XAT 2023 Question Paper | Bussiness Decision Making

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DeepSea is a natural gas extraction company that retrieves natural gas from rock formations beneath the seabed. This gas is then transported through its extensive pipeline network to a bottling plant, located at the sea surface, for processing. The gas in rock formations is pressurized, enabling it to flow to the surface and reach the bottling plant. Yet, excessive pressure can cause bursts in the pipeline, leading to uncontrolled gas release, known as blowout. A blowout carries a staggering cost, encompassing not only environmental damage but also reputation loss and financial losses totaling crores of rupees. Additionally, the impacted section of the pipeline requires a complete replacement.

Industry safety regulations divide the pipeline network into three levels: Level 3 is the part under the seabed, Level 2 is the part above the seabed but in the deep sea, while Level 1 is near the surface. The safety regulations require multiple blowout preventer valves, from now on simply referred to as valves, to be placed at the three different levels of the pipeline network. The valves are normally kept closed, but when the pressure in any part of the pipeline rises beyond a critical level, nearby valves are opened remotely to release the pressure in a controlled manner to prevent blowout. The number of valves across the pipeline helps localize the pressure release, with a greater number of valves providing a backup mechanism, helping in improving pressure localization in case of a blowout. Given that the valves themselves can occasionally malfunction and not release the pressure when needed, using a higher number of valves ensures that a malfunctioning valve can seek the safety of a nearby functioning valve.

A valve can malfunction in two ways: it may fail to release pressure when needed, as previously mentioned, or it can leak gas during regular operation, resulting in unwanted losses. When a valve malfunctions, it necessitates manual replacement.

In the DeepSea Network, 30% of the valves are located at Level 3, which is the deepest level. The remaining valves are evenly distributed between the top two levels. These valves are critical to ensuring safety and are exclusively supplied by GoValve, a highly specialized manufacturer that holds a monopoly in the country’s market.

Question 7 : GoValve has recently proposed a maintenance package for the valves to DeepSea, which includes a clause that whenever a valve at Level 3 malfunctions, all valves at that level will be replaced. Accepting the clause will cost a significant premium. The management of DeepSea have the following pieces of additional information under consideration:

A. The valves are known to be prone to malfunction.
B. Any malfunction in one valve often results in leakage from the neighboring valves.
C. GoValve is ready to negotiate a discount if the clause is accepted.
D. Replacing the valves at Level 3 is a very difficult job, which is best done by GoValve.
E. The chances of pressure buildups are higher near the seabed.

Which of the following combinations, of the above pieces of additional information, will help the management of DeepSea the MOST in accepting the clause?

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