- Choose easy multiples for easy calculations
- Choose easy percentages - 50% vs 52%
- Proxies - use them as references for fewer chances of error
- Limiting factor or rate determining step - Identify the limiting factors to make your answer crisper and earn brownie points
- Pareto principle - It states that 80% of the output is generated by 20% of input. While this might not apply to all solutions, the answer is dependent on you finding out the 20% factor in the equation - what is the most significant part in your calculation. For ex. if you are estimating the carbon emission of the world, you should 20% of the factor that will estimate 80% of the emissions - large scale industries. After that you can take a part of the percentage and average to the 80%
- Growth, replacement and wastage
- Remember the product cycle and include practical approaches in your solution
- Growth of a product over time, its replacement or perishability and wastage in product or transportation
- For example: tyre industry can be approximated to grow as per the auto industry. They are required to be replaced in 5-10 years and there can be wastage during production
- Quick sanity check - you will want to make sure the answer makes sense by using proxies. For ex. if you are asked to guesstimate the number of ants in the world and your answer is less than 7 billion then you know you have gone wrong somewhere because there are more ants than humans. Proxies are very helpful for sanity checks
Calculations
Whenever you’re choosing numbers in your approach, try to make sure that they are the ones which are easy to calculate.
- For example - Multiples of 5, 10, 100, 1 million etc.
- For example - If you are to assume a value, assume 60% of something rather than 64%
Proxies
Substituting unknown data with comparable known data in order to solve the problem.
Limiting factors
Understanding what limits your scope of calculation is essential to simplify your solution and reach it faster.
For example - If you are asked to calculate the total number of taxis in your city and you apply a limiting factor that only the yellow and black government-run taxis are considered and not the Ola and Uber ones, you immediately simplify the solution.
Pareto Principle
The Pareto Principle states that 80% of the output is generated by 20% of the input. You can apply this in your solution to ease your calculation.
For example - If you were trying to the total cost of building a monument, 80% of the cost would come from the 20% of raw materials used like cement, bricks, steel and the cost of land. The smaller amenities like electrical wires, plumbing, etc would constitute the rest.
Growth, replacement and wastage
In a guesstimate related to market sizing, it would be wise to remember the product cycle and inculcate practical approaches to your solution. So keeping the growth of a product over time, its replacement or perishability period or wastage of components or products in different operations as factors will help you get a more realistic answer.
For example - if you were asked to calculate the number of washing machines bought in your city over a year, you need to keep in mind the longevity of a washing machine and based on that calculate how many people would buy a new machine that year.
Sanity check
It simply means that you may want to make sure that your answer makes sense by either using proxies or simply common sense.
For example - If you’re asked to estimate the number of leaves in the world and your answer is less than 7 billion, you know you have gone wrong because there are obviously more leaves in the world than humans.