XAT Decision Making Section – Principles for Solving Managerial Issue Questions

Friday, December 18th, 2020

XAT Decision Making Section – Principles for Solving Managerial Issue Questions

Decision Making (DM) is a critical component of the XAT examination. XAT has included this question type since 2007 and its importance can be gauged. This question type is unique to the XAT examination. The key to solving this question type is – as in most other question types – lots of practice and gaining familiarity with different types of decisions. Decision making questions can be broadly divided into four types – Ethical decisions, Financial decisions, Managerial issues and Logic Reasoning or Arithmetic decisions.
Most test takers dread this section since it is completely unfamiliar to their previous streams of study. This section is not really a test of theoretical knowledge but challenges the basic assumptions of a test taker’s thinking and whether or not the test taker is able to understand real-world problems that are presented as cases in these questions.
Most test takers feel that there are no guiding principles available to solve this type of question and consequently under prepare by solving 4-5 mock tests only. Nothing could be further from this fallacy. This is the scoring section of the XAT as it is relatively easier than the Verbal & Logical Ability and Data Interpretation & Quantitative Ability sections which can be quite difficult. Secondly, since this section is completely unfamiliar, all test takers start from zero – so to speak – with no obvious advantages. Therefore, the test taker who practices hard and makes a note of the guiding principles and corollaries is likely to clear the cut offs and secure a high percentile in this section.
A significant change was observed in the DM section of the XAT. The number of Managerial issues questions was increased substantially and there were no Logical Reasoning or AR decision making questions. Keeping in mind that XAT aspirants are going to business school in order to be managers it is likely that XAT will continue with this trend in 2021.
The Managerial issue type of question can appear relatively difficult – as compared to Ethical or AR type of questions which often have a definite, clear cut answer – but adhering to some of the principles and tips given in this article can help a test taker attempt most questions of this type correctly. Remember, if you are finding this question type difficult, others are finding it difficult too, and a good attempt at answering most of the Managerial issue questions with medium accuracy should be enough to secure a good percentile.


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    Reasons why Managerial issue questions seem difficult.

    1. Many questions seem to have multiple correct answers.
    2. Some questions have no clear cut correct answers.
    3. Very often, the test taker has to rank several statements in order of effectiveness.
    4. There appears to be no fixed rules or formulae in answering this question type.

    Guiding Principles for Managerial Issue Decision Making Questions:

    The following aspects need to be considered before taking decisions:

    1. Integrity – The decision maker has to be guided by some ethical perspective. Company’s laws or norms are not to be violated.
    2. Impact – The decision maker has to consider the impact the various alternatives will have on various stakeholders. He should then try to choose the option that maximizes the positive impact or minimizes the negative impact.
    3. Fidelity – If the decision maker has made a promise to someone, he must ensure that the decision doesn’t renege on it. That would be perceived as being unethical.
    4. Impartiality – The decision maker must ensure that his decision is not being influenced by any prejudice or bias.
    5. Inputs by others – Taking others’ wants, concerns and opinions into consideration usually leads to better decision making.

    In addition there are certain additional tips or Corollaries a test taker should be aware of:

    A. In a question where one needs to find a solution to two opposing or contradictory conditions, the correct answer will be the one that finds a solution to both the conditions – and not to one condition only.
    B. The ‘Do Nothing’ option – Lately this option has not appeared in the XAT but it was an option that had appeared in many previous XATs. This option is almost always NOT the correct answer. XAT test takers want you to be proactive when an managerial incident/aberration has occurred – not just sit on the fence – so to speak – and maintain the status quo.
    C. Extreme Positions – These positions are always incorrect. Example: An employee has been warned for a particular wrong doing on his or her part. One of the options has the employee responding to this warning by tendering his or her resignation. This form of extreme behaviour is never the correct answer.
    D. Solving order of Effectiveness questions – A caselet is given followed by 4-5 statements and you have to rank their effectiveness in descending order. This can at first appear quite difficult but it is relatively easy to spot the most effective statement which will come first. Then, find the statement that is not effective at all and then conduct an option elimination exercise. It is quite likely that only one option will satisfy both these conditions.
    E. Exceptions – In a scenario where a critical need to change a company policy or norm is required, that change can be accommodated provided it is beneficial to the company’s interests.
    F. Returning a Favour – If a company has been favoured by an individual or some other organization in the past, the favour may be returned but it should not violate the company’s rules or have a negative impact on the company’s interests and objectives.
    G. Read the question carefully and answer ONLY what the question is asking for – Do not go with your Gut instincts or with real-world assumptions.

    Example 1: In a caselet a question is asked that the Principal of a College wants to encourage students to be more sensitive and self-motivated learners.
    A close but wrong answer option that would be presented may be something like:
    ‘Create achievement based student groups to encourage competition and scholastic excellence.’

    Many test takers may mark this as a correct answer since the real-world assumption is that college students would want to excel scholastically but note that the question is not asking for scholastic excellence at all but for more sensitive and self-motivated learners. Therefore, such an option would be incorrect.

    Example 2: A Sales manager has shown outstanding results for the last ten years but the Head Office has inducted a person – Ram – in his team whose previous performance has not been good. The Sales Manager fears that Ram’s induction may pull down the performance of his team.

    Which of the following information will most likely assuage the Sales Manager’s fears?

    a) While calculating the team’s performance, the Sales manager has the choice to exclude new joinee’s performance.
    b) In the past 10 years, the Sales manager has met the team’s sales targets every time.


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    At first glance, option a) seems to be the runaway first choice as the correct answer, but, will it really assuage the Sales Manager’s fears about Ram’s performance? Certainly not. Between options a) and b), option b) is actually the better choice since irrespective of the employees who joined his team, the Sales Manager had always met his targets. This fact will certainly help to assuage the Sales manager’s fears.
    Let us solve a few examples by using the guiding principles and corollaries given above:
    1) Mr. Paresh Gupta owns the state’s largest plastic and packaging unit. He is on friendly terms with the state environment minister, Mr. Sharma. However, with the recent Rio Earth Summit to which India was a signatory, the country is committed to reduce plastic and plastic packaging by 50% over the next decade as plastic bags are non-biodegradable. Mr. Sharma is under great pressure from the Central government to shut down all plastic packaging units in his state. However he stands firm and decides not to do so. Mr. Gupta is most ecstatic about this decision and promises to help Mr. Sharma in any way he can. After a few months, Mr. Sharma requests Mr. Gupta that his nephew be inducted in Mr. Gupta’s company as a Manager. Mr. Sharma’s nephew has just passed his graduation in Commerce and has no work experience. Company rules dictate that employees should have at least 5-10 years of prior experience before an employee can be considered for a manager’s position.

    4) What should Mr. Gupta do?

    A. Inform Mr. Sharma politely that his nephew cannot be a made a manager immediately and that he is willing to take him on as a management trainee but at a manager’s remuneration.
    B. Do nothing. After all Mr. Gupta does not need Mr. Sharma’s help anymore.
    C. Bypass company rules and make Mr. Sharma’s nephew a manager.
    D. Inform Mr. Sharma politely that his nephew cannot be a made a manager immediately and that he is willing to take him on as a management trainee and make him a manager as soon as his nephew is ready for the role.
    E. Inform Mr. Sharma that he is willing to sponsor his nephew to a good business school. Mr. Sharma’s nephew then would be given a manager’s position as soon as he graduates.

    Corollary F tells us that a favour is to be returned without violating company rules or without the favour being detrimental to the company’s interests.

    Options A and C would be against company rules and would likely harm the company. They can be eliminated.
    Option B – Do Nothing is also not the correct answer. Mr. Gupta has made a promise and he has to keep it.
    Option E does not address the qualifying rule – 5-10 years of experience.
    Therefore, option D is the answer.

    2) Ramamurthy, a young restaurateur decided to migrate to Shahbad in North India to open a small South Indian restaurant. His restaurant in his hometown in South india had failed to run successfully since there was a surfeit of restaurants serving South Indian food. Furthermore, residents of his hometown were conservative in their eating habits and preferred to eat at home, rather than eating out at restaurants.
    Ramamurthy chose Shahbad because of two reasons: a) there weren’t many restaurants serving South Indian dishes and b) a burgeoning IT sector had attracted a lot of young educated migrants to Shahbad who he thought would not be averse to eating outside at restaurants.
    Six months after starting his restaurant at Mayurpuri – a suburb of Shahbad where most of the young migrants lived – Ramamurthy realized his idea of serving South Indian food only at his outlet would probably not work. During peak hours his occupancy was only 50% and it was half that at non-peak hours. However, during peak hours, most of his clientele were regular customers who praised the food that his restaurant served.
    He realized that most North Indians who lived in the area preferred to eat North Indian style food and were thus not attracted to his restaurant.

    5) Should Ramamurthy stop serving South Indian food and serve North Indian food instead?
    A. Yes, since most young migrants do not want to eat South Indian food.
    B. No, since most of his clientele comprising 50% during peak hours are regular customers.
    C. No, since South Indian style food is all he knows, he should wait for a few more months and hope that business slowly picks up.
    D. No, he should serve both South and North Indian food with separate menus for each.
    E. No, he should cut his losses and open a restaurant in some other location or city.
    Ramamurthy should certainly not stop serving south Indian food since he has built a successful clientele who come regularly for his South Indian dishes. Eliminate option A. B is partly correct but is incomplete – Ramamurthy has to do something to boost sales. C is a passive option where Ramamurthy is banking solely on fate and luck for customers. E is too Extreme. It satisfies the condition in Corollary C. Ramamurthy should not give up so easily. D is the best option for him to retain his regular customers who enjoy his south Indian dishes and also to try and bring in new customers. D satisfies Corollary A.
    Therefore, the correct answer is option D.
    After a further six months Ramamurthy observes that his regular South Indian clientele has stopped coming. He finds out that his restaurant is considered too shabby for family lunches or dinners. During summer, it can become unbearably hot due to lack of air-conditioning. But Ramamurthy calculates that he will have to spend a couple of lakh of rupees to refurbish his restaurant and install air-conditioning. He would also have to increase prices of his dishes proportionately and he fears other customers may stop coming.

    6) Should Ramamurthy refurbish his restaurant?
    A. No, since his other customers may stop coming due to the increase in prices.
    B. Yes, since he cannot afford to lose his regular clientele which comprises 40% of his total clientele.
    C. Yes, since he can charge much higher prices and get a more affluent clientele, which in turn would prove more profitable for him.
    D. No, since banks are reluctant to lend him money. He should not bear this expense out of his meager savings but wait till he has acquired a bank loan.
    E. Yes and No. Ramamurthy should provide separate refurbished air conditioned and non-air conditioned sections in his restaurant with different prices.

    Answer: Option E satisfies both conditions – of maintaining competitive pricing and good, comfortable ambience for customers who want it. Option E satisfies Corollary A. Options A and B satisfy one condition only and can be eliminated. C may make him lose his ‘other’ customers, who are price conscious. D implies a long wait, in which case Ramamurthy stands to lose his regular south Indian customers.
    Therefore, the correct answer is option E.


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