Title Guesstimates Handbook (1).pdf ✅

Guesstimate Handbook Examples with solutions
Guesstimates – An Introduction Top-Down Approach This approach starts with a large set such as total population and then works on adding different splits and filters making reasonable assumptions to reach to an estimate. Bottom-Up Approach This approach starts with forming an estimate for a specific representative unit and later extrapolating with reasonable assumptions to reach to an estimate. Demand Approach This approach for market sizing is based on estimating the number of customers in the target market and units consumed per customer in a given time period. Supply Approach This approach for market sizing uses the supply value chain to estimate production quantity based on raw materials or number of factories and further extrapolating. Market Sizing This type of guesstimates involve estimation of size of a market or revenue of a company. This is solved by both estimation of quantity and selection of price for each type of product. Unconventional This type of guesstimates may not have a defined structure. Such guesstimates are typically asked in interviews to test the approach rather than the specific calculations. When, guesstimates are solved by using top-down approach, following are various splits commonly used to drill down – • Rural-Urban Split: Geography based approach • Gender Split: Split between male and female • Age Split: Split the population into various age ranges • Income Split: Based on individual or household income A guesstimate is a combination of guess and estimate. Solving a guesstimate involves using a structured approach to reach the solution while making sound assumptions, performing back-of-the-envelope calculations and communicating the process effectively during an interview. Types of Guesstimates Splits & Filters Methodology Demand & Supply Approach 1
Estimate the annual demand for Gold Flake cigarettes in Mumbai • Market Share of Gold Flake in Mumbai would be like the Market Share in other metro cities such as Delhi and Bangalore • Segment the population into those of Smoking Age (Adults) and those not of Smoking Age (Children) Interviewee Notes • Begin by estimating the total market for cigarettes in Mumbai Facts/Assumptions Approach/Framework • Market Share for Gold Flake is 20% in Delhi and 22% in Bangalore • Assume that 50% of Adults smoke cigarettes • Assume average cigarette consumption of 1 Pack/Day • Each pack has 20 cigarettes 1 Pack/Day 365 Days 20 Cigs/Pack 7.5 Mn Population of Mumbai (20 Mn) Of Smoking Age (75%) (15 Mn) Not of Smoking Age (25%) (5 Mn) Smokers (50%) (7.5 Mn) Non-Smokers (50%) (7.5 Mn) 7.5 Mn * 365 * 20 = 54,750 Mn Cigs/Year Approx. Market Share of Gold Flake = 20% Demand for Gold Flake = 0.2 * 54,750 Mn = 10,950 Mn Cigs/Year Observations/Inferences • This has been solved using the Top-Down approach Guesstimate 1 2
Estimate the monthly residential electricity consumption in India Interviewee Notes • Clarify which segments are to be included (Residential or Commercial) as their consumption patterns are very different. In this case, focus only on residential. • Within the Rural segment, interviewee may consider adjusting for homeless people and areas which are not electrified • Weighing monthly consumption by % of households in the income type and multiplying this by # of households will give monthly units consumption • Average Household Size is 4 in Urban areas and 6 in Rural areas Guesstimate 2 Approach/Framework Residential Urban Population (300 M) Low Income 60% 300 Units/Month Mid Income 30% 1200 Units/Month High Income 10% 3000 Units/Month Low Income 70% 100 Units/Month Mid Income 25% 300 Units/Month High Income 5% 1000 Units/Month Commercial Rural Population (700 M) Urban Households (300 M/4) (75 M) Rural Households (700 M/6) (120 M) 75M x (60% x 300 + 30% x 1200 + 10% x 3000) = 63,000M units 120M x (70% x 100 + 25% x 300 + 5% x 1000) = 23,400M units Electricity 3