McKinsey

Problem Solving Test

Practice Test A

© 2013 APTMetrics, Inc.

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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
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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