2017 Mock PM Q60 (Baker Case Scenario)

Why answer B is incorrect?

Type II error is accepting H0, which means firing skillful manager right? The expense then is of concern, right?

Null: Manager adds no value Alternative: Manager Adds Value

Type 1 Error = Rejecting Null, When its true Type 2 Error = Accepting Null, when its false

A quick trip is to remember the mnemonic device: HORN for Type 1

i.e. Type 1 = Ho Reject Null - Keeping a manager that adds no value Therefore Type 2 = Firing a Manager that adds value

Hope this helps, good luck!

I have the same question. Pachstar, appreciate the effort but that didn’t help me.

My reasoning behind choosing answer B and to elaborate on henry’s explanation: If you commit a type II error in the context of manager evaluation, this means that you accept the null hypothesis that the manager adds no value, when the null hypothesis is false. Thus, you fire a manager who actually adds value. Firing one manager and hiring another, when the fired manager was actually adding value, entails unnecessary costs. These costs should be of concern to any rational, prudent person.

The only thing I can come up with as to why B isn’t correct is that perhaps the expense of firing a manager is of concern regardless of whether a Type II error is committed or not. If that’s the case, then that is a very unfair question.

Lastly, it is absolutely wild that the answer key does not parse out why incorrect answers aren’t correct. Many of the answer explanations simply restate parts of the reading or question, which is entirely useless. This is a good example of that.

Hey Mekur,

Totally in agreement about the solutions only explaining the right answer and failing to provide why the other choices are incorrect.

Ahh I see where you guys are getting at, and apologies for misunderstanding what was being asked.

This is definitely a nuance,but here’s the thought process. The definition of Type 1 if we were going to follow it to a ‘T’ is Keeping or Hiring Managers who add no value. Likewise, Type 2 is Firing or Not Hiring a Manager who does add value.

This was pretty petty whoever wrote this question - but as per the definition - turnover applies to both Type 1 and Type 2 (not just type 2).

I doubt it’ll be this nuanced on the exam

Hi Mekur and pachstar,

Thanks for adding to the question, I made a typo in my original post, it should be rejecting null for type II.

I guess Mekur’s explanation is the best: The cost is of concern regardless whether the manager adds value or not. I just can’t come up with how the correct answer (a talk with the failing manager) could be of any value…

Finally, I completely agree with that some of the solutions are not very helpful as they don’t explain why the other answers are wrong.

Henrykira if you look at the quote directly it says: “The expense of frequent manager turnover is only of concern if we commit Type 2 errors.”

This is false because turnover is a concern with both Type 1 and Type 2 errors.


My response is that this is not false because there is no turnover expense in committing a type I error: you wind up retaining a manager who adds no value. Since you don’t fire him, there’s no turnover. Am I thinking about that wrong?

Turnover includes both hiring and firing. For reference: Book 6, Reading 31, page 183, 1st paragraph


Thanks, I think that answers it. I was thinking that by committing a type I error, you’re simply retaining a manager who adds no value. I think the key here is to understand that a type I error could also mean hiring a manager who adds no value, and not simply retaining such a manager. Hiring is part of the turnover process, which makes turnover expense a consideration for type I errors, not just type II errors.

That was a tough one (for me anyway).

Not sure you are reading the case/question in full. The paragraph spills over to the next page and you may have missed it.

The expense of frequent manager turnover is only a concern if we commit type II errors (firing a manager that is adding value). Turnover has explicit costs (commissions, taxes, restart due diligence to replace them etc.), making turnover an observable expense, regardless of which type of error it is. Type I error is retaining a manager not adding value, so there is no turnover and no explicit costs.

On the next page, he then goes on to say, "However, we should also be concerned with discontinuing the services of skillful managers which is a Type I error (this is an incorrect statement, because he is describing a Type II error again, making C wrong). This also shows that he is concerned with both types of errors, but retaining a manager that is not adding value (Type I error) has implicit costs.

So, B is incorrect because both types of errors have costs. This leaves A as the only option left.

Poorly worded question in my opinion and 100% understand the confusion. Have a feeling this would get tossed if it were on the real thing.

Hope this helps.

Poz, you’re confusing me more! “Type I error is retaining a manager not adding value, so there is no turnover and no explicit costs.” If that were true, then B would be correct, no?

This Mock has a lot of unfair questions… I also selected B here

Poz is incorrect. Type 1 error is keeping or hiring a manager that adds no value. Type 1 error does incur explicit turnover costs, as well as other implicit costs.

With these type of questions, they’re referring to certain segments in the characters response. Statement 1 is only Type 2 has turnover costs - which is incorrect as explained above. Statement 2 is a misclassification of Type 1 which is incorrect.