XAT Tips on Decision Making

Fundamentals of Decision Making for XAT

A decision is a choice of a course of action. A person, henceforth called the decision-maker, faces a situation. He is faced with alternatives that he needs to choose from. He has objectives to fulfil. There are consequences to every course of action. At the time of making the decision, the decision maker is acting based on his individual assessment of the cause-effect relationship between his actions and the attainment of his objective. He is also acting in the context of his knowledge of the situation. Knowledge includes

  1. That which is given, i.e., facts
  2. That which may be deduced given
    • The facts
    • Reasonable presumptions that may be made related to the situation and the people concerned

The decision maker always faces uncertainty. He does not know the future but wishes it to be something specific that he considers more desirable. On account of this uncertainty, he cannot even be certain that his choices will necessarily lead to attainment of his objectives. However, his understanding tells him that his choices are necessary to attain his objectives and are therefore to be carefully made based on his assessment of how useful each course of action is likely to be with respect to satisfaction of his ends.

This process of evaluation is clearly based on certain criteria that the decision-maker himself needs to draw up. Decision-making involves a systematic assessment of each course of action against the objectives of the decision-maker against specific criteria.

Handling incomplete knowledge

Many situations of decision-making involve incomplete knowledge, especially of the background in which the decision is being made. Each context could require a different course of action. The decision-maker, therefore faces the possibility of error and needs to get a better grip on the different possible scenarios before making a final decision. The decision, however, is contingent upon the context and may be possible only upon confirmation of the actual prevailing scenario.

What questions in the XAT Decision Making section are all about

The questions that appear in the Decision Making section of the XAT are essentially about different aspects of such analysis of a given situation leading to a decision. They could involve evaluation of a decision, identification of alternatives, background assumptions and deductions, possible scenarios, etc.

Understanding through examples

Examples from XAT 2012

Example 1 (2 questions):

To the Chairman:

Dear Mr. Sailesh,

At the December 3, 2011 meeting, it was decided that no two officers would hold positions on the same committee. It has recently come to my attention that both Chaitanya Rao and Ajit Singh will be serving in some capacity on the Cultural Committee, and both have been nominated for officer status. As you know, this is in direct disregard for the rules as voted by the Members Council last December 3, 2011. I would hope that sufficient action is taken by the Disciplinary Committee (on which committee both of the above are members) so that this problem will be remedied.

Sincerely,

Arvind Singh

  1. Which of the following is an essential flaw that the writer of the letter overlooked?

(1) Rao and Ajit are already serving together on the Disciplinary Committee.

(2) The Chairman has no power in the matter.

(3) The Members Council cannot pass rules limiting members.

(4) Rao and Ajit are yet to be confirmed as officers.

(5) Cultural Committee is only active during the annual festival.

Understanding the situation

The decision of the Members Council pertains to cases of two persons serving in the capacity of officers simultaneously serving on the same committee. The rule may be stated as

No committee may have two officers holding posts on that committee simultaneously.

The implication of this rule is that in any situation involving 2 or more officers holding posts on a single committee, all but one or all the officers would have to resign from their membership of that committee.

Understanding the question

A flaw is an error in reasoning. An error in reasoning essentially involves identification of a statement as necessarily true given that systematic application of logic would not lead to such identification. Errors in reasoning involve factual errors and logical errors. Factual errors are an identification of the status of one or more causal factors as being different from that required to justify the identification being made.

Logical errors would be of the following kinds

  1. Saying B=>A or A’=>B’ given that A is a sufficient condition for B
  2. Saying A=>B or B’=>A’ given that A is a necessary condition for B
  3. Mistaking correlation for causation – Saying A’=>B and B’=> A given that the condition is an observation of simultaneous occurrence of A and B.
Evaluating the options

Option 1 – For the moment, let us assume that Rao and Ajit are officers. Even if they are serving on the disciplinary committee, identifying that action needs to be taken about their simultaneous membership on the Cultural Committee does not lead to an error in reasoning, factual or logical.

Option 2 – Stating that the Chairman has no power is meaningless because if so, the very act of passing the resolution concerned is questionable. Since the situation described is to be taken as a given and the facts may not be questioned, we cannot consider this as possible and hence a flaw in the reasoning.

Option 3 – If the Members Council cannot pass resolutions limiting members, it could not have passed the original resolution itself. This contradicts the fact that it indeed passed the said resolution. This in turn means that the Council may pass such resolutions and hence that this answer choice is not correct, leave alone appropriate.

Option 4 – The resolution being referred to is clearly applicable only to officers. Therefore, if this is true (given that it does not contradict the facts presented), it would mean that the resolution is not applicable to Rao’s and Ajit’s simultaneous membership of any committee and hence cannot be used by the Members Council to make any decision on the same. Hence, it may be considered a flaw in the reasoning.

Option 5 – The resolution limiting simultaneous membership of multiple committees does not have any relation to the duration of operation of the committee. Hence, this may not be considered a flaw in the reasoning.

  1. If both the nominations are confirmed, which of the following exhaustively and reasonably describes actions that may occur in the near future?

(1) Arvind resigns his membership.

(2) Either Rao or Ajit resigns from his membership.

(3) Ajit resigns from his post on the Cultural Committee.

(4) Rao resigns from his post on the Cultural Committee.

(5) Either Rao or Ajit resigns from his post on the Cultural Committee, and the other resigns from his post on the Disciplinary Committee.

This question addresses the ambiguity identified in the previous question. It is now clear that the resolution is applicable to the complaint being raised. The correct course of action in keeping with the resolution is that the situation of simultaneous membership is eliminated. Since they are members of both the Disciplinary and Cultural Committees, one or both of them has to resign from each committee.

Therefore, the action to be taken has to deal with the resignation of one or both people from each of the two committees identified. Only Option 5 deals with such a situation and must therefore be considered the correct answer choice.

Example 2 (3 questions):

Due to increased competition, Ginger Automobiles, the Indian subsidiary of Pepper Automobile Company (PAC) reported lower sales and profits. PAC expects its new model Limo, developed especially for value conscious customers of India and China, would revive its fortunes. In order to prevent customers from buying competing products, PAC announced the launch of Limo six months before schedule. Due to unrest in its Indian supplier’s plant, deliveries of essential components for its main plant was hampered, and hence it decided to launch Limo in China only as per the original plan. Within a short span of time, Limo captured 30% market share in China, which was 200% higher than expected. Indian customers who had looked forward to purchasing Limo were becoming increasingly unhappy to the non-availability of Limo in India. Ginger’s dealers were worried about loss of business from the customers who might switch to other cars.

  1. Statement I: In the Chinese market, Baft, and Hebe, are competing models in Limo’s target market. Due to increase in sales of Limo by 200%, Baft and Hebe saw their market share decline by 10%.

Statement II: Baft and Hebe were not desired by the customers due to their new features.

Which of the following conclusions can be most justifiably made?

(1)    I alone (2) II alone (3) Either I or II (4) Neither I nor II (5) I and II together

The information given in the question is that Limo captured 30% market share and that this was 200% higher than expected. This means that the expected market share was 10%. However, nothing is said about the composition of the rest of the market.

Analyzing the statements

I – While this statement identifies Baft and Hebe as competing models, it does not identify them as the only competing models. Even if that were so, we can only say that their market share declined by a total of 20% points. Only if we additionally assume that each lost an equal share of the market can we infer Statement I. In fact, it is possible that Baft and Hebe too gained market share and other competing models lost enough market share to make this possible.

II – Nothing is mentioned in the original passage about Baft and Hebe. Hence, no such statement may be made with certainty.

I and II – Even taken together, neither statement provides information to support the other.

Hence, the correct answer is Option 4.

  1. Unhappy customers will not only leave the company, but also spread negative publicity about the company. The best way, among the options below, to deal with customers is:
  2. suggest to customers to wait.
  3. suggest to customers to consider purchasing any of the other PAC’s models available in showrooms, with a substantial discount along with gifts.
  4. suggest to PAC to treat Indian and Chinese markets equally.
  5. promise the top management of PAC higher sales/profit from Indian market compared to Chinese market.
  6. suggest to the top management of PAC to manufacture essential components in either India or China.

Some of the important points to bear in mind are

  1. the supply problem could be temporary
  2. customers are eager to use the Limo
  3. Limo is designed for value conscious consumers

2 implies that customers are not very likely to wait. Asking them to wait will only make them more unhappy and even switch to another brand of car. Hence, Option 1 will not fit.
Option 2 is an option suitable for value conscious consumers. It enables PAC to keep customers within its fold for an eventual launch of Limo.
Option 3 assumes that the choice of serving the Chinese market alone is as good as serving both markets. It is possible that the choice implies that the Chinese market is the more valuable one.
Option 4 implies that the problem is one of incentivisation of the top management. However, the passage indicates that the problem is unrest in the manufacturing unit.
Option 5 wrongly diagnoses the problem as related to manufacturing location of essential components.
Hence, Option 2 is the most appropriate answer.

  1. Mr. Murugan from Chennai experienced the comfort of Limo during his visit to China. He was willing to deposit an approximate price of Limo to buy the first available unit from Mr. Ahmed, a dealer in Chennai, known for fair dealing. Ginger Automobile is yet to announce the actual price, and the process for allocation of the vehicles. In order to maximise his cash flow, Mr. Ahmed should
  2. collect the amount from Mr. Murugan. Later when the delivery is delayed, blame it on PAC’s problems.
  3. collect 50% as advance and the remaining 50% after the confirmation of launch date by Ginger Automobiles.
  4. collect the amount Mr. Murugan is willing to deposit after clarifying that delivery is subject to the company policy.
  5. not collect the amount, but suggest to Mr. Murugan to write to Ginger Automobiles.
  6. collect the amount and transfer it to the account of Ginger Automobiles, instead of keeping it in his personal account.

Given that he is known for fair dealing, options that involve accepting money unconditionally given the delays he has knowledge of and/or giving excuses later when the delays actually happen are not acceptable. Option 1 is therefore ruled out as it commits both errors. Option 2 involves accepting a lower amount to add to cash flows but it does not speak of notifying the customer about possible delay. Option 3 involves sufficient clarification while adding to cash flows. Option 4 does not satisfy the requirement of improvement in cash flow. Option 5 too does not address the need to maximise cash flow.

Hence, only Option 3 fits the requirements.
Example 3
Dev Anand, CEO of a construction company, recently escaped a potentially fatal accident. Dev had failed to notice a red light while driving his car and attending to his phone calls. His well-wishers advised him to get a suitable replacement for the previous driver Ram Singh, who had resigned three months back.
Ram Singh was not just a driver, but also a trusted lieutenant for Dev Anand for the last five years. Ram used to interact with other drivers and gathered critical information that helped Dev in successfully bidding for different contracts. His inputs also helped Dev to identify some dishonest employees, and to retain crucial employees who were considering attractive offers from his competitors. Some of the senior employees did not like the informal influence of Ram and made it difficult for him to continue in the firm. Dev provided him an alternative job with one of his relatives.
During the last three months Dev has considered different candidates for the post. The backgrounds of the candidates are given in the table below.
Dev is primarily looking for a stable and trustworthy driver, who can be a suitable replacement for Ram. His family members do not want Dev to appoint a young driver, as most of them are inexperienced. Dev’s driver is an employee of the firm and hence the appointment has to be routed through the HR manager of the firm. The HR manager prefers to maintain parity among all employees of the firm. He also needs to ensure that the selection of a new driver does not lead to discontent among the senior employees of the firm.

  1. From his perspective, and taking into account the family’s concerns, Mr. Dev would like to have

(1) Chethan (2) Chintan (3) Bal Singh (4) Mani (5) Sunder

Dev’s requirements – Stable, Trustworthy, Suitable replacement for Ram Family’s concern – Should be experienced and (hence) not young

Evaluating options

Based on the above evaluation, it is clear that only Bal Singh qualifies on both criteria.

  1. In order to resolve the conflicting preferences, one of Dev’s friends suggested Dev, his family members and the HR manager to identify their most and the least preferred candidates without considering the concerns of other stakeholders.
  1. Dev’s most and least preferred candidates: Bal Singh and Chetan respectively
  2. Family members’ most and least preferred candidates: Bal Singh and Chintan respectively

III. HR manager’s most and least preferred candidates: Chethan and Bal Singh respectively

Which of the above three statements is/are in conformity with the information provided in the passage?

(1) Option I (2) Option II (3) Options I and II (4) Options II and III (5) Option I, II and III

Explaining the table above

Dev values reliability and comparability to Ram Singh. Sunder is least reliable on account of his short-term approach. Chethan is next as he has worked with his closest competitor and his intent is unknown. Mani is next because he only has claims about his experience being over 1 year. Chintan is above Mani as his unreliability is more on account of his being new to a driver’s job and the prospect of his quitting in the event of getting another job as a stenographer. Bal Singh is known through family members, has been employed as a driver in the family for longer and has good contacts within the business.

Family members prefer experience. Mani and Chintan have the least experience, with Mani’s claim of having over a year’s experience being less reliable. However, he has received an increase in salary while Chintan could switch jobs if he gets one as a stenographer. Sundar is more unreliable as an employee but has more experience and must be rated above Mani. Between Bal Singh and Chethan, the former has far more experience as a driver and must be rated higher.

The HR Manager’s chief concern is pay parity. The order of salaries expected is Mani < Chethan < Bal Singh < Sundar < Chintan. Hence, This would be the preference order with Mani being the most preferred and Chintan being the least preferred.

Considering this evaluation, we may say the following

Let us now look at the 3 statements in the light of this analysis.

Statement I – While Bal Singh is clearly the most preferred, Chetan being the least preferred is not compatible with the greater fundamental unreliability of Sundar.
Statement II – This matches with the analysis above.
Statement III – While Chetan could justifiably be considered the most preferred candidate (factoring in his 10 years of experience), Bal Singh cannot be the least preferred as his salary expectation is lower than that of 2 others while he has the greatest experience of these 5 people.

Hence, we are forced to conclude that only Statement II appears in consonance with the information provided and the answer must be Option (2).

  1. Who among the following five candidates is most likely to be rejected by the GM (HR)?
(1) Chethan (2) Chintan
(3) Bal Singh (4) Mani
(5) Sunder

The GM HR is most likely to reject the person with the worst combination of salary expectation and likelihood of creating dissatisfaction among senior employees. Chintan has the highest salary expectation and the least experience. He is therefore the most likely to trigger dissatisfaction among senior employees and is most likely to be rejected by the GM HR.

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