How to crack XAT Decision Making – Part II

In the previous post we discussed how Decision Making can be the undoing of XAT aspirants and tried to understand the nature of questions that come up on the section.

We took up two sets from the Decision Making section of the last year’s XAT and discussed a structure to answer DM questions. In this post we shall look at the remaining questions from last year’s paper.

 

SET 3: Information + Number based Business Set

Answer questions on the basis of information given in the following case.

A few years back Mr. Arbit and Mr. Boring started an oil refinery business. Their annual earning is currently just 50,000 million rupees. They are now exploring various options to improve the business. Mr. Xanadu, a salesperson from Innovative Technology Solutions (ITS), is trying to sell a new oil refinery technology to Mr. Arbit and Mr. Boring. This technology could potentially enhance their annual earning to 150,000 million rupees within a year. But they have to make one-time investment of 100,000 million rupees to implement the technology. If the technology is not successful, the investment would be lost. Mr. Arbit and Mr. Boring are discussing about possible risks of the investment.

Mr. Arbit is enthusiastic about this investment idea but Mr. Boring is a little sceptical. This impasse makes them approach a consultant. The consultant makes some observations. Which of the following observations, made by the consultant, might reduce Mr. Arbit’s enthusiasm for the new investment idea?

  1. Investment is warranted only when benefits outweigh costs.
  2. Technology investments give higher earnings in future.
  3. Investment in technology leads to reduction of costs in the long run.
  4. Technology risks can be controlled.
  5. Business is all about taking risky decisions.

If you just read the case and go into the first question you will be left with two options. But before that who is take stakeholder from whose perceptive the options need to be evaluated? It is Mr.Arbit.

Arbit is enthusiastic about the investment we must choose an option which will dampen it.

(2), (3) & (4) highlight positive sides of the investment and hence will not dampen his spirits. We are left with (1) and (5). Unless we go back to the case we are better off tossing a coin at this point.

This is business case but with very few numbers. Just so that the understanding is clear

  • one-time cost – 100,000 million guaranteed to be incurred
  • annual increase in business – 100,000 provided it is successful

So for the first year cost is equal to increase in revenue. From the next year onwards the annual increase in revenue is 100,000. But only if it is successful.

(1) will affect Mr.Arbit’s enthusiasm adversely since it points out that investment should be done only if benefits outweigh costs. In this case for the first year it is a no profit, no loss situation but only if the business succeeds.

Since there is no probability given about the chances of the business succeeding this option should cast a doubt in Mr.Arbit’s mind. Also the statement is phrased negatively — warranted only if.

(5) is something that Mr.Arbit is aware of and given his enthusiasm he might be willing to take the risks since the statement is phrased positively — business is all about taking risks.

In order to sell the technology to Mr. Arbit and Mr. Boring, Mr. Xanadu is thinking of five possible sales pitches. Which of the following sales pitches would reduce uncertainties the most for Mr. Arbit and Mr. Boring?

  1. All other competitors are aggressively investing in risky technologies.
  2. If the technology succeeds, the annual earnings would grow 3 times from the next financial year and they would be able to recover the invested money within 1 year.
  3. Preliminary studies indicate that success rate of the technology is 85%.
  4. The R&D team of ITS is working to counter any possible downside of the technology.
  5. Business is all about taking risky decisions.

The biggest uncertainty is not about the benefits but about the probability of success. Option (3) is clearly giving the success rate from which we can calculated that for Year 1 the net return will be 100000(.85) – 100000 = -15000 million. But from year 2 onwards it will be +100000 million.

While (1) can be considered it still does not reduce uncertainty the way (3) does.

Mr. Arbit and Mr. Boring did not invest in the new technology, but the new technology is a big success. Repentant, they are now estimating the additional amount they would have earned (i.e. forgone earnings) had they invested in the new technology. However, the two owners differed on expected lifespan of the new technology. Mr. Arbit expected lifespan to be 5 years, whereas, Mr. Boring expected it to be 2 years. After the technology gets out- dated, the earnings from the business would drop back to 50,000 million rupees.

What would be the difference between two expected foregone earnings after 5 years of the technology investment, if yearly earnings are deposited in a bank @10%, compounded annually?

Note: Forgone Earnings = (Earnings from business with new technology) – (Earnings from business without new technology)

  1. 231,200 million rupees
  2. 331,000 million rupees
  3. 400,510 million rupees
  4. 431,000 million rupees
  5. 464,100 million rupees

It might be tempting to quickly assume that solving this question will involve a lot of calculation and hence letting it go. But as we discussed during our CAT sessions always try to visualize how the calculation will pan out.

They are asking you to calculate the difference between Mr.Arbit and Mr.Boring’s projections at the end of 5 years.

There will not be any difference till the end of two years since both are projecting the same numbers.

The difference is from Year 3 to Year 5 when Mr.Arbit is projecting the annual increase of Rs.100000 million to continue whereas Mr.Boring is not, which is nothing but 300000 if we do not calculate interest.

Even if we do it will still remain in the 300000s. Hence, (2).

This would have taken another 10-15 minutes os at the end of 30 minutes you should have 5-6 marks.

You should know that at this point you are halfway there. In the next 10 minutes you need answer another 3-4 questions and move on to another section.

 

SET 4: Business + HR Set

Answer questions on the basis of information given in the following case.

Life saving Pharmaceuticals (LSP) is India-based Pharmaceuticals Company. Their business mostly revolves around a couple of generic drugs and a few patented drugs. LSP operates in 30 odd countries and more than 50% of their sales volume is from outside India.

If more than 50% of their sales volume is from generic drugs, which of the following options is definitely correct? (Note : All percentages figures are with respect to total sales volume)

  1. If sales volume of patented drugs in India is 43%, the sales volume of generic drugs in India will be less than 43%.
  2. If the sales volume of generic drugs in foreign countries is at least 24%, the sales volume of patented drugs in India will be above 24%.
  3. If the sales volume of patented drugs in India is 54%, the sales volume of generic drugs in foreign countries will be above 54%.
  4. If the sales volume of patented drugs in India is 29%, the sales volume of generic drugs in foreign countries will be above 29%
  5. If the sales volume of generic drugs in India is at least 60%, the sales volume of patented drugs in foreign countries will be above 60%.

This is not a tough question but a tricky one. Even if one understands logic it can get confusing to do it over 5 options.

It becomes easier of one visualises the whole situation as a 2 by 2 matrix

India      Foreign

Generic                                   > 50

        Patented                                 < 50

                                     < 50      > 50

Each option provides one piece of information and infers another. Even so the conditions in some options violate the conditions given in the question and the information preceding it. It would be better to let this question go. I am sure about the answer as well (comment and let me know if there is a precise answer, both 1 and 4 seem valid)

Mr. Sinha, a senior executive of LSP, observes that their business in India is not vibrant. LSP faces stiff competition from Indian and global players, except in rural areas. Interestingly, most of their sales in the rural area are from cough syrup, used as sedatives by teenagers. Mr. Sinha is planning the following actions to improve business in the long run.

I. Invest in development of new drugs.

II. Increase sales of cough syrup in the rural markets.

III.Try and cut costs.

IV. Recruit more medical representatives in the rural areas.

Which of the following sequences is best arranged in the descending order of appropriateness?

  1. I, III, II
  2. II, I, III
  3. II, III, I
  4. IV, II, III
  5. IV, III, I

Situation

  • rural sales promising
  • cough syrup sales promising
  • rest of business in India is not promising

Criteria

  • improve business in the long run

None of the options has all four statements. As discussed earlier it is best go with the elimination approach.

Measure each statement for its direct impact on the criteria based on the situation.

Statements II & III are related capitalising on the positive rural markets and the product that is doing well there.

Statement IV is related to reducing costs and improving profitability.

Only I talks about investing, a cost, when the overall situation is not positive. Hence, (4).

While it looks straightforward for this perspective it still has areas that might trick you. For example, cough syrup sales when the bulk of it is used for the wrong purposes. In that case option (5) makes sense.

When it comes to a DM question, when in doubt it is always best to leave.

Mr. Rastogi, HR head of LSP, is contemplating of transferring MR. Jose, from India to their Luxembourg office. Mr. Jose’s wife is also with the HR department of LSP. The couple is expecting their first child within next four months and hence they want to be together. Mr. Rastogi is wondering whether Mr.Jose would accept the transfer. If he doesn’t, Mr. Rastogi would have to send a less competent person for this job as early as possible. The office in Luxembourg is very important for the company’s future. It is at its nascent stage and does not yet have an HR department. Hence, it is not possible to transfer Mrs. Jose to Luxembourg.

Which of the following options would be most appropriate, from the organization’s perspective, to resolve the issue?

  1. Giving a salary hike to Mr. Jose with a promise to transfer Mrs.Jose to Luxembourg in the near future.
  2. Giving Mrs. Jose option to work from home while in Luxembourg so that she can be with Mr.Jose.
  3. Giving Mr. Jose option to work from India for the time being so that he can be with Mrs. Jose in India.
  4. Giving a salary hike to Mr. Jose to compensate for Mrs. Jose’s salary so that she can join Mr. Jose at Luxembourg, even with loss of pay.
  5. Asking Mr. Jose to accept the offer right now but give him up to six months to join Luxembourg office.

As you can see this is a set where the data is not given upfront but is incrementally presented in every question, making it really tough to choose or leave the set without going through the question in entirety. One has to hence do the situation analysis for each question.

In such cases it is best to directly write put down the criteria:

  • Jose should go there
  • Jose needs to be here for the next 4 months

As you can see there are two stake holders in this case:

  • Jose
  • Firm

So the decision should maximise the return for both stakeholders.

  1. Does not meet Jose’s criteria: his concern is not money but being here for the birth of his child hence this option can be rejected.
  2. Does not meet Jose’s criteria: while his wife can work there later it still does not answer the important issue of him having to be here for the birth of his child
  3. Does not meet the firm’s criteria: the decision on who will go to Luxembourg remains undecided
  4. Does not meet Jose’s criteria: his concern is not money but being here for the birth of his child hence this option can be rejected.

Only the last one meets both the criteria and hence is the best course of action.

Mr. Khan used to work as the Vice President of LSP India. However, he had resigned from LSP India for a better job in New York. In the meantime, his wife was promoted to head the HR of LSP India. Mrs. Khan had struggled hard to reach this position and was quite popular and respected within the organization. Mrs. Khan was contemplating whether she should give up her career and join him in New York. Mrs. Khan is considering the following actions:

I. Take a break for the time being and focus on personal life. Given her reputation, she can always get back to the same job, if required.

II. Go to New York, on leave without pay for two months to help Mr. Khan settle down. After that she can come back and resume her responsibility in LSP India.

III. Request Mr. Khan to look for an equivalent job in India.

IV. Resign form LSP India, join Mr. Khan in New York, and look for a similar job there.

V. Request LSP India for a similar position in LSP USA and follow Mr. Khan to New York.

Which of the following sequence of actions can be immediately taken by Mrs. Khan to maintain her work-life balance?

  1. I & II
  2. I & III
  3. I & IV
  4. II & V
  5. III & V

The main stakeholder in this question is Mrs. Khan so very option should be evaluated from her perspective of achieving work-life balance.

Criteria:

  • Has to be with her husband
  • Does not want to leave this role that she has earned
  1. Does not meet work-life balance criteria since she will remain apart form her husband.
  2. Does not meet her work-life balance criteria since she will be taking a break but not really solving the problem
  3. Does not meet the work-life balance criteria since she is giving up a good role.

Options 4 and 5 can both be in the consideration set. How does one break the tie?

In option 4 the problem will be solved only if

  • company agrees to transfer her to the USA

In option 5 the problem will be solved if one of the two things happens

  • Mr.Khan finds a job here
  • company agrees to transfer her to the USA

So in terms of probability option (5) is better.

As a set this one is a toughie. It is a tough call whether this needs to be done or left.

Since you would have already answered 5-6 questions, it is best to not attempt tricky questions and quickly move on to hunt for easier questions.

If you took a proper shot at this set you would have exhausted your 45 minute time-limit for DM, which we had discussed in this post.

 

SET 5: Information-based Business Set

Answer questions on the basis of information given in the following case.

Mohan’s was a popular fast-food joint at Connaught Place, Delhi. Initially Mohan handled his business alone. His sons, Ram and Kishan, joined the business after graduation from college. Ram was entrepreneurial in nature. Subsequently, another branch of Mohan’s was opened in Panipat. Mohan had chosen Ram to head the Panipat branch. Though Ram increased sales in short time, he had stopped using premium quality organic vegetables, the speciality of Mohan’s. Mohan and Kishan were not happy with his way of doing business.

Now, the foremost challenge for Mohan was to sort out this issue with Ram. Mohan knew that replacing Ram with Kishan was difficult as Kishan did not want to leave Delhi. However, giving a freehand to Ram might have long term negative consequences. Mohan was confused about the future of course of actions.

The case like other ones is easy enough to comprehend and seems ripe to take a shot at. Remember most cases will evoke the same reaction.

Do not psychologically commit to a case. Move ahead on a question to question basis rather than a case-to-case basis.

Mohan sought the help of five consultants, who give the following opinions:

I. Organic vegetables might be a big success at Connaught place but awareness about organic vegetables is low among Panipat customers.

II. The Connaught place model can be implemented in Panipat provided the business is prepared to face the consequences.

III. Many high end restaurants in Panipat use organic vegetables. So, using organic vegetables will not be a differentiating factor.

IV. Selling prices of their dishes in Panipat are significantly lower. Using organic vegetables will bring down profits.

V. Premium quality organic vegetables are not easily available in Panipat.

Which of the following set of options would support Ram’s argument of not using organic vegetables?

  1. I,III,IV
  2. II,IV,V
  3. I,III,IV,V
  4. II,III,IV,V
  5. All of the above

The stakeholder in this question is Ram and the criteria is that the statement support his decision to not use organic vegetables.

Statements IV & V are most supportive since they provide business reasons for not using organic vegetables — lower margins and poor supply — and hence should be present.

I & III both highlight the fact that using organic vegetables is not going to give them any edge over their competitors, hence even these should be present.

Only II does not give any reason and is very generic in nature. Hence (3).

Mohan sought feedback from a few of his businessmen friends, who were familiar with both the branches. Here is what they said:

Businessman 1 : Customers of Connaught place and Panipat are very different.

Businessman 2 : Customers in Panipat are extremely happy with Ram’s behaviour.

Businessman 3 : Panipat branch does not use the same quality of ingredients but maintains good hygiene and taste.

Businessman 4 : Who knows, tomorrow the customers of Panipat might also appreciate what Connaught place customers appreciate today!

If Mohan thinks all these are valid concerns, which of the following actions would be best for the business?

  1. Training Kishan to replace Ram in a few months.
  2. Not worrying about ingredients as long as business grows.
  3. Bringing Ram to Connaught place branch.
  4. Naming the Panipat branch as ‘Ram’s’, and changing it back to Mohan’, when needed.
  5. Asking Kishan to run the Panipat branch.

This is a tricky question and would take up time. Options (1), (3) and (5) are not viable as it would seem to punish Ram who apart from not using organic vegetables does not seem to have out a foot wrong. Between (2) and (5) it is tough to choose. On test-day I would rather skip this question.

After discussing with a few customers, Mohan realised that compromising on the quality of ingredients at Panipat branch may not be good idea but at the same time he also realised that Panipat branch had grown fast. He was contemplating following five actions.

Which of the following actions would be the best for the future of his business?

  1. Creating awareness campaign for organic vegetables in Panipat.
  2. Mohan himself should look after the Panipat branch.
  3. Close down the Panipat branch.
  4. Send Kishan to Panipat branch and bring Ram to Connaught place permanently.
  5. Hire a new person to run the Panipat branch.

Another tricky question; options (3), (4) & (5) are ruled out since it would create a HR problem since Ram is doing well.

Between (1) and (2) the latter is a better option but still on test-day better left alone or marked for later.

We had discussed that reading speed is going to be crucial to cracking XAT and this section clearly highlights why. It is not possible to leave sets without reading individual questions.

We have already done 5 sets and there are two more to go. We will take up the remaining two sets in the next post and wrap up this series on Decision Making with a round up of how to approach the section.

 

 

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3 Response Comments

  • Rajesh Kanjan  December 25, 2015 at 2:41 pm

    Hello Sir. Can you put up something for DI sets that appear in XAT?? They seem to be quite complicated.

    Reply
  • Karan Singh  December 27, 2015 at 11:00 am

    SET 4 ::Business + HR Set

    Mr. Sinha, a senior executive of LSP, observes that their business in India is not vibrant. LSP faces stiff competition from Indian and global players, except in rural areas. Interestingly, most of their sales in the rural area are from cough syrup, used as sedatives by teenagers. Mr. Sinha is planning the following actions to improve business in the long run.
    I. Invest in development of new drugs.
    II. Increase sales of cough syrup in the rural markets.
    III.Try and cut costs.
    IV. Recruit more medical representatives in the rural areas.
    Which of the following sequences is best arranged in the descending order of appropriateness?
    1. I, III, II
    2. II, I, III
    3. II, III, I
    4. IV, II, III
    5. IV, III, I
    Sir, I think that Point 2 and 3 should be present in every option.(2 feels highly unethical though).
    I would have anyways ledt this question for good. But my doubt is between Point 1 and 4. Don’t you think invesitng in NEW DRUGS will be a very good long term strategy ? Please help me to understand why you have picked up Point 4 over 1.

    Mr. Rastogi, HR head of LSP, is contemplating of transferring MR. Jose, from India to their Luxembourg office. Mr. Jose’s wife is also with the HR department of LSP. The couple is expecting their first child within next four months and hence they want to be together. Mr. Rastogi is wondering whether Mr.Jose would accept the transfer. If he doesn’t, Mr. Rastogi would have to send a less competent person for this job as early as possible. The office in Luxembourg is very important for the company’s future. It is at its nascent stage and does not yet have an HR department. Hence, it is not possible to transfer Mrs. Jose to Luxembourg.
    Which of the following options would be most appropriate, from the organization’s perspective, to resolve the issue?
    1. Giving a salary hike to Mr. Jose with a promise to transfer Mrs.Jose to Luxembourg in the near future.
    2. Giving Mrs. Jose option to work from home while in Luxembourg so that she can be with Mr.Jose.
    3. Giving Mr. Jose option to work from India for the time being so that he can be with Mrs. Jose in India.
    4. Giving a salary hike to Mr. Jose to compensate for Mrs. Jose’s salary so that she can join Mr. Jose at Luxembourg, even with loss of pay.
    5. Asking Mr. Jose to accept the offer right now but give him up to six months to join Luxembourg office.
    Sir, In this I disagree with 5. As per my understanding. The requirement faced by the company is very urgent. Infact it is so urgent that if Jose refuses, the HR will be forced to send another person. Please find my take for the options below

    1. Giving a salary hike to Mr. Jose with a promise to transfer Mrs.Jose to Luxembourg in the near future. >>>Salary is not Jose’s concern. Rejected
    2. Giving Mrs. Jose option to work from home while in Luxembourg so that she can be with Mr.Jose. >>>This is viable. She can travel as she is four months due for the baby and travelling 4 months before is not a very major concern.
    3. Giving Mr. Jose option to work from India for the time being so that he can be with Mrs. Jose in India. >>>Jose working from India is not a good option when the office abroad is a crucial one for the company’s future.
    4. Giving a salary hike to Mr. Jose to compensate for Mrs. Jose’s salary so that she can join Mr. Jose at Luxembourg, even with loss of pay. >>>Is OK but not better than Option 2.
    5. Asking Mr. Jose to accept the offer right now but give him up to six months to join Luxembourg office.>>> Six months will be too long a wait for the above problem at hand, in my opinion.

    For me 2 is a WIN-WIN for all with only a minor hassle of travelling of a pregnant lady. Option 5,as per me loses out to Option 2.
    Sir, Can you please explain this as well?

    Reply

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