McKinsey

Problem Solving Test

Practice Test A

© 2013 APTMetrics, Inc.

McKinsey
Problem Solving Test
Practice Test A

© 2013 APTMetrics, Inc.

1

Instructions

McKinsey Problem Solving Test

Practice Test Overview and Instructions

This practice test has been developed to provide a sample of the actual McKinsey
Problem Solving Test used for selection purposes. This test assesses your ability
to solve business problems using deductive, inductive, and quantitative reasoning.
This practice test contains a total of 26 questions. The actual test contains 26
questions and you will be given 60 minutes to answer as many questions as possible.

You will be presented with three scenarios based on actual McKinsey client cases.
Information related to each scenario will be shown in text, tables, and exhibits. This
information is presented in shaded areas and is distributed in sections throughout
the scenario. The questions ask you to find the most appropriate answer to the
problem as described using only the information presented. You should select one
and only one answer to any question.

While completing this practice test, do not use any electronic devices (e.g.,
calculator, computer) when performing calculations to answer the questions.
Electronic devices will not be permitted to be used during the actual test
administration. Also during the actual test administration, you may use all
blank space in the test booklet as scratch paper to assist you in performing any
calculations and recording any notes. No scratch paper will be allowed. Booklets
will be destroyed after you complete the test and will not be used in any way to
determine your test scores. Your final test score will be based on the number of
questions you answer correctly.

The practice scenarios begin on the next page of this booklet. Only consider
information contained within the scenario when determining your answer.
Considering all information presented within the scenario is critical to answering
questions correctly.

After you have completed the test, score your answers using the answer key located
at the end of this booklet. Add the number of correct answers to determine your
final total score.
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Innovation Capital

Innovation Capital
The Group of Eight or G8 is a group comprised of political representatives of eight
of the world’s largest eleven economies: United States, United Kingdom, Canada,
Germany, France, Italy, Japan and Russia. The G8 meet periodically to discuss issues
of importance to member states and agree upon measures to address these issues.

The countries that comprise the G8 have been experiencing slow economic growth
in recent years, and this is an important topic to be discussed at the next meeting
of G8 Finance Ministers. In preparation for this meeting, a McKinsey team,
working together with a group of external thought leaders and academics, are
preparing a report on the importance of Innovation as a contributor to economic
growth. The team intends to introduce a concept to the G8 representatives known
as ‘Innovation Capital’, which is the value of all innovation-related assets which
contribute to growth in productivity in the economy.

The team further defines three types of Innovation Capital:

ƒƒ Physical Capital: Investments in information and communication

equipment
ƒƒ Knowledge Capital: Investments that build the intellectual property and
brand value of a company or organization
ƒƒ Human Capital: Investments that build individual or group abilities and
skills within companies or organizations

Exhibit 1 shows the main components of Innovation Capital and their total value
across 16 countries that the team has been studying, including the members of
the G8.

Exhibit 1

Total innovation capital, (US$ trillions)

Information and communications infrastructure 2.2

Computerized information 1.2

Scientific research and development 3.2

Other research and development 3.3

Advertising and market research 0.6

Education 1.1

Employee development 0.7

Organizational development 1.5

Total 13.8
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Innovation Capital

1. Which of the following MOST accurately describes the reason for the team’s
work in preparing for the G8 meeting?
A. The team has discovered a new economic measure known as Innovation
Capital and wants to introduce it
B. The team wants to explain how Innovation can drive economic growth
C. The team wants to explain how Innovation can represent a large proportion
of an economy’s size
D. The team wants to convince the group to invest more in Innovation Capital
in the future

2. Which of the following analyses would be LEAST appropriate in better

understanding the size of investments in Innovation Capital in the countries the
team has been studying?
A. Analysis of expenditure by organizations on training programs for their
employees
B. Analysis of expenditure by organizations on activities which build
awareness of their aims and purpose
C. Analysis of expenditure by organizations on networking and socialization
meetings and events
D. Analysis of expenditure by organizations on the management of their
databases and information systems

3. Which of the following can be concluded based on the information provided in

Exhibit 1 regarding the countries being studied?
A. 45% of all Human Capital is invested in Organizational Development
B. 51% of all Innovation Capital is Knowledge Capital
C. More than 10% of Innovation Capital is invested in Computerized
Information
D. More than a quarter of Innovation Capital is Scientific Research &
Development
4

Innovation Capital

4. If total Innovation Capital in Exhibit 1 were to grow by 5% per year in the future,
which of the following would be the MINIMUM required annual growth in
Human Capital that would see it represent more than half of total Innovation
Capital in 10 years?
A. 10%
B. 15%
C. 20%
D. 25%

The team proceeds to examine changes in business sector growth in a number

of European countries in recent years, that is, the change in the total value of
goods and services produced by the business sectors in these countries.

Growth in the value of goods and services can be driven by two factors:

ƒƒ Hours: Changes in the total hours worked can drive changes in the total
goods and services produced
ƒƒ Productivity: Even if the same number of hours have been worked, a more
or less productive workforce can generate greater or lesser goods and services.

Exhibit 2 shows the average contribution of these two factors towards business
sector growth in ten European countries over the last 12 years. Average annual
business sector growth is given at the top of each bar. Within each bar, the
light grey portion represents the proportion of this growth driven by changes
in Productivity, while the dark grey portion represents the proportion of this
growth driven by changes in Hours.

Exhibit 2 Productivity
Percent Hours

1.4
4.8 3.9
4.2 3.4 2.2 3.2 2.5 1.5 3.8
20.1
33.9
53.8
67.8
121.6 84.3 82.7 80.9
107.6 107.4
79.9
66.1
46.2
32.2
15.7 17.3 19.1
-7.6 -7.4
-21.6

Germany Slovenia Czech Sweden UK France Netherlands Denmark Italy Spain

Republic
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Innovation Capital

5. Which of the following statements, if true, would BEST explain why the
information in Exhibit 2 is important for the team?
A. Most of the countries in Exhibit 2 have experienced negative economic
growth in the last 2 years
B. In most countries, the business sector is the biggest contributor towards
Innovation Capital
C. Growth in Hours is mostly driven by growth in the size of the working
population
D. Growth in Productivity is mostly driven by growth in Innovation

6. Which of the following statements is TRUE based on the information provided

in Exhibit 2?
A. Hours grew by 24% across all ten countries over the last 12 years
B. Slovenia had the greatest growth in Productivity over the last 12 years
C. Spain had the least growth in Productivity over the last 12 years
D. Germany had the least growth in Hours over the last 12 years

7. To the nearest tenth of a percentage point, what is the difference

between Germany’s and Spain’s average annual business sector growth due to
productivity over the last 12 years?
A. 0.1 percentage points
B. 0.5 percentage points
C. 0.9 percentage points
D. 1.3 percentage points

8. Which of the following, if true, LEAST explains the data for Slovenia and Czech
Republic in Exhibit 2?
A. Over the last 20 years, the average age of the population in these countries
has been steadily increasing
B. Prior to the period in Exhibit 2, these countries were emerging from Communist
economies with comparatively poor infrastructure and productivity
C. Net migration into these countries has been negative over the last 12 years
D. Changes in employment laws in these countries have led to greater
flexibility for employers in setting working hours for their employees
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Innovation Capital

In preparing further for the G8 meeting, the team decides that it would be a good
idea to use some specific examples of recent major innovations to help better
explain the importance of Innovation Capital.

A team member suggests using Apple’s iPod music player as such an example. The
team readily agrees to this suggestion. They believe that the development of the
iPod not only illustrates all three types of Innovation Capital, but it also shows how
up-front investment in Innovation Capital can lead to follow-on advantages for the
investor that accumulate over time.

9. Which of the following statements LEAST illustrates the Innovation Capital

underlying the development of Apple’s iPod?
A. New software and technology was required to allow the distribution of
music through online channels
B. New pricing was negotiated with the music industry to encourage online
music purchasing
C. New design concepts were developed that gave the product an appealing
look and feel
D. A new way of working with the music industry was developed to allow rapid
distribution of new music to iPod users

10. Which of the following analyses would BEST illustrate the team’s beliefs
regarding Apple’s iPod?
A. An analysis of the market share achieved by Apple for its products
subsequent to the iPod
B. An estimate of the size of the investment made by Apple in the development
of the iPod
C. An estimate of the profit margins of the music industry subsequent to the
launch of the iPod
D. An analysis of the reactions of technology experts to the iPod and
subsequent Apple products
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Marcadia

Marcadia
Marcadia is an online store which offers a wide range of goods to customers via
mail order. Marcadia has been in existence for five years and has seen rapid
growth in sales during this period, as more and more new customers signed up.
However, recently Marcadia’s customer numbers have plateaued and this has
resulted in slower sales and profit growth.

The Managing Director of Marcadia has engaged McKinsey to help her better
understand the purchasing behavior of her customers. She believes that a
better understanding of customer purchasing can lead to more targeted and
successful marketing. She tells the team: ‘I’m sure that our most valuable
customers have certain purchasing behaviors that we can identify. If we can
encourage more of our customers to adopt those behaviors, we can make
them more valuable to us and this can inject a new source of growth into our
business.’

Exhibit 3 shows some data which the team has collected regarding a sample
of 500,000 Marcadia customers who signed up in the last calendar year.
The customers are split into quintiles according to their one year customer
value, from lowest to highest. ‘One year customer value’ is defined as the
profit made by Marcadia on purchases made by a customer in their first year
since signing up. Also presented is data on purchasing by customers in each
quintile in their first 90 days since signing up, namely the average number of
purchase transactions and the total revenue received by Marcadia from those
transactions.

Exhibit 3

Average One Year Value Average after 90 days

US$ Number of Total
Transactions Revenue

Quintile 1 1.0 1.1 $79

Quintile 2 1.5 1.3 $111

Quintile 3 3.0 1.5 $120

Quintile 4 8.0 2.6 $252

Quintile 5 26.0 5.7 $490

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Marcadia

11. Which of the following statements BEST describes why the Managing Director
of Marcadia has engaged McKinsey?
A. She believes that Marcadia can become better at identifying customers who
stop making purchases
B. She believes that Marcadia can become better at identifying ways to
encourage customers to spend more
C. She believes that, by focusing on the customers of greatest value, Marcadia
can drive renewed growth in their business
D. She believes that Marcadia can predict the purchasing behavior of its
customers better

12. Which of the following CANNOT be concluded from the information presented
in Exhibit 3 regarding the sample of customers analyzed?
A. Purchasing by customers in their first 90 days is an indicator of their value
to Marcadia in their first year
B. Quintile 1 are the customers with the lowest profit margin for Marcadia
C. The average customer makes between 2 and 3 transactions in the first
90 days since signing up
D. The average one year customer value is $7.90

13. What is the correct ranking of the five quintiles in Exhibit 3 according to the
average transaction revenue, from lowest to highest?
A. 1, 2, 4, 3, 5
B. 1, 2, 3, 4, 5
C. 1, 3, 2, 4, 5
D. 1, 3, 2, 5, 4

14. If Marcadia had driven higher purchasing from the new customers in Exhibit 3
so that the one year value of customers in Quintiles 1 thru 4 were each to increase
to the next highest quintile, how much greater would Marcadia’s total one year
customer value have been?
A. $250,000
B. $650,000
C. $2.5 million
D. $6.5 million
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Marcadia

The team designs an email marketing pilot for 100,000 new customers
who have made at least one purchase since joining. In this pilot, these new
customers are split into two equal groups: a ‘pilot’ group and a ‘control’ group.
The pilot group receives a specially designed email to encourage further
purchasing, while the control group does not receive the email. All emails are
sent to the pilot group at the same time, and the emails are designed differently
according to the demographics of the customer and his or her prior purchasing
behavior.

Following the pilot, the team constructs Exhibit 4. This shows the ‘lift’ in the
purchasing behavior of the pilot group compared to the control group after the
emails were sent to the pilot group. Horizontally, the information is divided
according to how long ago the customer made their first Marcadia transaction,
measured from the time the emails were sent to the pilot group. Vertically, the
information is divided according to what kind of product was purchased in the
customer’s first Marcadia transaction. Within each box, the upper left portion
shows the lift in the number of transactions, while the lower right portion shows
the lift in the number of customers who made transactions. All data in Exhibit 4
is in percentage points.

Exhibit 4 % lift in number

of transactions % lift in number of
customers making
transactions

Weeks since 1st transaction

0-2 2-4 4-6 6-8 Total

1.6 7.0 -1.2 6.9 3.8

Electronics
3.5 6.4 1.8 9.0 5.0

3.0 -0.3 -6.0 -6.6 -1.7

Clothing/Apparel
2.3 0.3 -3.7 0.1 0.0

3.7 6.0 -2.4 -3.7 1.5

Other
2.2 4.4 0.4 0.5 1.9

2.0 3.1 -2.4 -0.8 0.9

Total
2.0 2.8 -0.4 2.4 1.7
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Marcadia

15. When comparing the pilot group to the control group, which of the following
CAN be determined from the information provided in Exhibit 4 for customers
who purchased Electronics in their first transaction?
A. Percentage difference in average number of transactions per customer
B. Difference in number of customers making transactions
C. Two week time segment which had the greatest difference in number of
transactions
D. Percentage of total lift in number of transactions represented by each two
week time segment

16. If 10% of customers in the control group made transactions during the pilot, how
many of the customers in the pilot group made transactions during the pilot?
A. 5,085
B. 5,850
C. 10,170
D. 11,700

17. Which of the following CANNOT be concluded from the information presented
in Exhibit 4?
A. The pilot had no overall impact on the likelihood of making further
transactions among customers whose first purchase was in Clothing/
Apparel
B. The pilot had a positive impact on the number of transactions per customer
for customers who made their first transaction 4-6 weeks before emails
were sent
C. The pilot had greatest impact among customers whose first transaction was
in Electronics
D. Among customers whose first transaction was in ‘Other’, the pilot had
greatest impact among those whose first transaction was more recent
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Marcadia

18. Which of the following data from the pilot period would be LEAST useful to the
team in further investigating the impact of the pilot on Marcadia’s business?
A. Average transaction value for pilot group and control group customers
B. Percentage of pilot group emails that were not delivered and bounced back
C. Breakdown of data in ‘Other’ category to further levels of detail
D. Breakdown of two week time periods into weekly time periods

The team calls a meeting with the Managing Director of Marcadia to update
her on the results of the pilot. While presenting the results of the pilot, one of
the team members reminds the Managing Director that all new customers may
have received emails from Marcadia which were not related to the pilot.

19. Which of the following is MOST LIKELY to be the reason for the statement by the
team member to the Managing Director?
A. The Managing Director is concerned that customers in the control group
were neglected
B. The team are concerned about how well Marcadia’s staff executed the pilot
C. Customers who receive too many emails from the same company become
less likely to open and read them
D. Customers may discover that they were not selected for the pilot and may be
unhappy about this
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WFGLA

Way Forward Greater London Area

(WFGLA)
Way Forward (WF) is a non-profit organization that consists of more than 50
local offices in the United Kingdom. Way Forward Greater London (WFGLA)
is one of these local offices based in the Greater London Area, a metropolitan
area surrounding the city of London. Typically the local offices work together
with private and social sector organizations to pool efforts in fundraising
campaigns. These campaigns typically address pressing community issues,
usually around education, income or health. WF first seeks to educate the
population about these campaigns, then solicits donations.

Currently, there is an economic downturn in the United Kingdom. This

presents a challenge for WFGLA, because donations are decreasing when
community need is at its highest. The President of WFGLA has reached out to
McKinsey to ask for support. He tells the team: “I need your help on improving
our campaign effectiveness, which we define as the number of pounds donated
per pound spent on the campaign. We really need to focus on increasing
donations in these times!”

A campaign is usually organized by a group of people called a “campaign

cabinet”. This group includes WFGLA staff, as well as volunteers from the
general public; the actual campaign work is conducted by volunteers.

20. Given the aims of the President of WFGLA, which would be the LEAST relevant
question for the team to answer?
A) How can WFGLA get better at targeting people who are likely to donate?
B) How can WFGLA engage with people in ways that are more likely to result
in donations?
C) How can WFGLA contact and communicate with their donors in a lower
cost way?
D) How can WFGLA improve the execution of campaigns by the campaign
cabinet?
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WFGLA

21. Which of the following pieces of information would be LEAST helpful in better
understanding the current WFGLA situation?
A) Total amount of donations, in British pounds, collected by other WF offices
across the U.K.
B) Comparison of donations made to WFGLA by one-time donors versus
regular donors over the past 5 years
C) Market research on the public awareness generated by WFGLA campaigns
over the past 5 years
D) Comparison of campaign effectiveness with other local WF offices

The team gathers more data on WFGLA and on other WF offices. Exhibit 5
shows the total donations and total campaign costs in million British pounds
(£) for various WF offices last year.

Exhibit 5

WF Offices Donations Campaign cost

WFGLA 20.8 3.0

Region A 35.7 4.4
Region B 15.8 1.9
Region C 40.9 2.0
Region D 23.6 2.1
Region E 17.6 1.3
Region F 38.1 3.2
Region G 43.8 1.9
Region H 16.4 1.1

22. How should Regions A to E in Exhibit 5 be ranked according to their campaign

effectiveness from highest to lowest?
A) C, E, D, B, A
B) C, A, D, E, B
C) C, E, D, A, B
D) A, B, D, E, C
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WFGLA

23. Assuming WFGLA could reach the highest campaign effectiveness of all
other regions on Exhibit 5, by what percentage could their current campaign
effectiveness be increased?
A) 196%
B) 235%
C) 296%
D) 335%

One potential opportunity the team explores is a segmentation of potential

donors according to the type of work they do, with the aim of taking different
fundraising approaches for employees working in different occupations. The
team identifies 3 segments of workers:

ƒƒ Blue Collar: Employees doing mostly manual work

ƒƒ White Collar: Employees doing mainly office work
ƒƒ Executive: Employees who mostly have college or advanced degrees, and
who typically work as senior managers in business

Exhibit 6 shows the number of employees in thousands in each segment

in the Greater London Area. Employees are categorized by the size of the
company they work for, as well as their level of contact with WFGLA so far, or
‘relationship intensity’. The goal is to subsequently increase the relationship
intensity for each segment, so that each segment moves closer to the ‘frequent
contact’ group.

Exhibit 6

Relationship intensity

No contact Little contact Frequent contact

Blue White Blue White Blue White

collar collar Executive collar collar Executive collar collar Executive

Small 86.1 86.5 45.1 2.1 9.9 5.1 1.4 2.9 2.0

Medium 79.6 99.6 62.0 15.8 23.4 13.7 3.8 3.2 3.4

Large 50.0 137.5 40.0 125.6 318.7 100.4 20.7 14.9 14.1
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WFGLA

24. Which is most likely to be TRUE based on the information given on Exhibit 6?
A) WFGLA has had contact with slightly more than 50% of all employees in the
Greater London Area
B) Small companies have received the least attention by WFGLA in the past
C) The biggest proportion of the total amount donated has come from
employees with frequent contact
D) The biggest opportunity to increase donations is to get in touch with those
employees who work for large companies WFGLA is not in contact with yet

The team explores the donation potential for each of the segments according
to the company size. The team concludes that a medium Blue Collar company
employee with frequent contact currently donates double the amount of a
medium Blue Collar company employee with little contact. They also determine
that, if targeted with the right approach, all employees of medium Blue Collar
companies would increase their donation by £50 per person per year. This will
include employees who do not have any current contact with WFGLA, whom do
NOT make any donations currently.

25. If WFGLA implements the targeted approach, the expected total donation
estimate for Blue Collar employees in medium companies will be £6.13 million.
What is the current annual donation of a Blue Collar employee with frequent
contact in a medium company?
A) £50
B) £100
C) £150
D) £200
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WFGLA

26. In addition to donation potential, which would be the LEAST helpful

information to consider when deciding the prioritization of the different
employee segments to WFGLA?
A) The amount of disposable income of the various employee segments
B) The number of volunteer hours to be invested per segment to increase
employees’ relationship intensity to the next level
C) The effectiveness of past campaigns with similar employee segments
D) The additional budget amounts WFGLA would need per segment to
increase employees’ relationship intensity to the next level
17

Answers

Answer Key
Innovation Capital
1. B – The introductory paragraphs state that the team is preparing a report on the
importance of innovation as a contributor to economic growth. Option B is the
only statement that mentions the connection between innovation and economic
growth.

2. C – Referring to the three types of Innovation Capital defined in the

introductory paragraphs, Option C is the only option that does not fit into any
of the three types. Option A is an educational activity which fits into Human
Capital, Option B relates to building an organization’s brand, which fits into
Knowledge Capital. Option D is related to building the intellectual property of
an organization, which also fits into Knowledge Capital.

3. A – Observing Exhibit 1 and relating the categories to the three types of

Innovation Capital, it can be seen that the final three categories represent
Human Capital, which totals $3.3 trillion. Of this, Organizational Development
represents $1.5 trillion, which is 45% of $3.3 trillion. The 2nd thru 5th
categories represent Knowledge Capital, which can be calculated as 60% of the
total, rendering Option B incorrect. Option C is incorrect as Computerized
Information represents 8.7% of the total. Option D is incorrect as Scientific
Research and Development represents 23.2% of the total.

4. B – At 5% per year growth over 10 years, total Innovation Capital would grow to
$22.5 trillion. At 10% per year growth, Human Capital would only grow to $8.6
trillion. However, at 15% per year growth, Human Capital would grow to $13.4
trillion, which would be more than half of total Innovation Capital.

5. D – The original aim of the team is to show how Innovation Capital can drive
economic growth. From Exhibit 2, in most countries, business sector growth is
driven mostly by improvements in productivity. Combining Option D with this
observation establishes a direct link between Innovation Capital and business
sector growth, hence economic growth.
18

Answers

6. B – Growth in productivity can be calculated by multiplying the overall growth

rate by the proportion that is due to productivity. Observing that Slovenia
has the highest overall growth rate, and the second highest proportion due
to productivity is sufficient to establish that Option B is correct. Option A is
incorrect as Hours growth can be calculated by multiplying overall growth by
the proportion due to Hours and in every country this can be seen to be much
less than 24%. Option C is incorrect as Italy has the least growth in productivity.
Option D is incorrect as Slovenia has the least growth in Hours.

7. C – The two growth figures for Germany and Spain can be calculated by
multiplying their total growth by the proportion due to Productivity. For
Germany, this figure is 1.7% (= 1.4 x 121.6%). For Spain, this figure is 0.8% (=3.8
x 20.1%). Therefore the difference is 1.7 – 0.8 = 0.9 percentage points.

8. D – Option D states that employers have greater flexibility in setting working

hours, which is inconsistent with the trend in these countries that working
hours are declining. Option A would help explain the declining hours due to an
ageing population. Option B would help explain the comparatively high growth
rates due to emergence from stagnant economies. Option C would help explain
declining hours due to more people exiting these countries than entering.

9. B – Referring to the three types of Innovation Capital in the introductory

paragraphs, Option B is least likely to represent any of these types, as pricing
of products is not in itself a new technology or intellectual property. Option
A would represent either Physical Capital or Knowledge Capital. Option C
would represent Knowledge Capital. Option D would be new organizational
development which would represent Human Capital.

10. A – The team’s belief is that investment in Innovation Capital can lead to follow-
on advantages for the investor. In the case of the iPod, the investor is Apple.
Of the options presented, only Option A might illustrate follow-on advantages
for Apple through establishing improvements in market share for subsequent
products. Option B refers only to investment, which would not necessarily
establish an advantage for Apple. Option C looks at the entire music industry,
which would not necessarily show an advantage for Apple. Option D refers to the
opinion of technology experts, which may not reflect an advantage for Apple in
the marketplace.
19

Answers

Marcadia
11. B – From the introductory paragraphs, the Managing Director is looking to find
ways to encourage customers to adopt purchasing behaviors that more valuable
customers are known to have. Given that a customer needs to make more
purchases to become more valuable to Marcadia, this could be rephrased as
‘encouraging customers to spend more’. Option A refers to customers who stop
purchasing, who are not mentioned by the Managing Director. Option C refers
to driving growth purely through focusing on customers of greatest value, which
is also not a true reflection of the Managing Director’s opinion. Option D refers
to ‘predicting’ purchasing behavior, which is not mentioned by the Managing
Director.

12. B – Profit margin cannot be calculated from the data in Exhibit 3 as revenue
data is only presented for the first 90 days. Option A is a reasonable conclusion
based on the relationship between revenue in the first 90 days and one year
value. Option C can be concluded by calculating the average of the ‘Number
of Transactions’ column, which equals 2.44. Option D can be concluded by
calculating the average of the ‘Average One Year Value’ column.

13. D – Average transaction revenue can be calculated by dividing total revenue

by number of transactions. The ranking, from lowest to highest. is 1 ($71.82),
3 ($80), 2 ($85.38), 5 ($85.96), 4 ($97.31).

14. C – There are 100,000 customers in each quintile. For each of the first four
quintiles, calculating the difference in one year value versus the next highest
quintile gives $0.50, $1.50, $5.00 and $18.00 respectively. Multiplying each by
100,000 and summing gives $50,000 + $150,000 + $500,000 + $1,800,000 =
$2,500,000.

15. A – For customers purchasing Electronics, there was a 3.8% lift in transactions,
and a 5% lift in number of customers making transactions. Therefore the
number of transactions per customer compared to the control group was
103.8%/105% = 98.9%, ie a ‘lift’ of -1.1%. Option B is not possible to determine as
there is no data on the number of customers in each product segment. Similarly,
Option C is not possible to determine as there is no data on the number of
transactions in each time segment. Finally, Option D cannot be determined for
the same reasons as Option C.
20

Answers

16. A – There are 100,000 customers in total in the pilot, and the control and pilot
groups are split equally, so 50,000 in each. If 10% of the control group made
transactions, this equals 5,000 customers. From the bottom right hand corner
of Exhibit 3, we can determine that the number for the pilot group was 1.7%
higher, which equals 5,000 x 101.7% = 5,085.

17. B – From the total of the 4-6 week column the number of transactions was
negatively impacted to a greater extent than the number of customers making
transactions. This implies that the number of transactions per customer
must also have been negatively impacted, which contradicts the statement in
Option B. Option A can be concluded, as there was a 0.0% lift in the number
of customers making transactions in the total for the Clothing/Apparel
row. Option C can be concluded because the figures in the total column for
Electronics are higher than for all other totals. Option D can be concluded
because the figures in the first two columns of the row ‘Other’ are on average
higher than those in the 3rd and 4th columns.

18. B – Option B may be helpful in understanding the execution of the pilot, but
would not help in determining its impact in terms of transactions or revenue.
Option A would help determine the impact of the pilot of revenues. Options C
and D would help understand in greater detail which segments of the customer
group were most impacted by the pilot.

19. C – This option is likely to impact whether a significant proportion of the pilot
group read the emails they were sent, and thus this impacts the results of the
pilot, which is the topic of the meeting with the Managing Director. Option A
is unlikely to be a concern of the team or the Managing Director given that a
control group was planned before the pilot began. Option B is unlikely to be the
reason, as sending emails not related to the pilot is not a measure of how well the
staff executed the pilot. Option D refers to something that could happen in the
future, which is not the topic of the meeting with the Managing Director.

WFGLA
20. C – The President’s aim is to increase donations. Answer choices A, B and D
would help to increase donations. Option C is about targeting donors in a lower
cost way, which is not the stated aim of the President, and hence would be the
least relevant question for the team to answer.
21

Answers

21. A – The total amount of donations collected by other WF offices would be least
helpful in and of itself, as different offices will target different population sizes
and demographics and direct comparisons would be meaningless. B would help
determine which types of donors to focus on. C and D would help determine the
effectiveness of current campaigns.

22. A – Calculating campaign effectiveness (defined earlier in the scenario as

pounds donated per campaign pound spent) gives you C = 40.9/2.0 = 20.5,
E = 17.6/1.3 = 13.5, D = 23.6/2.1 = 11.2, B = 15.8/1.9 = 8.3, A = 35.7/4.4 = 8.1.

23. B – In Exhibit 5, Region G has the highest campaign effectiveness at

23.1 (43.8/1.9). This is 235% greater than WFGLA’s current effectiveness of
6.9 (calculated by 23.1/6.9 - 1 or (23.1-6.9)/6.9).

24. B – Given that WFGLA is in contact with only ~10% of employees in small
companies, which is a much smaller proportion than for medium and large
companies, this option is the most likely to be true. Exhibit 6 does not represent
ALL the employees in the greater London area so Option A cannot be concluded.
Nothing is stated about the amount donated by the various segments, so it is not
clear whether Option C is true. Option D is not correct because there are more
people not contacted in medium-size companies than in large companies.

25. B – The equation to solve is 79,600 * £50 + 15,800 * (£50+x) + 3,800 * (£50 +
2x) = £6.13 million – solving for x gives you £50. However, as the question is
how much a frequent contact Blue Collar employee is currently donating, this
would be 2 * £50, i.e. £100.

26. A – Option A is only relevant in determining donation potential, which is

not the topic of the question. Options B and D both refer to the amount of
resources required in targeting the employee segments successfully, which
would be an important consideration in prioritizing the groups. Option C will
give an indication of the probability of success of campaigns with the various
segments based on past experience – another useful indicator in prioritizing the
segments.
McKinsey Problem Solving Test – Practice Test A
August 2013
www.mckinsey.com/careers
McKinsey
Problem Solving Test
Practice Test B

© 2006 APTMetrics, Inc.

1

Instructions

McKinsey Problem Solving Test

Practice Test Overview and Instructions
This practice test has been developed to provide a sample of the actual McKinsey
Problem Solving Test used for selection purposes. This test assesses your ability
to solve business problems using deductive, inductive, and quantitative reasoning.
This practice test contains a total of 26 questions. The actual test contains 26
questions and you will be given 60 minutes to answer as many questions as possible.

You will be presented with three scenarios based on actual McKinsey client cases.
Information related to each scenario will be shown in text, tables, and exhibits. This
information is presented in shaded areas and is distributed in sections throughout
the scenario. The questions ask you to find the most appropriate answer to the
problem as described using only the information presented. You should select one
and only one answer to any question.

While completing this practice test, do not use any electronic devices (e.g.,
calculator, computer) when performing calculations to answer the questions.
Electronic devices will not be permitted to be used during the actual test
administration. Also during the actual test administration, you may use all
blank space in the test booklet as scratch paper to assist you in performing any
calculations and recording any notes. No scratch paper will be allowed. Booklets
will be destroyed after you complete the test and will not be used in any way to
determine your test scores. Your final test score will be based on the number of
questions you answer correctly.

The practice scenarios begin on the next page of this booklet. Only consider
information contained within the scenario when determining your answer.
Considering all information presented within the scenario is critical to answering
questions correctly.

After you have completed the test, score your answers using the answer key located
at the end of this booklet. Add the number of correct answers to determine your
final total score.
2

Freddie’s Shrimp Shack

Freddie’s Shrimp Shack

Freddie’s Shrimp Shack (Freddie’s) is a chain of approximately 100 seafood
restaurants located along the Gulf Coast of the United States. Freddie’s has a
reputation for serving high quality seafood at a reasonable price. Although
Freddie’s serves a wide variety of seafood, the most popular food sold is shrimp.

Two types of shrimp are available on the Gulf Coast:

ƒƒ Aquaculture Shrimp: These shrimp are raised on farms at any time of

the year. They are usually imported into the United States by large seafood
wholesalers and distributors.
ƒƒ Wild Shrimp: These shrimp are caught in the wild in the Gulf of Mexico in
the summer and autumn months. Hundreds of small, family-owned boats
catch the shrimp and sell them at dock shrimp processors. There are dozens
of these shrimp processors scattered along the Gulf Coast. Boat owners will
take the shrimp to the nearest processor who is paying the highest price. The
processors then grade, de-head, and freeze the shrimp. In some cases, they
also peel and de-vein the shrimp. There are two standard forms that these
shrimp are sold in: headless, shell-on shrimp and peeled and de-veined
(P&D) shrimp. Freddie’s buys only headless, shell-on, wild shrimp because
of their perceived higher quality.
It is now October and Freddie’s overall profitability has been falling since
immediately before the summer season. The CEO has asked McKinsey to help
her understand the reasons behind this trend that started in May. She states
that the recent fall in profitability has been totally unexpected and she would
like McKinsey to look into it. She also notes that it seems like too much of a
coincidence that Freddie’s profitability is falling at a time when the price of wild
shrimp is climbing.

Table 1 shows monthly revenue for Freddie’s, in thousands of dollars, from May to
October.

Table 1: Freddie’s Monthly Revenue from May to October

(in $US Thousands)
May June July August September October
Revenue 1,223 1,264 1,355 1,402 1,342 1,292
3

Freddie’s Shrimp Shack

Exhibit 1 tracks the average price of wild shrimp in the months from May to
October, as well as Freddie’s profit margin in each of these months. In Exhibit 1,
the data for each month is presented as a percentage of the data in May.

Exhibit 1
Price of Shrimp and Profit Margin of Freddie’s from May to October
(Indexed against data for May)
115 Shrimp price
Profit margin
110

105

100

95

90

85

80
May Jun Jul Aug Sep Oct

1. Which of the following statements best describes the thoughts of Freddie’s CEO
regarding the recent profitability decline?
A) The CEO wants McKinsey to investigate the decline in profitability because
she does not have any ideas on what is causing it
B) The CEO wants McKinsey to investigate the decline in profitability, but
would not be surprised if the price of shrimp was a key cause
C) The CEO wants McKinsey to investigate how an increase in the price of
shrimp can lead to a decrease in the profitability of her business
D) The CEO wants McKinsey to investigate why the price of shrimp has risen
over the last few months

2. Based on the data presented in Table 1 and Exhibit 1, which of the following
statements is true?
A) The rate of increase in shrimp price from May to October is the same as the
rate of decrease in profit margin in these months
B) Freddie’s made 5% less profit in August than it did in May
C) Freddie’s made a greater profit in August than it did in May
D) Restaurant prices for shrimp dishes were 10% higher in October than in May
4

Freddie’s Shrimp Shack

The research manager at Freddie’s gives you five facts regarding customer
eating habits in its restaurants as follows:

I. Customers prefer cold dishes in hot weather

II. Customers prefer hot dishes in the evening
III. Most cold dishes are shrimp dishes
IV. Hot dishes have more varied ingredients than cold dishes
V. Shrimp dishes are the highest priced customer meal

3. Which combination of the five facts above would be sufficient to help explain the
trend in Freddie’s revenues from May to October?
A) I, III, IV
B) II, IV, V
C) I, III, V
D) III, IV, V
5

Freddie’s Shrimp Shack

The team decides to examine the costs associated with Freddie’s operations in
greater detail. They focus on the cost of procuring shrimp for Freddie’s dishes.
The team proceeds to break down all costs involved from “boat to throat”,
that is, from the moment the shrimp is caught to the moment it is eaten by a
customer.

When shrimp are caught they are sold to one of the dock shrimp processors,
who take off the heads and freeze the shrimp. Agents, who are employed by
Freddie’s to purchase the shrimp from the processors, then store them frozen
for dispatch to a nearby restaurant. The restaurant then prepares the shrimp by
peeling and de-veining them. Finally, they are washed, cooked, and served to
the customer.

Exhibit 2 breaks down the current cost of each of these steps per kilogram (kg)
of shrimp. (1 kg = 1000 grams).

Exhibit 2
Cost in $ per kg of Shrimp from ‘Boat to Throat’

Price from boat 9.80

Processing costs/margin 1.45

Price to Freddie’s agent 11.25

Agent costs and fees 1.70

Price to restaurant 12.95

Restaurant preparation cost 2.80

Total ’boat to throat’ cost 15.75

The team investigates the option of eliminating the cost associated with
restaurant preparation. Peeling and de-veining the shrimp reduces the weight
by 10%. This reduction in weight is taken into account by the ‘restaurant
preparation cost’ component of Exhibit 2.
6

Freddie’s Shrimp Shack

4. Which of the following values is the closest estimate of the proportion of

restaurant preparation cost accounted for by the weight reduction from peeling
and deveining the shrimp?
A) 20%
B) 30%
C) 40%
D) 50%

The kitchen equipment supplier for Freddie’s informs the team about a machine
that will peel and de-vein shrimp automatically in the restaurants. The CEO
is interested in whether this machine would reduce cost for Freddie’s. To try to
answer this question, the team compiles Table 2, which shows data regarding
shrimp peeling and de-veining for both the manual and the machine processes.

Table 2: Data on Peeling and De-veining Shrimp Manually and by

Machine
Manual process Machine process
Labor cost per hour $6.00 $6.00
Labor time taken to peel
20 minutes per kg 1 hour for 10 kg
and de-vein shrimp
Set up and clean-up
20 minutes 1 hour
labor time per day
$10,500 purchase and
Other costs running costs for machine’s
lifetime

5. Assuming a machine lasts for three years and that Freddie’s restaurants are
open 350 days a year, what minimum volume of shrimp would a restaurant need
to process before purchasing a machine becomes financially beneficial?
A) 9kg per day
B) 11kg per day
C) 13kg per day
D) 15kg per day
7

Freddie’s Shrimp Shack

An idea suggested by Freddie’s marketing manager is to import aquaculture

shrimp for some dishes. He feels that the El Diablo Spicy Cajun Shrimp
appetizer might be a suitable dish. “It is so hot and spicy”, he says, “customers
are unlikely to notice the difference in shrimp taste!” You discover the
following facts regarding the El Diablo appetizer and the shrimp used to
produce it:

ƒƒ Wild shrimp cost $13 per kg, while aquaculture shrimp cost $14 per kg on the
first 250,000 kg and $11 per kg thereafter
ƒƒ Other costs to create the El Diablo appetizer are $3
ƒƒ There is 0.25 kg of shrimp in the El Diablo appetizer

Exhibit 3
Cost of Purchasing Aquaculture Shrimp

Total cost 6000

Line A
of shrimp
Line B
$US thousands
Line C
5000
Line D

4000

3000

2000
200 300 400

Shrimp ordered
In thousand kgs

6. If Freddie’s sells 1.2 million El Diablo dishes per year, which of the following
statements is most accurate?
A) It is $150,000 less expensive per year to use aquaculture shrimp
B) It is $150,000 more expensive per year to use aquaculture shrimp
C) It is $300,000 less expensive per year to use aquaculture shrimp
D) It is $300,000 more expensive per year to use aquaculture shrimp
8

Freddie’s Shrimp Shack

The team also compares Freddie’s costs to that of other similar restaurants.
One such restaurant is Forrest’s Shrimp Plaza (Forrest’s), which serves a very
similar menu to Freddie’s, but is larger in scale. Table 3 compares important
data for Freddie’s and Forrest’s from the last financial year.

Table 3: Data for Freddie’s and Forrest’s for the Last Financial Year
Freddie’s Forrest’s
Number of restaurants 100 200
Shrimp used per year
2 million 8 million
(kg)
“Boat to throat” shrimp
50% 62%
costs as % of revenue
Labor cost as % of
22% 23%
revenue
Other cost as % of
13% 8%
revenue
Profit margin 15% 7%

7. Which of the following statements can you conclude from the data in Table 3?
A) Forrest’s is not as effective at procuring shrimp as Freddie’s
B) Freddie’s made a bigger profit in the last financial year than Forrest’s
C) The average price of shrimp dishes is lower at Forrest’s restaurants than at
Freddie’s restaurants
D) Forrest’s restaurants serve more shrimp on average than their Freddie’s
counterparts
9

Metropolis Modern Art Gallery

Metropolis Modern Art Gallery

Metropolis Modern Art Gallery (Gallery) is located in Riverside, a district of the
city of Metropolis. The city has a total population of 3 million.

The idea to open a modern art gallery in Metropolis was conceived in 2000,
and in 2005 the formal plan was announced to the public. The Gallery took five
years to construct and it was opened to the public in summer 2010. Funding of
$20 million was required to construct and prepare the Gallery during the five
years prior to its opening. Seventy five percent of this funding was obtained
from the government Arts Council, with the remainder coming from private
donations by interested sponsors.

The Gallery does not charge people for admission (except to certain special
exhibitions). The vast majority of the sales made in the Gallery come from the
Gallery’s restaurant and gift shop. This money, combined with regular private
donations, is used to keep the Gallery running.

It is now summer 2011 and the Gallery had 400,000 visits in its first year since
opening. The Gallery counts every person visiting one or more times within a
single day as a new visit.

The Gallery’s management has decided to apply to the government Arts Council
for additional funding to improve the Gallery. They have been informed
that they will need to prove to the Arts Council that the Gallery is benefiting
the local area of Riverside enough to justify additional investment. They
have determined that there are two ways in which the Gallery has benefited
Riverside:

ƒƒ Economic benefit (the impact on local business and economy)

ƒƒ Social benefit (the impact on local social, educational, and recreational
activity)

The Arts Council has made it clear that the economic benefit to Riverside is the
critical factor that will determine whether or not they will receive additional
funding.

As a McKinsey consultant, you have been assigned to help the Gallery put
forward a case for additional funding.
10

Metropolis Modern Art Gallery

8. Which of the following statements is accurate regarding the Gallery’s bid for
additional funding?
A) If the Gallery has provided economic benefit to Riverside, it will receive
additional funding from the Arts Council
B) If the Gallery has not provided social benefit to Riverside, it will not receive
additional funding from the Arts Council
C) If the Gallery has not provided economic benefit to Riverside, it will not
receive additional funding from the Arts Council
D) If the Gallery has provided social benefit to Riverside, it will not receive
additional funding from the Arts Council

9. If the Gallery estimates that 150,000 people visited in the last year and that
two-thirds of them only visited once, which of the following statements is a valid
conclusion about a randomly selected visit during this time period?
A) There is a 25% chance that a visit to the Gallery was that person’s only visit
for the year
B) There is a 33% chance that a visit to the Gallery was that person’s only visit
for the year
C) There is a 66% chance that a visit to the Gallery was that person’s only visit
for the year
D) There is a 75% chance that a visit to the Gallery was that person’s only visit
for the year

10. Which of the following statements would be most useful in determining if the
Gallery has provided an economic benefit to Riverside?
A) Property values in the Riverside area and how they have changed recently
B) Recent changes in employment levels both in Riverside and in Metropolis
C) Recent changes in the popularity of arts-related events in both Riverside
and in Metropolis
D) Recent changes in the average income for households in Riverside
11

Metropolis Modern Art Gallery

During your research, you are given the results of a random survey of visitors to
the Gallery taken over the last month. Exhibit 1 contains some results from that
survey.

Exhibit 1
Data from Recent Visitor Survey in the Gallery
Total number of respondents = 6,000
Split of visitors by source
Split of visitors by priority of visit % of those who visited the area primarily to see
% of all respondents the Gallery

I am from the Staying in the area

local area with friends/relatives
10% 10%
The Gallery was
Day trips
not my main
30% 50% from outside
reason for 60% The Gallery Staying over- 40% local area
visiting the area was my main night in the
reason for area at a hotel
visiting the area

11. Which of the following statements is a valid conclusion based on the data
presented in Exhibit 1?
A) 24% of people spent money on an overnight hotel stay because of the
Gallery’s presence
B) 40% of people did not spend any money because of the Gallery’s presence
C) 50% of visitors to the Gallery came on day trips from outside the Riverside
area
D) 60% of visitors only came to the Riverside area to see the Gallery

12. How many respondents to the survey stayed with friends/relatives in Riverside
because they wanted to visit the Gallery?
A) 60
B) 360
C) 600
D) 2,400
12

Metropolis Modern Art Gallery

After further research, the team concludes four important facts:

ƒƒ The Gallery had $5 million in sales in its first year of opening

ƒƒ Spending in Riverside that took place outside the Gallery, but because the
Gallery was there, totalled $40 million
ƒƒ The Gallery employed an average of 25 people (full time equivalent) in its
first year of opening
ƒƒ The Gallery staff generated the most revenue per employee of any related
business in the Riverside area

13. Which of the following conclusions, if true, would best further support the
Gallery’s bid for additional funding?
A) The Gallery’s benefit to the local area, both economic and social, has been
higher than originally expected
B) The Gallery has provided more economic benefit to the local area than the
last such institution to open in Metropolis
C) If the trends in Gallery visitor numbers continues, Riverside will have the
highest tourist spending levels in Metropolis within 2 years
D) If the Gallery does not obtain additional funding, it will not be able to
support the expected growth in visitor numbers
13

PharmaCo

PharmaCo
PharmaCo is an international company that manufactures and sells
pharmaceuticals. PharmaCo has a very strong presence in the United States,
Canada, Western Europe, Japan, Australia, and New Zealand. These are
referred to as developed markets. PharmaCo also has a small presence in other
countries, which are called the emerging markets.

PharmaCo only manufactures and sells prescription pharmaceuticals. These

pharmaceuticals are only available to patients if a doctor prescribes them. This
authorisation usually occurs through the doctor issuing a prescription, which
the patient usually takes to a pharmacy in order to obtain the pharmaceuticals
prescribed.

There are three ways that a patient can pay for pharmaceuticals:

ƒƒ The patient him/herself can pay for them (assuming he/she can afford them)
ƒƒ The patient’s private health insurer can pay for them (assuming the patient
has a private health insurer)
ƒƒ The country’s government can pay for them through the state’s health
insurance program
Due to government regulations and strong negotiation powers with the
pharmaceutical companies, the government and insurance companies pay
much less per treatment compared to private patients.
14

PharmaCo

The head of PharmaCo has asked a McKinsey team to investigate opportunities for
the company to increase its sales in emerging markets in an effort to depend less on
the United States market for its sales. Table 1 shows historic, current, and projected
data on sales of prescription pharmaceuticals in different parts of the world.

Table 1: Size of Prescription Pharmaceutical Markets

(in Billions of $US)
Market size Market size in
4 years ago Market size today 10 years
North America
96 156 393
(US and Canada)
Other developed
138 142 190
markets
Emerging
52 61 134
markets

The head of PharmaCo has asked the McKinsey team to decide on ten specific
countries to investigate more thoroughly. Based on this investigation, she
directed the team to identify up to five countries where they predict additional
investment in PharmaCo’s operations will show the greatest return over the
next 10 years.

14. Based on the opinion of the head of PharmaCo, which of the following
statements is a valid conclusion?
A) The head of PharmaCo believes that the main growth in the world’s
prescription pharmaceutical sales over the next 10 years will be derived
from emerging markets
B) The head of PharmaCo believes that the major growth in emerging markets’
prescription pharmaceutical sales will be greatly affected by the growth in
the US market
C) The head of PharmaCo wants to invest more money in the company’s
emerging markets branches relative to the US branch
D) The head of PharmaCo wants the company’s future sales growth in
emerging markets to increase relative to future sales growth in the US
15

PharmaCo

15. Based on the data provided in Table 1, which of the following statements is a
valid conclusion about sales of prescription pharmaceuticals?
A) If the forecasted trends continue, sales from emerging markets will be
greater than those in developed markets outside North America in 20 years
from now
B) Looking at the past four years, the emerging markets have grown faster in
terms of sales compared to the rest of the world
C) Sales in emerging markets are expected to grow three times quicker in the
next ten years than they have grown in the previous four years
D) Four years ago, sales in emerging markets represented less than 10% of
total global pharmaceutical sales

16. Which of the following statements, if true, best explains why future trends for North
American pharmaceutical sales differ from sales in other developed markets?
A) North America will have the strongest growth of all countries in people
paying for their own medication in the future
B) North America will have the strongest growth in self-medication (i.e.,
people seeking their own treatment without visiting a doctor) of all
countries in the future
C) Developed markets outside North America will have the strongest increase in
the number of people visiting doctors in the future versus the other regions
D) Developed markets outside North America will have the most efficient
pharmaceutical production facilities in the future versus the other regions

17. Which of the following facts does NOT explain the difference in future
prescription pharmaceutical sales trends in the emerging markets versus sales
in the past 4 years?
A) The proportion of government spending dedicated to healthcare is
expected to increase in emerging markets
B) Preventative vaccination for major diseases, such as Polio and Tuberculosis,
has been much more successful in emerging markets in recent years
C) Personal income levels have improved in emerging markets over the last
five years, which has led to a significant increase in smoking and alcohol
consumption
D) The number of doctors per person is expected to grow at least twice as
quickly in emerging markets
16

PharmaCo

Exhibit 1 shows the cumulative projected sales in prescription pharmaceuticals

in 10 years for the 50 largest emerging markets. The white bars in Country
Group A represent the largest 10 markets, the grey bars in Country Group B
represent the next 15 largest markets, while the black bars in Country Group
C represent the remaining 25 markets. The names of the countries have been
removed from this Exhibit for simplicity, but are available to the team.

Exhibit 1
Cumulative Sales in 10 years for the 50 Emerging Markets with the
Largest Sales of Prescription Pharmaceuticals
% of total sales in 100
emerging markets
(in 10 years)
80

60

40

20

A B C

18. Which of the following figures is closest to the projected size in 10 years of the
second largest prescription pharmaceuticals market in Exhibit 1?
A) $13.4 billion
B) $37.5 billion
C) $71.7 billion
D) $200.8 billion
17

PharmaCo

In an attempt to examine the market in certain countries in greater detail the

team focuses on the investigation of two issues:

ƒƒ First, the team decides to examine the level of inherent risk in each country.
Inherent risk refers to the level of uncertainty regarding how the overall
market will develop in each country which is often indicated by the volatility
of the country’s economic growth from year to year. Inherent risk can impact
the pharmaceutical market in these countries and is out of PharmaCo’s
direct control.
ƒƒ Second, the team decides to examine the ease of access to the prescription
pharmaceutical market in each country. Ease of access refers to the extent to
which barriers exist in the prescription pharmaceuticals market that prevent
PharmaCo from increasing its sales in these countries. The team notes that
PharmaCo does have some influence over ease of access.
The team collects publicly available data on four important measures for each of the
ten countries. This data is presented in Table 2 for four of the countries, labelled M,
N, P, and Q.

Table 2: Data on Important Measures for Four Countries Under

Consideration
Measure Explanation Country M Country N Country P Country Q
Maximum Highest one
recent year economic
10.2% 2.3% 5.3% 3.3%
economic growth in the
growth last 5 years
Minimum Lowest one
recent year economic
-8.3% 1.6% -0.2% 1.8%
economic growth in the
growth last 5 years
Country Ranked A:
economic highest risk to B D C D
risk rating E: lowest risk
Country Ranked 1:
political least corrupt
8 3 5 3
corruption to 10: most
rating corrupt
18

PharmaCo

19. Which of the following lists is the best ranking of the four countries (i.e., M, N, P,
Q) in terms of inherent risk, from LEAST risky to most risky?
A) Q, N, M, P
B) N, P, Q, M
C) N, Q, P, M
D) Q, N, P, M

20. Which of the following statements is FALSE based on Table 2?

A) Country N had higher average economic growth in the last five years than
Country Q
B) The country economic risk rating is based on the difference between
maximum and minimum economic growth in the past five years
C) The country economic risk rating is based on the country political
corruption rating
D) Highest to lowest ranking on maximum recent economic growth is the
same as lowest to highest ranking on minimum recent economic growth

Exhibit 2 maps the 10 countries under consideration onto a grid which

illustrates PharmaCo’s current share of the prescription pharmaceutical sales
in each country (i.e., its market share) and PharmaCo’s current profit margin in
each country.

Exhibit 2
PharmaCo’s Market Share and Profit Margin today in the 10 markets
under consideration
PharmaCo 50
profit margin Country 1
% 45 Country 2
40

35 Country 3
30 Country 5 Country 4
25 Country 6
Country 7
20
Country 8
15
Country 10 Country 9
10

5
0 1 2 3 4 5 6
PharmaCo market share
%
19

PharmaCo

21. Given Exhibit 2, which of the following statements, if true, would NOT help the
team determine the ease of access for PharmaCo in each market?
A) The greater the share of market for the company, the harder it is for the
company to increase revenue
B) The greater the profit margin for the company, the harder it is for the
company to increase profits
C) The better the company is performing, the more risky it is to make any
changes to the company
D) The worse the company is performing, the more likely it is that there are
good opportunities for it to grow

22. Based on the data in Exhibit 2 regarding PharmaCo’s performance in the

various countries, which of the following statements is a valid conclusion?
A) Country 2 makes the greatest profit per dollar sales of all 10 countries
B) Country 1 contributes approximately 4 times more profit per dollar sales
than Country 10
C) Country 10 has the lowest sales of all ten countries under consideration
D) Countries 5 and 6 contribute approximately the same amount to
PharmaCo’s overall profit

23. If Country 3 has a total prescription pharmaceutical market of $1.2 billion,

which of the following amounts best approximates PharmaCo’s profit in
Country 3 today?
A) $12.6 million
B) $36.0 million
C) $37.2 million
D) $42.0 million
20

PharmaCo

24. Which of the following points is NOT a valid reason for the poor market share of
PharmaCo in Country 10 in Exhibit 2?
A) PharmaCo’s competitors in Country 10 frequently bribe doctors to
prescribe their brand of pharmaceutical
B) PharmaCo’s sales force in Country 10 is mainly composed of people
transferred from developed markets, few of whom speak the local language
fluently
C) A large number of people in Country 10 seek treatment for their illness
through local traditional medicine, consisting entirely of natural herbal
remedies
D) There is no patent protection in Country 10, which means that many local
companies can copy PharmaCo’s products and sell them at lower prices

The team also sets out to determine the relative propensity of people to pay for
their own medication in the ten countries under consideration. For countries
W, X, Y, and Z, Table 3 shows the average annual household income level, in
local currency, referred to as c. The table also provides the current $US basic
exchange rate for each of the local currencies, referred to as e. Finally, the
Purchasing Power Parity (PPP) exchange rate for each country is shown in
Table 3, and is referred to as p. Applying the PPP exchange rate to the converted
$US value of the local currency will indicate the $US value of goods that can
be purchased locally with that amount of currency. This helps account for the
differences in costs of living in the various countries under consideration.

Table 3 Average Annual Household Income and Exchange Rates

Country Country Country Country
W X Y Z
Average household income
80,663 23,445 453,554 250,664
(local currency) (c)
Basic exchange rate
(local currency unit per $US) 6.70 0.90 7.30 3.70
(e)
PPP exchange rate
(purchasing power per $US) 2.10 1.30 1.50 0.90
(p)
21

PharmaCo

25. Which country has the highest average household income level in $US according
to basic exchange rates?
A) Country W
B) Country X
C) Country Y
D) Country Z

26. Which of the following formulae calculates the $US value of goods that can be
purchased locally by an average household with their entire annual income?
A) (c×p)/e
B) c/(e×p)
C) (c×e)/p
D) c×e×p
22

Answers

Answer Key
Freddie’s Shrimp Shack

1. B – The CEO states that she wants the team to look into the recent decline in
profitability and also indicates that she is suspicious that the price of shrimp
may be related to this. Response B is the only response that captures both of
these elements of the CEO’s thoughts.

2. C – Profit equals revenue (from Table 1) multiplied by profit margin (from

Exhibit 1). If Freddie’s profit margin in May is p, the profit in May is 1,223 x p.
Freddie’s profit in August is 1,402 x 0.95 x p = 1,332 x p. So profit in August is
greater than profit in May. Response A is incorrect by observation of Exhibit 1.
Response B is incorrect as the data in Exhibit 1 refers to profit margin, and not
profit. Response D is incorrect as shrimp price increases and restaurant price
increases are not necessarily the same.

3. C – If people prefer cold dishes in hot weather (I), and most cold dishes are
shrimp dishes (III) and shrimp dishes are the highest price meals (V), this is
sufficient to reasonably conclude that average meal price, and hence revenue,
would increase into the summer months and decrease again following this,
which is the trend in Table 1. All other responses contain only a subset of facts I,
III and V along with other facts which are not relevant.

4. D – From Exhibit 2, 1kg of shrimp costs the restaurant $12.95. Therefore, the
10% weight loss in peeling and deveining the shrimp costs the restaurant $1.30
(= 10% x $12.95). As a proportion of the total restaurant preparation cost of
$2.80, this represents 46%. Response D is the closest estimate of this.

5. B – From Table 2, the manual process costs $2 per kg of shrimp in labor, plus $2
per day in setup and clean-up labour. The machine process costs 60c per kg of
shrimp in labor, plus $6 per day in setup and clean-up labor. To find a breakeven
point, the difference between the total labor cost for the manual process and the
total labor cost for the machine process must be more than the annual machine
costs of $3,500. If the daily volume of shrimp is y kg, then (2y + 2) x 350 – (0.6y
+ 6) x 350 > 3,500. Solving for y gives y > 10. Response B is the minimum which
satisfies this.
23

Answers

6. B – Producing 1.2m dishes at 0.25 kg of shrimp per dish requires 300,000 kg

of shrimp. 300,000 kg of wild shrimp costs $3.9m (= 300,000 kg x $13/kg).
300,000 kg of aquaculture shrimp costs $4.05m (= 250,000 kg x $14/kg + 50,000
kg x $11/kg). Therefore aquaculture shrimp are $150,000 more expensive.

7. D – From Table 3, the average Shrimp used per restaurant is 200,000 kg for
Freddie’s and 400,000 kg for Forrest’s. It is therefore reasonable to conclude
that Forrests’s restaurants serve more shrimp on average than Freddie’s.
Response A cannot be concluded as procurement is only a part of the ‘boat
to throat’ cost. Response B cannot be concluded as there is no information
provided on revenues or profit, only on profit margin. Response C cannot be
concluded as there is no information provided that would allow a calculation of
an average price of shrimp dishes.

Metropolis Modern Art Gallery

8. C – Since economic benefit is the critical factor, this must be demonstrated to

receive additional funding. Responses B and D are not accurate, since they
refer to social benefit, which is not the critical factor. Response A is not accurate
because economic benefit is not the only factor in the decision.

9. A – 100,000 people visited the Gallery once this year ( = 150,000 x 2/3). Since
there has been a total of 400,000 visits, this means that there is a 25% chance
that a visit was that person’s only visit.

10. B – In order to determine if the Gallery has provided an economic benefit to

Riverside, it is necessary to look at an economic indicator, and to compare
this indicator for Riverside to the same indicator for Metropolis as a whole, in
order to ensure that any economic changes are not simply a result of broader
changes across the city. Response B is the only response that refers to economic
indicator data for both Riverside and Metropolis as a whole.

11. A – 60% of visitors were in the area primarily because of the Gallery, and 40%
of those visitors stayed overnight in the area at a hotel. Therefore 24% (=60% x
40%) spent money on an overnight hotel stay because of the Gallery’s presence.
Response B cannot be concluded as it is not known from Exhibit 1 exactly what
money visitors spent and why. Response C cannot be concluded as the data in
Exhibit 1 only asks this question to surveyed visitors who were primarily in
the area to visit the Gallery, and not all surveyed visitors. Response D cannot
24

Answers

be concluded as there is no data in Exhibit 1 about the reasons that surveyed

visitors had for visiting Riverside other than visiting the Gallery.

12. B – There were 6,000 respondents in total, and 3,600 of these were visiting the
area primarily to see the Gallery (= 6,000 x 60%). Of these, 360 stayed with
friends/relatives (= 3,600 x 10%).

13. C – Response C demonstrates an economic benefit to Riverside, and also

implies that this benefit is conditional on the continuation of funding (‘If the
trends in Gallery visitor numbers continue’). Responses A and B only address
the economic benefit to date and do not address the future need for funding.
Response D does not address the issue of economic benefit at all.

PharmaCo

14. D – The head of PharmaCo referred to increasing sales in emerging markets in

order to depend less on the United States for sales. This implies that emerging
markets should account for a greater percentage of sales in the future, and
the US should account for a smaller percentage of sales. This, in turn, implies
that sales in emerging markets should grow more rapidly than sales in the
US. Responses A and B are not valid as they refer to total market sales growth,
which the head of PharmaCo does not address in her instructions to the team.
Response C is not valid as the head of PharmaCo has not mentioned anything
about the amount of investment she would like to make.

15. A – Sales in emerging markets are forecasted to more than double in the next 10
years, which sales in ‘Other developed markets’ will increase by about one third.
Projecting this forward a further 10 years, sales in emerging markets will more
than double again to over $270bn, while sales in ‘Other developed markets’ will
increase by a third to approximately $255bn. Response B is incorrect as sales in
emerging markets have grown by about 17% compared to about 27% in the other
markets. Response C is incorrect as this would imply a growth of approximately
50% every 4 years (= 17% x 3), which would take emerging markets past $134bn
already in 8 years from today. Response D is incorrect as emerging markets sales
represented $52bn out of a total of $286bn four years ago, which is more than 10%.
25

Answers

16. A – The introduction states that governments and insurers pay much less for
pharmaceuticals compared to private patients. Therefore, if North America has
the strongest growth in people paying for their own medication, this implies
the strongest growth in average price and hence the strongest revenue growth,
which is consistent with the data in Table 1. Response B will have no impact on
pharmaceutical sales as these require a doctor to be visited. Response C does
not explain why North American sales will grow more rapidly than those in
other developed markets. Response D does not address the question of future
sales of pharmaceuticals.

17. B – Greater success in preventative vaccination would imply the reduction

of disease incidence, which would not support the rapid increase in
pharmaceutical sales in the future shown for emerging markets in Table 1.
Responses A (increased government spending), C (increasingly ‘unhealthy’
lifestyles) and D (greater access to doctors) all support an expected increase in
pharmaceutical sales.

18. A – Since the data in Exhibit 1 is cumulative, the second largest market is
approximately 10% (= 28% - 18%) of the total emerging markets sales in 10 years.
From Table 1, this is 10% of $134bn which is $13.4bn.

19. C – The inherent risk is indicated by the volatility of economic growth. From
Table 2, the best measure of this is the difference between the maximum recent
economic growth and the minimum recent economic growth. Calculating
each difference, the ranking is N (0.7), Q (1.5), P (5.5), M (18.5). An alternative
method is to simply observe from the maximum and minimum economic
growth data that M has the highest difference and P has the second highest
difference. This eliminates Responses A and B, and a simple calculation for
Countries N and Q will determine that Response C is the correct response.

20. D – The specified rankings are M, P, Q, N (maximum) and M, P, N, Q (minimum)

which are not the same. Response A cannot be ruled out as false due to lack
of detailed information on annual economic growth rates. Responses B and
C cannot be ruled out as false as there are consistencies between the relevant
rankings of the four countries on these measures.
26

Answers

21. C – This does not address the ease of access into a market, but rather the level of
risk involved in making changes to the company. All other responses address
barriers to, or opportunities for, growth, which is relevant for determining the
ease of access to a market.

22. B – From Exhibit 2, Country 10 has a profit margin of ~12% which Country 1 has
a profit margin on ~48%. This implies that Country 1 contributes approximately
4 times as much profit per dollar sales than Country 10. Response A is incorrect,
as Country 1 has the highest profit margin. Response C cannot be concluded
as there is no data on absolute dollar sales provided in Exhibit 2. Similarly
Response D cannot be concluded as there is no data on absolute dollar profit
provided in Exhibit 2.

23. A – Country 3 generates ~$36m in sales for PharmaCo (= $1.2bn x ~3%). Total
profit for PharmaCo in Country 3 is therefore ~$12.6m (= ~$36m x ~35%).

24. C – This response would impact the entire prescription market and therefore
would not help explain PharmaCo’s low market share. Responses A and D
represent ways in which PharmaCo can be impacted by competition, which
would help explain its low market share. Response B represents a barrier to
generating sales in the market, which would also explain PharmaCo’s low
market share.

25. D – Dividing average household income (the numerator) by the basic exchange
rate (the denominator) shows that only Countries Y and Z are contenders for the
highest average household income in US$. (Countries W and X are much lower
than Y and Z). Observe that the numerator for Country Z is a lot more than half
of that of Country Y, while the denominator for Country Z is very close to half
that of Country Y. This implies that the calculation for Country Z will produce a
higher result than for Country Y.

26. A – According to the description provided, first the household income in US

dollars must be calculated by dividing local household income by basic exchange
rate – this is c/e. Since p represents the purchasing power per US$, we can
multiply the US$ income by p to understand the total value of goods that can be
purchased with that income. It only remains to observe that c/e x p = (c x p)/e.
McKinsey Problem Solving Test – Practice Test B
August 2012
www.mckinsey.com/careers
McKinsey
Problem Solving Test
Practice Test C

© 2006 APTMetrics, Inc.

1

Instructions

McKinsey Problem Solving Test

Practice Test Overview and Instructions
This practice test has been developed to provide a sample of the actual McKinsey
Problem Solving Test used for selection purposes. This test assesses your ability
to solve business problems using deductive, inductive, and quantitative reasoning.
This practice test contains a total of 26 questions. The actual test contains 26
questions and you will be given 60 minutes to answer as many questions as possible.

You will be presented with three scenarios based on actual McKinsey client cases.
Information related to each scenario will be shown in text, tables, and exhibits. This
information is presented in shaded areas and is distributed in sections throughout
the scenario. The questions ask you to find the most appropriate answer to the
problem as described using only the information presented. You should select one
and only one answer to any question.

While completing this practice test, do not use any electronic devices (e.g.,
calculator, computer) when performing calculations to answer the questions.
Electronic devices will not be permitted to be used during the actual test
administration. Also during the actual test administration, you may use all
blank space in the test booklet as scratch paper to assist you in performing any
calculations and recording any notes. No scratch paper will be allowed. Booklets
will be destroyed after you complete the test and will not be used in any way to
determine your test scores. Your final test score will be based on the number of
questions you answer correctly.

The practice scenarios begin on the next page of this booklet. Only consider
information contained within the scenario when determining your answer.
Considering all information presented within the scenario is critical to answering
questions correctly.

After you have completed the test, score your answers using the answer key located
at the end of this booklet. Add the number of correct answers to determine your
final total score.
2

Mail-It

Mail-It
Mail-It is a company that runs postal services for both personal and business
customers in the country of Molvania. The postal services that Mail-It provides
cover all areas from collection to delivery. The main stages of operating a postal
service are as follows:

ƒƒ Retailing postal fees: The customer pays Mail-It for the cost of sending a
letter or package. For a personal customer, this service is often completed by
the customer purchasing stamps at Mail-It post offices. For larger business
customers, this can be completed via the automated stamping of their
mail. The price of sending a letter or package depends on its destination,
its weight, and the required speed of its delivery. For business customers,
the price is usually cheaper because they often use automated stamping and
often bring the mail to Mail-It themselves.
ƒƒ Collection: Mail-It collects the stamped mail from designated post boxes.
Customers deposit the majority of this mail into the designated post boxes.
However, some business customers may take their mail directly to Mail-It’s
sorting offices.
ƒƒ Sorting and stamp cancellation: Mail-It sorts the mail according to the
destination. This sorting usually happens at designated offices nationwide.
Most domestic mail has an address code written by the sender which can
be read and sorted automatically by machines. When mail is sent without a
code or the machine cannot read the code, the sorting must be done by hand.
At this stage, the stamp on the letter or package is also “cancelled” using an
ink mark to ensure that the stamp cannot be re-used.
ƒƒ Transportation and delivery: Once the mail has been sorted, it is
transported to the area to be delivered, using a combination of road, rail, and
air transport. The local delivery offices then proceed to deliver the mail to
the designated address.

The CEO of Mail-It noticed that the profitability of the business during the
month of December was significantly lower than other months. He has asked a
McKinsey team to investigate the possible reasons for this, as well as to suggest
possible remedial measures. The CEO tells the team that he is puzzled about
this finding.
3

Mail-It

He adds that Molvania is a predominantly Christian country and celebrates

an extended Christmas holiday period in the latter part of December. He also
informs the team that quantities of personal mail increase during this month
due to the customary tradition of sending Christmas greeting messages and
cards. In light of these facts, the CEO cannot reconcile the lower profitability
in December. Table 1 shows some key financial data for Mail-It, comparing the
average data for December with the average data for the other eleven months of
the year.

Table 1: Key Financial Data for Mail-It (Average per Month)

January – November December

Number of days in
30.4 31.0
month
Revenue ($US millions) 246.2 266.1
Number of items
991.0 963.0
handled (millions)
Costs ($US millions) 212.3 251.2
Profit ($US millions) 33.9 14.9

1. Which of the following statements, if true, would best explain the differences
in the revenue and number of items handled between December and the other
months of the year?
A) There is a greater proportion of personal mail sent in December than at
other times of the year
B) There is a greater proportion of business mail sent in December than at
other times of the year
C) The average weight of items in December is lower than it is at other times of
the year
D) Customers do not send as much urgent mail in December as they do at other
times of the year
4

Mail-It

2. What is the difference, in percentage points, between the profit margin for
December versus the average profit margin for the other months?
A) 3.7 percentage points
B) 5.2 percentage points
C) 6.7 percentage points
D) 8.2 percentage points

3. Which of the following statements is most accurate regarding the data in Table 1?
A) There are approximately 3% fewer items per day in December versus the
average of the other months of the year
B) There are approximately 5% fewer items per day in December versus the
average of the other months of the year
C) There are approximately 3% more items per day in December than in any of
the other months of the year
D) There are approximately 5% more items per day in December than in any of
the other months of the year
5

Mail-It

The team proceeds to examine various factors related to Mail-It’s business

operations. One of the factors the team looks into is the sorting of mail by
machines, which are located in the sorting offices. These sorting machines use red
lasers to read the address code written or printed on the letter or package. Once the
machine reads the address code, the letter or package is routed to the appropriate
area for distribution. If the machine cannot read the address code, it is rejected and
must be read and sorted by hand. Exhibit 1 shows the “flow” of mail through Mail-
It’s sorting offices and how it differs in December versus the rest of the year.

Exhibit 1
‘Flow’ of Mail through Mail-it’s Sorting Machines
Mail that can Mail sorted
Mail arriving Mail that is
be put in through
at sorting put in sorting
sorting sorting
offices machines
machines machines
Description Total number of Domestic mail that Mail that is Mail that is
items arriving at has area codes placed in the successfully
sorting offices marked and is sorting machines sorted using
not oversized sorting machines

Average mail
flow Jan–Nov 100% 70% 70% 61%
% of total items

Average mail
flow December 100% 65% 63% 52%
% of total items

4. Which of the following reasons, if true, would best explain the differences in the
data identified as “Mail that can be put in sorting machines”?
A) People send more mail to old friends in December and do not know their
address codes
B) A lot more personal mail is sent with handwritten addresses in December,
which are more difficult for machines to read
C) More sorting machines develop faults and break down in December
D) More domestic mail is sent in December because of the Christmas greeting
card surge
6

Mail-It

5. How many more items of mail need to be hand sorted in December versus the
average of the other months of the year?
A) 76 million
B) 104 million
C) 132 million
D) 160 million

6. Which of the following ideas would NOT help address the differences in the mail
flow between December and the remainder of the year as indicated in Exhibit 1?
A) Work with Christmas greeting card manufacturers to add instructions to
envelopes informing the sender to write the address clearly
B) Discourage the production of red envelopes for Christmas greeting cards,
which cannot be read using red laser beams
C) Discourage the production and retail of very large novelty Christmas
greeting cards
D) Encourage manufacturers to create greetings cards with envelopes that
have pre-paid postage

While discussing the topic of mail sorting, the CEO of Mail-It wonders about
the necessity of cancelling the stamps on manually processed mail. While
stamp cancellation is done automatically for machine-readable mail, it is a
manual process for mail unable to be read by the machine. This task takes up
a high proportion of staff time during the busiest time of year and therefore
overburdens employees. Thus, he wonders if the benefits of cancelling this step
of the process outweigh the risks.
7

Mail-It

7. Which of the following questions best summarizes the CEO’s concerns?

A) Does stamp cancellation take up too much unnecessary time in the
processing of manual mail?
B) Would the gain in productivity from stopping stamp cancellation in manual
mail be worth more than the lost revenue from fraudulent re-use of stamps?
C) Would the amount of time saved from stopping manual stamp cancellation
result in a significant decrease in the time spent processing manual mail?
D) Does it make sense to stop the cancellation of stamps on manual mail given
that the majority of mail now goes through machines?

The team also investigates staffing costs in sorting offices in December versus
the remainder of the year. Table 2 shows some measures of staff cost and staff
productivity in sorting offices, comparing the data for December with that of
the remainder of the year.

Table 2: Some Measures of Staff Cost and Staff Productivity in Sorting

Offices (Average per Month)
January – November December
Hourly rate of pay (p) $8.20 $7.60
Items handled (h) 991 million 963 million
Paid hours spent working (w) 8.1 million 9.4 million
Paid hours spent not working
1.9 million 1.2 million
(e.g., sickness, training) (n)

8. Which of the following reasons, if true, would best explain the differences in Paid
Hours spent NOT working between December and the average for the rest of the year?
A) More hourly staff are employed in December and they are paid per hour
spent working
B) More holidays are taken by employees in December because of the
Christmas period
C) More sick days are taken by employees in December because of the cold weather
D) More items are handled overall from January to November versus December
8

Mail-It

9. Which of the following statements would NOT be a potential reason for the lower
rate of items handled per hour spent working in December?
A) The staffing of the different sorting offices is more chaotic in December and
is not aligned with the volume of mail expected in each office
B) Staff performance reviews take place in November and their productivity
bonuses for the year have already been decided by the beginning of
December
C) Staff spend less hours working in the last week of December, immediately
after the Christmas holiday
D) In the last week in December, immediately after the Christmas holiday,
there is 40% less mail to be handled than in the rest of the year

10. If an average employee is paid for 160 hours per month, which of the following
formulae accurately calculates the average number of items handled per
employee, per month, for the periods being investigated?
A) h/((w+n)×160×p)
B) h/((w+n)×160)
C) (w+n)×160/h
D) (h×160)/(w+n)

11. The CEO of Mail-It has traditionally used “Average total pay per item handled”
as the key measure of staff productivity for the sorting offices. Which of the
following points best explain why this is NOT the ideal measure?
A) Scoring lower on this measure does not necessarily imply that staff in
sorting offices are being more productive
B) This measure does not take into account the other costs of operating a
sorting office, such as machine costs
C) A sorting office can score well on this measure by simply employing a large
number of staff
D) This measure clearly favours sorting offices with larger amounts of manual
mail to handle
9

Mail-It

The team then proceeds to examine staffing in sorting offices in December.

Exhibit 2 tracks the total number of items arriving and hours worked in sorting
offices nationwide in the three weeks before and two weeks after Christmas.
In this Exhibit, Week 0 is the week containing Christmas Day. The solid black
line represents the total items arriving, and is given as a percentage of the total
items in week -3. The broken line at the top represents the total hours worked,
and is given as a percentage of the total hours worked in week -3. Finally, the
dotted line at the bottom represents the hours worked by hourly staff who are
not permanent employees of Mail-It, and is given as a percentage of total hours
worked in week -3.

Exhibit 2
Hours Worked and Items Arriving at Sorting Offices in the Weeks
Around Christmas
225
200
175
150
125
100
Total hours worked
75
50 Total items arriving

25 Hours worked
by hourly staff
0
-3 -2 -1 0 1 2
Week (Week 0 is the week in which Christmas Day falls)

12. Which of the following statements is a valid conclusion of the weeks being
analysed from Exhibit 2?
A) Week -1 saw the highest proportion of time worked by hourly staff
compared to other staff
B) In Week -3, the hours worked were exactly enough to match the number of
items received
C) Between Weeks 1 and 2, the change in total hours worked was not
proportional to the change in items arriving
D) Between Weeks -2 and -1, the increase in hours worked by hourly staff was
not enough to cover the increase in items received
10

National Garbage

National Garbage Inc

National Garbage Inc (NGI) is a company that runs garbage disposal services
in all major cities across the United States. NGI provides two types of garbage
disposal services:

ƒƒ Trash collection: NGI runs a fleet of trucks that collects garbage from
businesses along various routes in a city and transports it to a landfill site
that is either owned and operated by NGI or another operator. NGI runs this
service in every major US city.
ƒƒ Landfill management: NGI owns landfill sites in some of the cities where
it operates trash collection services. These sites receive the garbage from
both NGI garbage trucks and those of other operators. The waste is then
processed and disposed of at these sites (mainly by burying it).

NGI’s operation in each city is managed as its own company, and provides
reports to the NGI head office in Boston. NGI’s trash collection service is paid
for by their customers (various sized businesses) on a monthly basis. The
monthly fee depends on the volume of trash to be handled and ensures two
collections per week from the customers’ premises. It also covers the cost of
handling the waste on the landfill site where it is deposited.

On landfill sites that it owns and operates, NGI makes additional revenue
through charging non-NGI garbage trucks a fee per ton of waste handled. Fees
for both trash collection and landfill management services can differ by city
due to the varying intensity of local competition.
11

National Garbage

NGI has found that there is considerable variation in the performance of its
companies in the various cities. Table 1 shows some important data for three
cities where NGI runs both trash collection and landfill management operations:

Table 1: Summary Data Collected on NGI’s Services in Three Cities

Milwaukee San Diego Orlando

Average trash collection fee per
$420 $370 $400
customer per month (t)
Number of trash collection
10,000 13,000 11,500
customers (n)
Landfill fee to non-NGI trucks per
$25 $30 $22
ton of waste (l)
Total waste processed at landfill
5,000 tons 4,200 tons 6,800 tons
site per week (w)
Net profit margin (trash collection) 6% 9% 2%
Net profit margin (landfill mgmt) 15% 18% 12%

A new CEO has recently been appointed at NGI. He has asked McKinsey to
perform a review of the business to determine the key causes of the variability
in performance across the cities. He would also like the team to investigate the
best performing cities in order to build recommendations on how to improve
profitability in the underperforming cities.

13. Which of the following equations best approximates NGI’s weekly revenue, r, in
a city?
A) r < t×n + l×w
B) r = t×n + l×w
C) r < (t×n)/4 + l×w
D) r = (t×n)/4 + l×w
12

National Garbage

14. Based on the data presented in Table 1, which of the following statements is a
valid conclusion?
A) Trash collection contributes approximately 25% less towards overall profit
than landfill management in these three cities
B) San Diego has the lowest revenue from trash collection operations of the
three cities
C) Orlando has the highest revenue from landfill management operations of
the three cities
D) In these three cities, landfill management brings in two to six times more
profit per customer dollar spent than trash collection

15. Which of the following statements, if true, would NOT help explain the
differences in net profit margins for trash collection across the three cities in
Table 1?
A) Different cities require different staffing levels due to complexities of
collection routes
B) Price competition for trash collection services differ by city
C) There are differing levels in the average volume of trash per customer in the
different cities
D) There are differing levels in the average fuel cost per transport in the
different cities

The team proceeds to analyse the average profitability of a garbage truck. They
gather the following information regarding a typical garbage truck in Orlando:

ƒƒ The average weekly fee per customer is $100

ƒƒ Customers get two pickups per week, each weighing 0.1 tons per customer on
average
ƒƒ Truck, fuel, and crews cost $2,000 per day and operate five days per week
ƒƒ The cost to NGI trucks of disposing at NGI’s landfill site is $15 per ton
13

National Garbage

16. Assuming no costs other than those mentioned above, which of the following
quantities represent the SMALLEST number of customers required for an
Orlando garbage truck to make a profit on its weekly run?
A) 96
B) 100
C) 104
D) 108

In an effort to investigate ways in which NGI could increase its number of

trash collection customers, the team analysed the results of a recent survey
on selected businesses located on NGI trash collection routes in Orlando. The
survey asked questions about the businesses’ awareness of NGI services and
whether they had used NGI services before. The results were split between
small businesses (employing 50 people or less) and large businesses as
presented in Table 2.

Table 2: Results of Survey on Small and Large Businesses on Selected

NGI Trash Collection Routes in Orlando
Small Businesses Large Businesses
Total number surveyed 10,240 2,865
Those aware of NGI’s services 6,983 1,355
Those who have considered using
4,745 1,203
NGI for trash disposal
Those who currently use or have
used NGI’s trash disposal services in 4,295 1,141
the past
Those who currently use NGI’s trash
2,045 565
disposal services
14

National Garbage

17. What is the difference, in percentage points, between the awareness rate of
small businesses on these routes and that of large businesses regarding NGI’s
services?
A) 1 percentage point
B) 4 percentage points
C) 21 percentage points
D) 26 percentage points

18. Which of the following reasons, if true, would NOT help explain why the number
of current large business customers in Table 2 is smaller than the number of
current small business customers?
A) There are fewer large businesses than small businesses in Orlando
B) Large businesses are more likely to have their own waste disposal facilities
than small businesses
C) Large businesses receive greater levels of advertising and marketing than
small businesses
D) Waste disposal represents a lower proportion of overall spending for large
businesses than for small businesses
15

National Garbage

The team then investigates the profitability of running landfill sites for NGI.
During a discussion with the manager of the Orlando company, you find out the
following facts:

ƒƒ Landfill sites must have at least one environmental specialist 24 hours a day,
seven days a week, to satisfy environmental regulations
ƒƒ The NGI landfill site in Orlando is the only such site in the city, and is open
9am to 5pm Monday to Friday. It employs four environmental specialists
and eight other staff
ƒƒ Total weekly employee cost for the Orlando landfill site is $7,000

The manager also gives you Chart A, which shows the amount of trash, in tons,
arriving at the landfill site on average each day.

Chart A
Waste Levels Arriving on Each Day of the Week (Orlando Landfill Site)

Waste 3,000
arriving
Tons 2,500

2,000

1,500

1,000

500

0
Mon Tue Wed Thu Fri Sat Sun
Days

19. Which of the following quantities best approximates the average daily amount of
waste arriving at the landfill site from Monday to Friday?
A) 985 tons
B) 1,095 tons
C) 1,375 tons
D) 2,175 tons
16

National Garbage

20. Based on the information provided by the Orlando manager regarding

staffing at the Orlando landfill site, which of the following statements is a valid
conclusion?
A) One third of total employee cost for the landfill site is for environmental
specialists
B) At least one environmental specialist must work more than 40 hours per
week
C) Staff who are not environmental specialists do not work more than 40
hours per week
D) The majority of the landfill site’s employee cost is for staff who are not
environmental specialists

21. Which of the following values best approximates the employee cost per ton of
waste for the Orlando landfill site?
A) $0.82
B) $1.02
C) $1.22
D) $1.32
17

InCo

InCo
InCo is a commercial insurance company. The company engages in three
activities as follows:

1. Underwriting: This is the main activity of the company. It offers

insurance policies to business of all sizes and types, which protect against
most risks for these businesses (e.g., fire, theft, liability). It receives
regular payments from clients in return for the insurance policies
provided to them, and this revenue is known as premium income. The
underwriting costs that InCo has include claims (i.e., when a client requests
reimbursement for damage or loss under their policy) and operations (e.g.,
general administration, sales and marketing). The difference between the
premium income and the underwriting costs is known as the underwriting
profit. InCo sells the majority of its insurance policies through insurance
brokers, who are independent sales agents offering a wide range of policies
from many different insurance companies.
2. Investment: Insurance companies usually hold large sums of money
aside to cover potential future claims from their clients. Rather than simply
leaving the money alone, InCo invests the money in the markets to try to
make further revenue. This revenue is known as investment income. The
difference between the investment income and any associated costs (e.g.,
investment charges) is known as the investment profit.

3. Risk consulting: InCo offers a small consulting and advice service to large
clients to help them reduce their overall business risk in return for a fee.
Over the last 3 years, InCo’s underwriting profit has been declining. Last
year, InCo had a premium income of $700 million. Its claims cost represented
83% of premium income and its operations cost represented 20% of premium
income. Therefore, InCo experienced an underwriting loss. Last year’s
investment profit more than compensated for the underwriting loss. However,
the investment profit also declined and is expected to decline further due to low
interest rates and weak stock markets.

The CEO of InCo asks McKinsey to help him determine how InCo could improve
its profits. In the first meeting, he informs you that he believes that little can
be done to improve investment profit. The cost of underwriting operations
seems to have increased over the last few years and claims cost has increased
in line with premium income. He also states that the main idea of having a risk
consulting business is not to make additional profits via earning fees, but to
realise considerable indirect mutual benefits for InCo and its clients.
18

InCo

22. Assuming claims cost remained at 83% of premium income and operations cost
remain unchanged in $US millions compared to last year, in order to make an
underwriting profit of zero, InCo would have to increase premium income by
approximately what percentage?
A) 3%
B) 12%
C) 18%
D) 20%

23. Assuming the relationship between premium income and costs remains the
same, which of the following events would have the most positive impact on
InCo’s profits?
A) A 1% increase in premium income
B) A 1% decrease in operations cost
C) A 1% decrease in claims cost
D) A 1% decrease in administration cost

Analysing InCo’s “book” (i.e., the total of all existing insurance policies), your
team first looks at how premium income is distributed over individual policies.

Exhibit 1
Premium Income Distribution Over Policies last year
2% of
premium 100
income 90
% of total premium income

80
70
60
50
Total premium: $700m
40 Total number 350,000
30 of policies:
20
10
0
0 10 20 30 40 50 60 70 80 90 100
% of total number of policies
(ordered by descending premium)
33% of policies
(policy Group A)
19

InCo

24. Assuming that Group A policies have an average claims cost per policy of $200,
which of the following statements can be concluded from Exhibit 1?
A) InCo makes an average underwriting loss on these 33% of policies
B) InCo makes an underwriting loss on ALL of these 33% of policies
C) InCo should increase premiums for these 33% of policies
D) InCo should stop offering these 33% of policies

Discussing Exhibit 1 with the head of underwriting, you learn that she had
considered cancelling Group A policies. However, in talking to the head of sales
she found out that there are strong arguments against doing so. One reason is
that large clients who hold several insurance policies with InCo might take all
of their policies to a competitor if a small premium policy is cancelled. Also,
brokers who generate a big portion of InCo’s premium income might move
to competitors with all of their policies if they cannot place small premium
policies with InCo.

Since a large portion of InCo’s premium income is earned through brokers, the
team decides to analyse the profitability of policies sold through each broker.
Broker profitability is measured by the claims ratio, that is, the claims cost on
the policies sold by the broker as a percentage of the premium income earned
by the broker. Exhibit 2 shows the performance of three different classes of
brokers (marked A, B, and C) on the InCo policies they sold over the last 5 years.

Exhibit 2 A B C are representations of broker

performance classes A, B, and C
Broker Performance Classification
Deviation from average claims ratio Average claims ratio
% % calculated for broker policies

-5 -4 -3 -2 -1 0 1 2 3 4 5
A B C
2000 77

2001 79

2002 79

2003 80

2004 83
A B C
20

InCo

Exhibit 3 shows some data on the share of premium income contributed by each
of the three classes of brokers (i.e., A, B, C), as well as the number of brokers in
each class and the average claims ratio for each class of brokers.

Exhibit 3
Broker Performance Breakdown 2 years ago
Total premium from brokers 2 years ago: $670m

Number Average claims ratio

Broker class % of premium income of brokers %

Class A 26 600 91

Class B 49 300 79

Class C 25 100 71

25. Based on the data presented in Exhibit 3, which of the following statements is a
valid conclusion?
A) The average premium income of Class B brokers is larger than the average
premium income of Class C brokers
B) The average premium income of Class A and Class C brokers is smaller than
the average premium income of Class B brokers
C) The average premium income of Class A and Class B brokers is larger than
the average premium income of Class C brokers
D) The average premium income of Class A brokers is larger than the average
premium income of Class B brokers

Talking to the head of broker relationships, you learn that InCo historically
classified brokers according to premium growth expectations. He informs the
team that personal relationships with brokers can change quickly and have
serious consequences. For instance, an upset broker can quickly move his
business to one of InCo’s competitors. While this hurts InCo less with a smaller
broker, it can hurt InCo significantly with the larger brokers. In addition, InCo
is already short on people who can maintain their current broker relationships
and would not be able to deal with the additional work involved in maintaining
these relationships.
21

InCo

26. Which of the following statements, if true, would be the strongest argument for
discontinuing business with underperforming brokers?
A) The majority of InCo’s underperforming brokers do more business with
other insurers than with InCo
B) Small broker enterprises run by less than 5 people account for most of
InCo’s underperforming brokers
C) Most underperforming brokers provide predominantly small premium
policies
D) There are too many underperforming brokers for InCo to manage with their
current resources
22

Answers

Answer Key
Mail-It

1. A – The data in Table 1 indicates that the average price per item increases in
December (by dividing the revenue by the number of items handled). As we are
told that business mail is usually cheaper than personal mail, an increase in
the proportion of personal mail could explain the increase in the average price.
The other responses are not consistent with an increase in the average price per
item.

2. D – Profit margin is profit as a percentage of revenues. In January-November,

the average profit margin is 13.8%. In December, it is 5.6%, giving a difference
of 8.2 percentage points. A quicker, alternative method is to note that the
difference in profit is about $20m, and that the average revenue for the full
year is about $250m, so that the difference is about $20m/$250m = 2/25 = 8%,
pointing to D as the likely response.

3. B – Average items per day can be derived by dividing the number of items
handled by the number of days in the month. This produces 32.6m for January-
November and 31.1m for December. The reduction in December as a percentage
is therefore 1.5m/32.6m which is 4.6%, so that a reduction of about 5% is the
most accurate response. A quicker, alternative method is to note that Responses
C and D cannot be correct as they indicate that average items handled per
day increased in December. This leaves a choice between Responses A and B.
Observe that items handled went down by about 3%, and number of days went
up by about 2%. The combined impact of these changes would be an increase of
about 3 + 2 = 5% which indicates Response B to be the most accurate response.

4. A – The only valid reasons for an item not being eligible for machine sorting are
a lack of address code or an inappropriate size (From Exhibit 1). Only Response
A provides one of these reasons, which is consistent with the reduction in
December that is indicated on Exhibit 1. Response B would impact step 4 in
the flow chart in Exhibit 1. Response C would impact step 3. Response D would
impact step 1.

5. A – From Exhibit 1, 39% of mail needs to be sorted by hand in January-

November. Given that there are 991m total items on average in these months,
this means 386m items are sorted by hand. A similar calculation yields a figure
of 462m for December (= 48% x 963m). The difference between these figures is
76m.
23

Answers

6. D – Whether an envelope has pre-paid postage has no impact on whether it can

be sorted by machine. All other responses address reasons why an item cannot
be machine sorted.

7. B – The CEO wonders if the ‘benefits outweigh the risks’ with regards to
stopping the process of stamp cancellation. Response B is the only response
that articulates both a valid benefit (gain in time) and a valid risk (lost revenue
from fraud).

8. A – If more staff are employed who do not have any paid hours spent not
working, this will reduce the average paid hours spent not working for the entire
employee base, which is the trend indicated in Table 2. The other responses
would, if anything, only serve to increase the paid hours not working, contrary
to the data in Table 2.

9. C – This is the only response that does not explain why staff may be handling a
lower rate of items per hour – it merely addresses the number of hours worked.
Response A is a potential reason because poor staff planning can affect the
number of items handled per hour (e.g., too many staff with less to do can result
in a slower working speed). Response B is a potential reason because staff may
not be motivated to be productive. Response D is a potential reason as there
may be a more relaxed atmosphere for part of the month where staff are working
slower due to a much lower volume of items.

10. D – First, to calculate the total number of employees, we need to divide the total
paid hours by 160. This is (w + n)/160. Then, to determine the average items per
employee, we need to divide the total number of items by the total number of
employees. This is h/(w + n)/160 = (h x 160)/(w + n).

11. A – This option is both true, and addresses why the suggested measure may not
reflect true staff productivity. For example, high levels of sickness or training
in a given sorting office may make productivity look lower than it actually is.
Response B refers to machine costs which are not related to staff productivity.
Response C is not true as adding staff will only increase total pay. Response D is
not true, as larger amounts of manual mail would result in fewer items handled
per hour, which increases total pay per item handled.
24

Answers

12. C – Observe from Exhibit 2 that total hours worked decreased while total items
arriving increased between Weeks 1 and 2. Response A is incorrect – it can be
observed that the dotted line increases at a greater rate than the broken line
between Weeks -1 and 0, which implies that the proportion is higher in Week
0. Response B cannot be concluded because no information is available on
this. Response D is incorrect, as 35 percentage points of the increase in total
hours worked was due to hourly staff, while there was only a 25 percentage point
increase in items arriving.

National Garbage Inc

13. C – From Table 1, the trash collection revenue per month is t x n. As an average
month contains at least 4 weeks, we can conclude that trash collection revenue
per week is at most (t x n)/4. For landfill fees, we know that not all processed
waste generates revenue – only the waste that is processed from non-NGI
trucks. Therefore total revenue from landfill management is less than l x w.
Therefore we can conclude that total revenue, r < (t x n)/4 + l x w

14. D – Profit per customer dollar spent is the same as profit margin. Table 1
shows that, in these three cities, landfill management has at least twice the
profit margin of trash collection (San Diego) and at most six times (Orlando).
Response A is incorrect as trash collection generates vastly greater revenues
than landfill management and so generates greater profit in all three cities.
Response B is incorrect as San Diego has the highest revenue from trash
collection. Response C cannot be concluded as we cannot calculate landfill
revenue precisely because we do not know how much waste was processed from
non-NGI trucks.

15. C – We know that volume of trash is built into pricing, therefore NGI’s pricing
(and therefore profit margin) should not be affected by the volume of trash
collected. There is no indication that fuel cost variations or route complexity
are built into pricing, and hence Responses A and D could impact profit margin.
Finally, competition in price paid per ton is out of the control of NGI and so
Response B could also impact profit margin.

16. C – Let y be the number of customers. The equation to solve with the
information given is 100y > 2 x 0.1 x 15 x y + 10,000. So 97y >10,000. The
smallest of the listed values which satisfies this is 104.
25

Answers

17. C – The awareness rate can be obtained by dividing the second row of Table 2 by
the first row. This produces 68% for small business and 47% for large business,
yielding a difference of 21 percentage points.

18. D – It is natural that waste disposal would represent a lower proportion of

spending for large businesses, and this is unlikely in itself to impact their
awareness and likelihood to use NGI’s services. Response A is valid as fewer
total large businesses can result in fewer large business customers for NGI.
Response B would impact whether large businesses even consider waste
disposal services in the first place. Response C would impact how aware large
businesses are of NGI’s services.

19. C – Note that only the first five data points should be considered in this
calculation. By drawing the four responses as averages on the chart, it
can reasonably be concluded that Response C is the best approximation.
Alternatively, the individual values of the data points can be approximated
as 1,800, 700, 850, 1,000 and 2,500. The average of these is 1,375, indicating
Response C as the best approximation.

20. B – An environmental specialist must be present at all times on the site, which is
168 hours per week. Since there are four environmental specialists, this means
that at least one must work more than 40 hours per week. Responses A and D
cannot be concluded because we have no information on the different costs of
environmental specialists and other staff. Response C cannot be concluded
because we have no information on the hours required from other staff.

21. B – Approximating the data points in Chart A, the total tons of waste processed
can be estimated to be 1800+700+850+1,000+2,500 = 6,850. Therefore the
total employee cost per ton of waste is $7,000/6,850 = $1.02. Note that it is not
necessary to actually perform this final calculation as it is clear that the result is
just above $1.00, which indicates Response B to be the best approximation.

InCo

22. C – Operations costs currently represent 20% of the $700m in premium income,
which is $140m. Let y be the new premium income required - the equation to
solve is y = 83% x y + $140m. So 17% x y = $140m, giving y to be approximately
$825m. This represents approximately an 18% increase.
26

Answers

23. C – Responses B and D are incorrect as operations and administration costs

are a small proportion of the underwriting costs. Response A is incorrect as
we are told that claims cost has increased in line with premium income, so only
a small proportion of this increase would be realized in profit (around 0.17%
profit improvement). However, a 1% reduction in claims cost would be a 0.83%
increase in profit, indicating this as the most positive impact.

24. A – Group A contains about 117,000 policies (= 350,000 x 33%). At an average

claims cost of $200 per policy, total claims cost for Group A is about $24m.
However, premium income for these policies is 2% of the total premium income
of $700m, which is $14m. This implies an average underwriting loss on these
policies. Since we do not have any data on individual policies, we cannot
conclude Response B. We cannot conclude Responses C and D as we have no
information regarding the potential impact of these actions.

25. B – From Exhibit 3, approximately half of premium income is shared between

the 700 Class A and Class C brokers while the other half is shared between 300
Class B brokers. This implies that Class B brokers generate greater average
premium income. Similar logic can demonstrate that the other responses are
incorrect.

26. D – This is the response that provides the most direct argument for the necessity
of discontinuing business with underperforming brokers. The other responses
do not directly articulate why this business needs to be discontinued, but they
are factors that may influence the decision.
McKinsey Problem Solving Test – Practice Test C
August 2012
www.mckinsey.com/careers
McKinsey
Problem Solving Test
Top Tips
1

Top tips

McKinsey Problem Solving Test

You’re probably reading this because you’ve been invited to take the McKinsey Problem
Solving Test. Don’t stress out – as part of the interview process, we ask most candidates to
complete this test. We use this multiple choice test to better understand how you approach
problem solving and how well you can size up a situation. McKinsey is more interested in
how you think than in how much you’ve memorized. Here are a few important things you
should know about the test:

ƒƒ This is not a math test. Most work at McKinsey involves data, and data is a big part
of the test. But only some of the questions involve math. There are also a lot of other
questions that ask you to read and understand text, use logic, make inferences and draw
conclusions – all part of a day’s work for a McKinsey consultant.
ƒƒ This is real McKinsey work. If you’ve been wondering what McKinsey consultants
do, now is your chance to find out. Of course not all of our work is about problem solving,
but a large part is. Everything in the test is based on real work that has been done by a
McKinsey team.
ƒƒ You can’t bring a calculator or anything else, just your natural abilities.
Although some questions might look like they need a calculator, they are actually
written in a way that can be solved without one. For example, in some questions, by
performing a quick estimate in your head or on paper, you can identify that only one of
the responses is close to your estimate.
ƒƒ No business background is necessary. We mean it! We’ve designed this test so
that all you should need is inside it. Apart from your own brainpower of course.
ƒƒ Time is precious. There are 26 questions to answer in an hour. We would be
surprised if you manage to read, think, and answer them all in this time. Do what you
can, and remember that there is no penalty for getting an answer wrong.

Practice tests
We want you to do the best you can, and we know that a lot of people like to practice before
taking tests. So we’ve created some practice tests for you. These practice tests look just like
the real test, so they’ll give you an idea of what to expect.

We know that there are many different approaches to test taking, and different approaches
suit different people. We’ve developed some Top Tips for how to approach this test.
2

Top tips

Top Tips – Absorbing, Solving and Managing Time

Here are the biggest things you’ll need to be prepared for when you take the test:

ƒƒ Absorbing. You’ll be presented with information in text and exhibits. Absorbing and
understanding this information is critical to answering the questions in the test.
ƒƒ Solving. You’ll be asked questions and given four options to choose from in answering
each question. Often, you won’t have the time to check each option in detail. You’ll need
to be comfortable using judgment and shortcuts when you can.
ƒƒ Managing time. Twenty-six questions in an hour means just a little over two minutes
per question. But you’ll also need time to absorb the information. You’ll need a strategy
to manage time well, so that you can do your best to answer as many questions as
possible.

We’ve put together some more detailed tips for you on each of these. After you’ve read these
tips, we’ve then illustrated them by showing you how they can be used in solving the first 10
questions in Practice Test A.

Absorbing
ƒƒ Read the questions before the text and exhibits. Text and exhibits are followed
by a set of questions. Read the questions and scan the responses in a section before
reading the text and exhibits. As you read, circle the important words. This will allow
you to read the text and exhibits with a purpose.
ƒƒ Speed-read the text. As you read through the text quickly, circle or underline any
information that you think is relevant to answering the questions. You do not have to
read and understand every single word.
ƒƒ Pay close attention to exhibits. Exhibits are likely to hold information needed to
answer many of the test questions. When reading this type of information ensure you
have noted the title, legend, labels of the axes, and the units for each item.

Solving
ƒƒ Structure your approach. Before answering a question decide on your approach.
You do not want to waste time working out things you do not need to, or simply churning
data for no reason. Make sure you have truly understood what you need to work out and
how you will do it before beginning to solve.
ƒƒ Approximate. Often questions may seem to call for you to perform complicated
calculations. Look closer! There will often be a shortcut that will allow you to save time
and avoid tricky calculations. Often the shortcut involves rounding numbers to make
them more manageable, or performing a rough estimate.
3

Top tips

ƒƒ Eliminate. Your approach for many questions will be to eliminate incorrect responses
in order to find the correct answer. By working out approximate answers as suggested
above, you can rule out some responses quickly and increase the odds of a correct
choice.

Managing Time
ƒƒ Keep calculations organized. When you need to perform calculations during the
test, keep your work for each question to a separate, well-marked area. This will keep
your calculations organized, reducing the time you spend checking your work and
searching for information you have already recorded/worked out.
ƒƒ Transfer answers in groups. When you decide on the answer to a question, circle
it or write it to the left of the answers on your test paper. Then, when you finish a set of
questions transfer your answers to the answer sheet all at once. This will save you time
going back and forth to the answer sheet.
ƒƒ Be disciplined. Resist the temptation to spend a long time on any one question, and
skip questions that immediately appear too difficult. Once you have completed other
areas you can always return to earlier questions. You can also leave notes of your initial
thoughts next to the question in order to remind yourself later when you return.
ƒƒ Ensure test completion. It is very difficult to finish every question in the time given,
so, when there is 15 minutes left in the test, pick up your pace. Alert yourself to the fact
that you have limited time left, and endeavour to shade in an answer for every question.
There is no penalty for wrong answers.

Try out our top tips

In the following pages we will illustrate how to apply the above techniques to some of the
questions in Practice Test A. Make sure you have a copy of the practice test handy as you
read the following pages.

For Questions 1-6 of the test, we will provide detailed guidance on how best to approach
each question. For Questions 7-10, we will provide some guidance, though not as detailed
as in Questions 1-6.

Once you have completed the 10 questions, try to complete the remainder of the practice
test using similar techniques.

Ready to start? Just turn the page…

4

Top tips

Question 1
Absorbing. In the question you should circle the words reason for the teams work
in preparing. Then when you speed-read the text you are able to circle the words In
preparation, which begin a sentence contained in the second paragraph. The key
information needed to answer this question is in this sentence.

Question 2
Absorbing. Circle Innovation Capital and skim over the response options. You should
immediately see that they refer to different types of spending by organizations. Then
when you speed-read the text you are able to circle three types of Innovation Capital
at the beginning of the third paragraph. The key information needed to answer this
question is in this paragraph.

Question 3
Absorbing. Words to circle: can be concluded and Exhibit 1. Skim the responses to
note that they refer to the three types of Innovation Capital. You will need to group the
categories in Exhibit 1 into the three types of Innovation Capital using the paragraph
you used to solve Question 2.

Solving. Approximate and Eliminate. For A, sum the last three categories to make 3.3.
Note that 1.5 is a little less than half of this, so this looks promising – circle it. For B, sum
the 2nd to 5th categories to make 8.3. This seems quite a bit more than half of 13.8, so
you can cross this out. For C, 1.2 is 10% of 12, so it must be less than 10% of 13.8, so you
can cross this out. Use a similar strategy to cross out D.

Question 4
Absorbing. There are many key words in this question: Innovation Capital, Exhibit 1,
5% per year, MINIMUM and Human Capital, more than half, ten years.

Solving. Approximate and Eliminate. This is a calculation – and it’s not easy – but you
can approximate. First you could estimate that 5% growth over 10 years totals 50% plus
an extra margin for compounding, so say 60% total. So total Innovation Capital would
grow by 60% to about $22tn. Therefore, you are aiming to hit at least half of this, or around
$11tn. Remember from Question 3 that total Human Capital is $3.3tn? Now you can look
at each response option and use the same estimation method. For Option A, 10% growth
over 10 years is 100% plus a bigger extra margin for compounding, say 150% total. So
5

Top tips

$3.3tn in Human Capital would increase by 150% to about $8tn – nowhere near $11tn so
you can cross this option out! For Option B – 15% growth over 10 years is 150% plus an
even bigger compounding margin, say 250%. So $3.3tn increasing by 250% is more than
$11tn. Circle this response.

Managing time. If this question looks really hard to you, why not skip it and come back
later if you have time? If you give it a go, clearly mark the space you use for your calculation,
so you don’t get it muddled with other notes. Also, you might be tempted to perform the
calculation for responses C and D to be absolutely sure, but is it worth the time?

Question 5
Absorbing. Circle: if true, BEST, Exhibit 2, important. Look at Exhibit 2 and note that
most of the countries shadings are dominated by Productivity.

Solving. Remember that the over-arching topic here is Innovation. And Exhibit 2 is really
about Productivity. What’s the only response that mentions both of these? Circle it.

Question 6
Absorbing. Circle: TRUE, Exhibit 2. Scan the responses and note that they all refer to
growth in Hours or in Productivity.

Solving. Decide your approach before launching in. How is growth in Hours or
Productivity determined from Exhibit 2? By multiplying the overall growth on the top of
the bars by the proportions inside the bars. Now you need to decide which option is true.
Option A seems hard to verify so leave it for now; it also looks different from the other
three. Looking at Option B, you can note that Slovenia has the highest overall growth,
and is second only to Germany on the proportion of growth due to productivity. But
Germany has very low overall growth, so this is enough to conclude that Slovenia has the
highest growth due to Productivity. Circle it.

What next?
Try to complete questions 1-6 again, but try to employ the techniques above. Give
yourself about 15 minutes to complete the first 6 questions.

Then answer questions 7-10 on your own using the techniques explained above. Give
yourself 8-10 minutes for the 4 questions. When finished, compare how you approached
these questions to the guidance on the next page.
6

Top tips

Question 7
Absorbing. Circle Germany’s, Spain’s, growth due to Productivity. Scan the
responses and look how far apart they are from each other.

Solving. Decide an approach before launching in. Given the response options, do you
need to use exact figures?

Managing time. Decide where to write your calculations and make sure it is not
muddled with other notes.

Question 8
Absorbing. Circle: LEAST, Slovenia, Czech Republic, Exhibit 2. “LEAST” suggests that
you will have to read all answer choices and then make a judgment.

Question 9
Absorbing. Circle: LEAST, Innovation Capital, iPod. Scan the responses. Is this
similar to a previous question?

Question 10
Absorbing. What are the key words in this question and where can you find the most
relevant information?

Solving. If you can’t immediately identify the best response, consider eliminating.

How did you do?

We hope you found our Top Tips useful. You may want to try to use them to complete the
rest of Practice Test A. Give yourself about 35-40 minutes to try the rest of the questions.
Good luck!
McKinsey Problem Solving Test
September 2013
www.mckinsey.com/careers