Dead Code
The COO wants to model the savings from consolidating the four acquired engineering teams into a unified organization. Currently the four acquired entities have a combined 480 engineers at an average fully loaded cost of $210,000 per engineer per year. Post-consolidation, the team estimates 25% of those roles are redundant and can be eliminated, and the remaining engineers can be rebalanced toward lower-cost locations, bringing the average fully loaded cost down to $180,000. How much annual savings does consolidation generate, and what is the margin impact on Vertex's $3.2B revenue base?
Case Exhibit
Rounding is standard practice in case interviews and almost always permitted with a quick ask. Both approaches shown where relevant.
Step 1: Calculate current total cost of acquired engineering teams
480 engineers x $210,000 = $100,800,000 per year. Rounded: 500 x $200,000 = $100M. Close enough to use either; precise figure is $100.8M.
Step 2: Calculate headcount and cost after redundancy elimination
Redundant roles eliminated: 480 x 25% = 120 engineers. Remaining engineers: 480 - 120 = 360 engineers.
Step 3: Calculate post-consolidation cost
360 engineers x $180,000 = $64,800,000 per year. Rounded: 360 x $180,000 = $64.8M.
Step 4: Calculate total savings
$100,800,000 - $64,800,000 = $36,000,000 in annual savings. Rounded: ~$36M.
Step 5: Calculate margin impact
$36M / $3.2B revenue = 1.125 margin points.Rounded: approximately 1 margin point recovered.
Step 6: Contextualize
The margin has compressed 8 points over three years. Engineering consolidation alone recovers roughly 1 point. This is meaningful but not sufficient on its own. The remaining opportunity likely sits in reducing product portfolio complexity and technical debt costs, which were flagged as secondary drivers in the structuring. A full recovery to 24% margins would require additional levers beyond headcount consolidation alone.
