combination
So, first assumption is professional usage is primarily urban
Then take a city and categorize various types of uses (This is bottom up approach):
1). Police
2). Dominos
3). Postal Services
4). Others

Estimate each of these and come with a number

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Then employ proxy method as under

Total Professional usage = (No. of vehicles in the city)*Urban population in the country/
(Population of the city) * Correction factor

Supply Side: Similar approach as Example 1, please try it yourself

Similar Example: Estimate the pet food market in India

Estimate the luxury home market in Chandigarh

Example 3: Can two dogs have identical no. of hair in the world?

Short Answer is YES!

This one is an application of pigeon hole principle (Such problems have been asked in Oliver
Wyman in past)

http://en.wikipedia.org/wiki/Pigeonhole_principle#Hair-counting

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