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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 a past XAT and discussed a structure to answer DM questions. In this post, we shall look at the remaining questions from that 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 possible risks of the investment.

1. 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 need to 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 a 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, the cost is equal to the 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 doubts 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 — if anything it might egg Mr.Arbit on.


2. 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 calculate 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 but it does not reduce uncertainty the way (3) does, hence 3.


3. 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 the 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 outdated, 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.

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 and 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 to 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 if one visualises the whole situation as a 2 by 2 matrix

INDIA

ABROAD

GENERIC

A

B

> 50%

PATENTED

C

D

< 50%

< 50%

> 50%

For each case, you have to substitute values of A or B in the grid and see of the inferences must be true. The answer is option 4.


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 the 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 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 the business in India is not promising

Criteria

  • improve the business in the long run

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

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

Statement I — best long-term solution, which is what the question is asking for

Statement II — will be beneficial for sure in terms of revenues but not a long-term solution

Statements III — definitely helps in the shorter-term to improve profitability when revenues are not that great 

Statement IV — no direct impact since all the case says is that in rural markets they are not facing much competition but there is no information that says that they are short of sales personnel; when the outlook is not great it does not make sense to add to the cost since there is not information that says that spend is essential. So this statement can be eliminated.

If we eliminate statement IV we are left with options 1, 2 and 3.

The question is asking us to choose in terms descending order of appropriateness.

The least appropriate option is Statement II, which involves increasing the sales of a syrup that is being misused; so it has be the last.

Option (1) among the three options left — 1, 2, and 3 — is the only one that has Statement II as the last option. Hence, (1).

Some of you might get caught in a bind over Statement II, isn’t it unethical?


We need to understand the difference between moral, ethical and personal.

Morals are personal belief systems that evolve from one’s own way of life or community or religion. The idea of couples “living in” might seem deeply immoral to some but not to others. So morality is a personal issue that gets played out in public with popular perceptions changing as the majority view changes, so many things that were considered an anathema in the past are considered acceptable now.

Ethics, unlike morals, are not a personal matter but a public matter since it deals with one’s relationship with others. A simple example say trying to subtly influence decision making by giving favours that seem very much to be under the purview of the law — a pharma firm inviting doctors to an all expenses paid foreign trip for a conference that discusses its new medicines; a cricket captain having a sports management firm that manages players, who are in contention for the national team and whose marketability and sponsorship deals are dependent on them playing for the national team and thus being more visible — so while nothing illegal has been done, it always creates a conflict of interest that might be to subtle for even the participants to understand and would need an ethics training or code of conduct document to be present.

Illegal things are things we know run clearly afoul of the law.

In the case of a cough syrup, it is one of the many things that can be misused and is widely misused especially for intoxication purpose (paint, for example) — the company cannot stop sales of the cough syrup since the syrup is necessary for those actually suffer form cough, just like firms cannot stop selling paint. So as long as there is no government directive, there is no reason to stop sales. What is unethical is if the firms are going all out to influence people to actually misuse it — sales officers infiltrating youth groups and getting them hooked on to cough syrups.


Mr.Rastogi, HR head of LSP, is contemplating 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 the 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 a 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.

As you can see there are two stakeholders in this case:

  • Jose
  • Firm

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

  • Jose should go there as soon as possible
  • Jose needs to be with his wife for the next 4 months

So the decision should maximize the return for both stakeholders.

  1. Giving a salary hike to Mr.Jose with a promise to transfer Mrs.Jose to Luxembourg in the near future — Does not meet Jose’s criteria: his concern is not money but being here for the birth of his child; reject.
  2. Giving Mrs.Jose option to work from home while in Luxembourg so that she can be with Mr.Jose — Meets Jose’s criteria of being close to his wife, the firm also gets to send its best employee there.
  3. Giving Mr.Jose option to work from India for the time being so that he can be with Mrs.Jose in India — Does not meet the firm’s criteria of needing Jose in Luxembourg at the earliest; reject.
  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 a loss of pay — Meets Jose’s criteria and the firm’s  but increases the firm’s costs substantially.
  5. Asking Mr.Jose to accept the offer right now but give him up to six months to join Luxembourg office — Does not meet the firm’s needs of sending a competent person there asap; reject

2 and 4, both meet Jose’s criteria and 2 meets the firm’s criteria at a lower cost, hence 2.


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 from 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:

  • Wants to be with her husband
  • Does not want to leave this role that she has earned

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 — Does not solve the problem, it just postpones it, also it is not as if personal life is bad and she needs to focus! Reject.

Since we have eliminated statement I we are left with only options 4 and 5 — II & V or III & V.

Statement V is common to both, so all we need to do is choose between II and III

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.

Statement II,  like statement I, does not meet any criteria since it is nowhere mentioned that Mr.Khan needs help to settle down. Hence, option (5).

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.


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 criterion is that the statement supports 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 or appeal to their customers, hence even these should be present.

Only II does not give any reason against organic vegetables and is very generic in nature and can be ignored. 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 the 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.

The statements of Businessmen 1, 2, and 3 are either supportive of Ram or show that his decision to not use organic vegetables is not a blunder or incorrect — the markets are different, the customers are happy, the hygiene and taste are good. 

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 done much wrong.

Asking someone to change strategy is very different from replacing the person. Between (2) and (4) it is tough to choose, you should skip this question if you do not find a premise based on which you can take a decision.

If the brand is known for organic vegetables then the brand should use organic everywhere since that is the basic premise of what a brand is — a promise of a product or service consistent with the claims made. Having non-organic products in Panipat might in the long-run hurt the Delhi brand as well. So, it makes sense to modify the name of the Panipat branch. Hence, (4).


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

Since the additional information on this question says that after talking to customers Mohan realised that compromising on ingredients is not a good idea, there is no point it creating awareness since in the meantime given that the brand has grown fast the reputation might take a hit. The best way out would be for him to take over the Panipat branch. Hence, (2).


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.

18 Comments

  1. Saket Lohia says

    Sir,

    Thank You once again for the post!

    Had some basic doubts and questions on some of these DM-cases, with a different set of OAs and explanations posted in other sources, leading to a lot of confusion. Have shared the same over mail to you, since it’s quite a long one.

    Please do have a look into it once, if possible at all.

    Thanks a lot once again Sir!! _/\_

    Like

    • Hi Saket,

      I wish I had the time to do this but I have given the rationale I chose for my answers.

      Even at IMS different people would have compiled the answers at different points in time and given the subjectivity involved there are bound to be a discrepancy.

      I follow a process that I will outline in the Masterclass and demonstrate with the XAT 2020 paper, and the best that can be done, for it is not an exact science.

      All the best!

      Like

  2. Nishant says

    Hello Sir,
    I was going through the solution for Set-3 Question-2 given on myIMS portal it says :

    Giving them information about competitors using risky technologies would not decrease the uncertainty faced by both the partners since they do not have any information about the kind of technologies that their competitors are using. Thus [A] is incorrect. [B] is also incorrect as it does not guarantee the success of the technology.[C] is not correct as it talks about the probability of the technology’s success. [D] is correct since if the R&Dteam is working to counter any downside of the technology, they will be assured of getting solutions to any problems that might crop up while using the new technology. [E] is a general statement and does not concern the problem of investment in a technology whose outcome is unknown. Hence, [D].

    Like

    • If you had read my whole post:

      We have only started getting the keys recently and so for all old papers the keys and answer explanations will be all over the place since everyone will have their own subjective interpretation. So even the IMS explanation to this set can differ from my explanation since someone else would have written it years ago, and I see no point in getting everyone changed to my point of view, especially when there is no official key!

      Decision making is not an exact science.

      Like

  3. Ritika says

    Hi, sir!
    Thank you for the post.
    While solving this section, and going through this post, I did not understand the matrix question for the drug company set.
    For option D to be the answer, if 29% is from Patented-India (c) ; then 71% should be from Generic-India (a) ; therefore 29% should be from Generic-Abroad (b), right?
    Then why are we selecting D as an option since it says Generic-Foreign is >29% ?

    What am I missing here?

    Thank you.

    Like

  4. Hello Tony Sir,

    The picture that you have used for this post is really scary! As you can see at the divergence point, a train can’t go on either of the paths(It will derail if it goes beyond that point). I hope the message it gives is not that whatever option we choose, it’s going to be an incorrect one :-)) !!

    Thanks
    Sonu

    Like

  5. Tipsii says

    Hello Sir!

    I went through the ADMAT DM Workshop that you conducted last year and that has helped me immensely. Helped me score a 15 in DM section in the first mock itself, great start! I really like how you use a very logical and no-nonsense approach with not just VARC/DM questions but even while giving advice on how ones should deal with post-CAT woes.

    Like

  6. Hi sir,

    Just one small doubt, “2 and 4, both meet Jose’s criteria and 2 meets the firm’s criteria at a lower cost, hence 2.”
    Although 2 just made more sense in the moment, but what I doubt is the fact that since Mrs. Jose will be on loss of pay, so wouldn’t that be compensated by giving Mr. Jose an equal or maybe lower hike. Since, none of this is mentioned, how will we conclude about the cost incurred to the company? This question has thrown me a curveball and maybe I’m overthinking it, but can’t seem to get it out of my head.

    Like

    • You are right, AA. The cost will be the same – the advantage with 2 is that it let’s Mrs.Jose keep her job as well.

      Thanks for pointing it out!

      Like

  7. Muskan Aggarwal says

    Hi!
    Hope you are doing well!
    I have a doubt in second question of last set ( Mohan and Ram one), changing a firm’s name again and again is not a good option, as it involves a whole process. So, shouldn’t we choose option 2, wherein, he says that he shouldn’t be worried about ingredients as long as the business grows. Since this is a better one, as compared to option 4.
    Thanks!

    Like

    • Hi Muskan,

      Fair question.

      The Wikipedia definition of the word brand — a brand is a name, term, design, symbol or any other feature that identifies one seller’s good or service as distinct from those of other sellers.

      What we additionally learnt in an MBA is that a branded product is priced higher than unbranded one because the customer expects consistent quality and delivery on the product promise — a brand is short is a promise to deliver a particular product or service in a way that is superior or different from other offerings.

      The USP of this is brand is organic ingredients, so when they are growing and opening new branches the core offering cannot change across branches since will mean breaking the product promise.

      Would you be okay if the iPhone you buy in one city and another is different — both work but one uses superior chips than the other?

      So the better thing to do is to launch a variant — in this case, use the same name but with a slight twist, customers keep coming since the name is almost the same but they ensure that it is different enough for a different product to be sold. Also, the main brand can then open in multiple locations using the core product promise.

      This is a common practice in family businesses especially when they run into succession troubles — develop a slightly different brand name and break away — both in the sweet shop businesses in my hometown as well as a national brands such as Hadiram’s.

      And you would also know that copycat brands launch their own successful versions of popular brands by just adding a prefix — try finding the original Agarwal packers and movers!

      Hope this helps,

      All the best!

      Like

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