Let's Bake a Pizza in Guesstimates
In this video, you will solve another guesstimate along with Soumya. Are you ready?
If you ordered a slice of pizza after watching that video, we wouldn't be surprised. But until the order is delivered, let us first recap the lesson and walk through the entire process of solving the guesstimate.
Problem Statement - Guesstimate the revenue of Domino's.
As you must have figured out, this is a Market Sizing type of Guesstimate.
Now, we move on to clarifying a few assumptions to narrow down the scope of the problem at hand.
Clarifications
- Dine-in/Takeaway
- Hours of operation
- One Domino's store or the entire chain
Assumptions
- Both
- 12 hours (10-10)
- One store
We then saw three approaches to solve the problem.
Approach 1 - To guesstimate the area under that Domino's and calculate the number of orders and multiply that by the average ticket size
= Population X penetration % X orders in a month X average order amount
Reasons - uncertain and require a lot of assumptions
Approach 2 - Constraint is raw material
However, that will be dependent on the previous day’s demand and will gradually increase/decrease to match the demand
Approach 3 - Constraint as number of employees/pizza making
- Certain and finite
- Cannot increase the maximum number of pizzas made in a day without more investment
- Does not depend on whether the service is dine-in or take away
Assumptions
- All orders contain at least 1 baked item
- All baked items take the same time to prepare as a pizza (calzones, tacos etc)
- AAll side dishes take lesser time to prepare than the baked items (that is, baking takes the most time in preparing an order)
- Hours of operation - 9 am to 9 pm (12 hours)
- Regular small Domino's (Domino's cover a huge area through small restaurants covering a certain area, we rarely see big ones, even in malls
Time taken to make one pizza
= Prep time (take out dough, apply toppings) + baking + packing
= 5 min (pre-made) + 15 min + 5 min = 25 min
Number of pizzas are dependent on the number of ovens, therefore, maximum capacity
= Time taken to bake one pizza * number of ovens * capacity of one oven (4)
= 4 * 2 * 4
= 32 pizzas
Now,
Cost of one pizza (mostly regular or medium-sized is ordered) = 200
+ 1 side per baked item = 100
+ 1 beverage = 50
The total revenue earned with one order = Rs 350
Peak timings - Lunch (12 to 3) and Dinner (7 to 9) - 5 hours * 80% utilization
= Max capacity * Utilization % * No of hours * Revenue per pizza (This equation is important and summarizes your entire approach)
= 32 * 80% * 5 * 350
= Rs 44,800
Off peak - 9 to 12 and 3 to 7 (7 hours) * 50% utilization
= Max capacity * Utilization % * No of hours * Revenue per pizza
= 32 * 50% * 7 * 350
= Rs 39,200
Total Revenue
= 44,800 + 39,200 = Rs 84,000
The thing about guesstimates is that they can even be practised alone practically anywhere.
If you’re not good at structured communication, practice speaking the solution out loud.
If you’re not very good with numbers, practice your calculations.
Because at the end of the day, there is no replacement for practice.
And that is the only message we want to leave you with.
Here are a few extra resources written by the SME herself to help you sail through difficult situations while solving guesstimates:
How to improve your calculation speed:
A few examples for you to get a hold of the module better:
Guesstimate - Total Revenue Earned by the Australian Tourism Industry
Things to specifically avoid while solving guesstimates:
This closes our course on Problem Solving.
We sincerely hope you had an amazing time learning with our SME and will soon start applying the skills learnt to tackle any challenges you face in your professional journey.
