BCG-012

Mugal Motor
Answer Keys
Case Context

QUESTION TEXT (part 1 of 2)

The Mugal Motor Company, or just Mugal Motor for short, is a car and motorcycle manufacturer in South Asia. It is a new, budding business line in a larger
conglomerate called The Mugal Group.

Mugal Motor is current in an effort to digitize its production process. The Project Manager of this digitization program is now facing an infrastructure decision.
The company can either choose to go with on-premise or cloud-based data storage. You are part of an internal advisory team at Mugal Motor, and so was
brought in to help with this decision.

The main concern for this decision is costs.

Brief descriptions and main concerns with each choice is outlined in the following exhibit.

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Case Context

QUESTION TEXT (part 2 of 2)

Brief descriptions and main concerns with each choice is outlined in the following exhibit.

On-premise Cloud-based

Ownership Mugal Motor Third-party service provider

Mugal Motor rents data storage space from a shared third-party service
Mugal Motor build its own data centers and store data there, taking care of its
Operation provider, who takes care of the security, upgrade, maintenance and repair of
own security, upgrade, maintenance and repair.
its (the service provider) data centers.

Periodic subscription fees, based on how much storage space Mugal Motor
Cost model Costs of building data centers; regular maintenance and operational costs.
rents.

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Case Context

EXPLANATION

It is important to take note of the key details of the case context in a scratch paper.

For this case, the case context should be summarized as follows:

• Client: Mugal Motor Company, a subsidiary of The Mugal Group in South Asia.
• Situation: Mugal Motor is digitizing its production process and faces a critical decision between on-premise and cloud-based data storage.
• Problem: n/a
• Objective: Choose the cheaper data storage option

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Question 1 of 9

QUESTION TEXT

With this interest in mind, what should the team consider when making the decision?
Choose the fewest number of options that are appropriate

A. Qualitative factors such as the ability to buy exactly the hardware Mugal wants
B. Future and larger-scale cost estimates for either option (i.e. on-premise vs cloud-based)
C. Monthly running costs comparison between the on-premise and cloud-based options at present
D. Security risks caused by sharing the same data centers with other clients of the service provider
E. Depreciation of data centers built by Mugal Motor if they choose to go on-premise
F. Monthly depreciation costs from the data centers run by the service provider
G. Storage capacity required by Mugal Motor at the moment

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Question 1 of 9

CORRECT ANSWERS: B,C,E

EXPLANATION (part 1 of 3)

This is a Structuring question, with Multiple-choice Multi-select answer format.

To answer this question, we follow a 2-step process

• Step 1: Structure the problem, using options as suggestions

• Step 2: Rule out options that do not fit within the structure

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Question 1 of 9

EXPLANATION (part 2 of 3)

Applying these steps to this question:

Step 1: To make the decision, Mughal Motor needs to evaluate the net benefit of each option over a period of time. The structure includes two buckets:
Benefit - Cost to be examined in long term - short term timeframe

On premise Cloud based

Short term costs 1a 1b

Long term costs 2a 2b

Short term benefits 3a 3b

Long term benefits 4a 4b

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Question 1 of 9

EXPLANATION (part 3 of 3)

Step 2: Analyzing the given options, we have the following table:

Option Correct Explanation

A No Does not fit into any buckets in the table

B Yes Corresponds to 2a and 2b

C Yes Joins with E to fit within the “Cost” bucket including 1a, 1b, 2a, 2b

D No Does not fit into any buckets in the table

E Yes Joins with C to fit within the “Cost” bucket including 1a, 1b, 2a, 2b

F No Does not fit into any buckets in the table

G No Fits within 1a but C, E are better, more comprehensive choice

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Question 2 of 9

QUESTION TEXT (part 1 of 2)

The team starts their analysis by estimating the costs of the cloud-based option.

As the company currently uses on-premise data storage, a one-time cost will be incurred if the team decides to go cloud-based. This is called "migration
cost" - that is, the cost of transferring data and modifying current infrastructure to incorporated cloud-based data storage. This cost is estimated at
$600,000 - which includes all necessary costs such as infrastructure modifications, and salary of involved personnel

It depreciates fully in 5 years using straight-line depreciation (i.e. the cost is spread evenly) - however, it will not recur if Mugal continues using cloud-based
storage.

Additionally, subscription fees will also increase as the business scales up its use of data storage.

Calculate the 5-year costs of the cloud-based option (unit: k$)

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Question 2 of 9

QUESTION TEXT (part 2 of 2)

Exhibit: Storage use demand corresponding to each year; available storage space and annual fees corresponding pricing plan

Year Y1 Y2 Y3 Y4 Y5

Storage use (units) 120 150 180 240 350

Plan A B C D E

Available storage space (units) 100 200 300 400 500

Annual fees (k$) 20 40 60 80 100

Note: "Pricing plan" refers to the different options or tiers of cloud-based data storage services that Mugal Motor can choose from

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Question 2 of 9

CORRECT ANSWER: 860 k$

EXPLANATION
This is a Math question, of the Short-text format

Step 1: Form the formula to calculate 5-year costs of the cloud-based option:

Total 5-year costs = Total projected subscription fee for the next 5 years + Cost of data migration
● Total projected subscription fee for the next 5 years = 𝚺 (Annual fees of the optimal pricing plan * Years of usage of this plan)
● Cost of data migration = 600,000 ( $)

Step 2: Applying the formula to calculate 5-year costs of the cloud-based option

According to the exhibit,

● Pricing plan B fits for storage use in Y1, Y2, Y3
● Pricing plan C fits for storage use in Y4
● Pricing D fits for storage use in Y5
Therefore
● Total projected subscription fee for the next 5 years = 40 * 3 + 60 * 1 + 80 * 1 = 260 (k$)
● Cost of data migration = 600 (k$)

Finally total 5-year costs of the cloud-based option = 260 + 600 = 860 (k$)

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Question 3 of 9

QUESTION TEXT (part 1 of 3)

Next, the team estimates the costs of the on-premise option.

For this option, the biggest concern would be hardware costs, to which there are "initial" and "recurring" components.

The "fixed" components will include initial capital expenditure (build system, buying equipments, …) and recurring operating expense (electricity and
maintenance,...). The "variable" components, on the other hand, vary their costs as the company scales up data use.

Technical reasons require that the company not just own enough storage space for the amount of data they store, but also maintain a "headroom" of no less
than 50 units to ensure high and consistent performance of data centers.

Assume that Mugal Motor uses new-build hardware and starts from 0 storage space (unit: k$)

Note: “Headroom” in this context is a buffer or safety margin of storage capacity that exceeds the current data storage requirements of the company. This
"headroom" is necessary to ensure high and consistent performance of the data centers.

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Question 3 of 9

QUESTION TEXT (part 2 of 3)

Exhibit : Forecasted load demand

Year Y1 Y2 Y3 Y4 Y5
Storage use (units) 120 150 180 240 350
Storage space (units) (minimum required server capacity ) 170 200 230 290 400

Cost (k$ per 100 units) 50 50 50 50 50

Exhibit : Recurring operational cost per 100 units

Item Electricity Maintenance
Cost (k$ per 100 units) 10 15

Exhibit : Capital expenditures ( one-time, as needed)

Hardware Newbuild
Cost (k$) 400

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Question 3 of 9

QUESTION TEXT (part 3 of 3)

1. What is the cost of buying the required storage space for the next 5 years?
2. What is the final 5-year costs of the on-premise option (unit: k$) ?

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Question 3 of 9

CORRECT ANSWERS:
● Question 1: 200 (k$)
● Question 2: 922.5 (k$)

EXPLANATION

Question 1

This is a Math question, of the Short-text format

Step 1: Form the formula to calculate the cost of buying the required additional storage space for the next 5 years
Cost of buying required additional storage space = Cost of each additional unit * Total required additional space units
● Cost of each additional unit = 50/100 = 0.5 (k$)
● Total required additional space units = 𝚺 ( required additional space units in Y1, Y2, Y3, Y4, Y5)

Step 2: Apply the formula to calculate the cost of buying the required storage space for the next 5 years
● Cost of each additional unit = 0.5 (k$)
● Total required additional space units = 170 + ( 200 - 170 ) + ( 230 - 200 ) + ( 290-230 ) + ( 400 - 290 ) = 400 ( units)

Finally the cost of buying the required storage space for the next 5 years = 400 * 0.5 = 200 (k$)

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Question 3 of 9

CORRECT ANSWERS:
● Question 1: 200 (k$)
● Question 2: 922.5 (k$)

EXPLANATION

Question 2

This is a Math question, of the Short-text format

Step 1: Form the formula to calculate the final 5-year cost of the on-premise option
Final 5-year cost of the on-premise option = Cost of buying required additional storage space for 5-year period + Cost of recurring operational cost + Initial
capital expenditure
● Cost of buying required additional storage space for 5-year period = 200 (k$)
● Cost of recurring operational cost = 𝚺 (Electricity + Maintenance) / 100 * Storage space each year
● Initial capital expenditure = Newbuild cost

Step 2: Apply the formula to calculate the cost of final 5-year costs of the on-premise option
● Cost of recurring operational cost = ( 10 + 15 ) / 100 * ( 170+ 200 +230 + 290 + 400) = 322.5 (k$)
● Initial capital expenditure = 400 (k$)

Finally the cost of final 5-year costs of the on-premise option = 200 + 322.5 + 400 = 922.5 (k$)

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Question 4 of 9

QUESTION TEXT

One team member mentions that Mugal Motor already has data infrastructure in place

If it is upgraded now, which costs $100,000, that infrastructure is expected to serve another 5 years before another or overhaul.
The current data center also comes with a capacity of 100 units. As such, only an additional 100 units need to be purchased to reach the required 200.

Recalculate the 5-year costs of the on-premise option based on this information.

Exhibit : Forecasted load demand

Year Y1 Y2 Y3 Y4 Y5
Storage use (units) 120 150 180 240 350
Storage space (units) (minimum required server capacity ) 200 200 250 300 400

Cost (k$ per 100 units) 50 50 50 50 50

Exhibit : Recurring operational cost per 100 units Exhibit : Capital expenditures ( one-time, as needed)
Item Electricity Maintenance Hardware Upgrade
Cost (k$ per 100 units) 10 15 Cost (k$) 100

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Question 4 of 9

CORRECT ANSWER: 587.5 (k$)

EXPLANATION
This is a Math question, of the Short-text format

Step 1: Form the formula to recalculate 5-year costs of the on-premise option (unit: k$)
New 5-year cost of the on-premise option = New cost of buying required additional storage space for 5-year period + Recurring operational cost + Upgrade
cost

● New cost of buying required additional storage space for 5-year period = Cost of each additional unit * New total required additional space units
● New recurring operational cost = 𝚺 (Electricity + Maintenance)/100 * Storage space each year
● Upgrade cost = 100 (k$)
Step 2: Applying the formula to recalculate 5-year costs of the on-premise option

● New cost of buying required additional storage space for 5-year period = 0.5 * (100 + 0 + 50 + 50 + 100 ) =150 (k$)
● New recurring operational cost = (10 +15)/100 * (200 + 200 + 250 + 300 +400) = 337.5 (k$)

Finally, the new 5-year costs of the on-premise option = 150 + 337.5 + 100 = 587.5 (k$)

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Question 5 of 9

QUESTION TEXT

There are two options for Mugal Motor

● Option 1: Mugal Motor keeps using on-premise data system in 5 years. After this period, they would opt for cloud-based approach for another 5 years
● Option 2: Mugal Motor implements cloud-based system in their operation now for the period of 10 years.

The PM thinks Mugal Motor should opt for the option 1 to save the cost

Assume that the time value of money has not necessarily taken into consideration in this case

Do you agree with this statement?

Use sound business logic and all the given information to this point, state your position on the decision and explain in 2-4 lines.

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Question 5 of 9

SUGGESTED ANSWER

I disagree with the PM's statement for two key reasons. Firstly, the operational cost of on-premise storage is considerably higher than cloud-based subscription
fees, making it less cost-effective in the short term. Secondly, both options incur a migration cost, but choosing the cloud-based solution sooner allows for
reduced long-term depreciation costs and takes advantage of cloud scalability, making it a financially advantageous choice.

EXPLANATION

This is an Intuition question, of the Long-Text format. To answer this question, you need to combine knowledge of business concepts and the case context.
Then concisely present your ideas based on those concepts of context

Two important factors need to be considered:

❖ Operational Cost: The operational cost for the on-premise option is significantly higher than the subscription fees associated with the cloud-based
option. This means that, in the short term and even over the course of the next five years, the on-premise option is more costly to maintain.

❖ Initial investment: In both options, there is a migration cost. However, transitioning to the cloud-based option sooner rather than later can provide
benefits in the long term. This is because if the company opts for the cloud-based solution early , they can decrease depreciation costs over time, and
the company can leverage the scalability and flexibility offered by cloud services as its data storage needs evolve, which means more financially
advantageous now than waiting for five years to make the transition.

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Question 6 of 9

QUESTION TEXT

The PM turns to the on-premise option, and asks the team if there is any way to further reduce the costs if the company goes with this option long-term (i.e.
more than 5 years)

Which of the following options should the team consider investigating?

Choose one best option in your opinion

A. Try to use data center hardware for longer periods before overhauls
B. Share the infrastructure with other companies in The Mugal Group
C. Optimize electricity use to save running costs
D. Buy additional storage space and offer to rent out to other companies.
E. Sell used hardware instead of overhauling to save costs
F. Cut down storage headroom to cut hardware costs

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Question 6 of 9

EXPLANATION

This is an Intuition question, of the Single-select format. To answer this question, you need to combine knowledge of business concepts and the case context.
Then choose one best option in your opinion

Option Correct Explanation

While the company can save costs by extending the usage of hardware, they can face high risks of increased repairment & overhaul costs in the long run. It
A No
may not be a sustainable cost-saving strategy.

Sharing the infrastructure with other companies within The Mugal Group allows for the pooling of resources and costs. Firm can utilize economies of scale
B Yes
over a long time when reducing the initial capital expenditure and distributing high hardware costs among members

Optimizing electricity might not significantly reduce long-term costs compared to sharing infrastructure or other strategies ( less beneficial than B).
C No
Moreover, electricity cost only stands for less than 10% cost structure, indicating that this saving amount can not make substantial impact.

This option could potentially generate revenue by renting out storage space, but it also involves capital investment and may not be a direct way to reduce
D No
costs. It should be considered as another business or a profitable expansion strategy but not a cost-saving measure.

The firm has to pay high hardware cost and other expenses (migration cost, consulting cost, employee cost,...) when deciding to rebuild the system, which
E No
means high operational concerns. Therefore, this option doesn't address the issue of extended hardware usage

The firm can save on hardware costs by reducing storage headroom, but they can suffered from decreased system performance and scalability. It's essential
F No
to maintain a certain level of headroom for consistent data center operation.

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Question 7 of 9

QUESTION TEXT

The PM contacts other sister companies in the Mugal Group. She expresses the idea of migrating cloud-based system and share this infrastructure among all
sister companies in the Mugal Group.

Based on all the information up to this point, she has asked you to consider whether she should suggest this to Mugal Motor ?
Explain your ideas(s) concisely in 2-4 lines

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Question 7 of 9

EXPLANATION (part 1 of 3)

This is a Structuring & Intuition question, with Long-text answer format

In answer this question, we follow a 2-step process

● Step 1: Structure your approach in a structure
● Step 2: Concisely explain the structure in 2-4 sentences

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Question 7 of 9

EXPLANATION (part 2 of 3)

Step 1: Structure your approach in a structure: To assess whether the PM should propose the share the cloud-based infrastructure among sister
companies in the group, we need to assess to net advantages of migrating cloud-based system

Whether migrate cloud-based and Standalone advantages

Advantages
share among sister companies
(i.e reduce financial pressure from up-front
costs and operational expenses…)

Synergy advantages

(i.e data sharing, and standardization across

the group…)

Disadvantages Data security risks

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Question 7 of 9

EXPLANATION (part 3 of 3)

Step 2: Concisely explain the structure in 2-4 sentences

The PM should suggest the idea to the Mugal Group. The suggestion to migrate to a shared cloud-based infrastructure among sister companies offers substantial
advantages, including standable advantages (cost efficiency through sharing, resource optimization) and synergy advantages (scalability, and risk
mitigation,....)
While disadvantages of sharing cloud-based infrastructure such as increased risk of data security should be considered, the long-term advantages in terms of
cost reduction, efficiency, and collaboration make the proposal a optimal choice for Mugal Motor.

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Question 8 of 9

QUESTION TEXT

The PM decides to go with the cloud-based option.

Migration from on-premise to cloud-based data storage is an lengthy and costly process.
Waiting for all the data to be migrated before moving operations to the new system will hinder performance.
As such, the team decides to migrate the data in phases, so the company could start using the new system sooner.

Which criteria would you use to decide which type(s) of data to migrate first?
Choose the fewest appropriate number of option

A. How much storage space that specific type of data occupies

B. Whether it is necessary to migrate that type of data
C. How hard it is to acquire the data in the first place
D. Whether the data is critical for system or company operations
E. The amount of work involved in migrating the data
F. Which department needs that specific type of data

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Question 8 of 9

EXPLANATION (part 1 of 3)

This is a Structuring & Intuition question, with Multiple - Select answer format

In answer this question, we follow a 2-step process

● Step 1: Structure your approach in a structure
● Step 2: Rule out options that do not fit within the structure

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Question 7 of 9

EXPLANATION (part 2 of 3)

Step 1: Structure your approach in a structure: To assess which criteria to use to decide which type(s) of data to migrate first, we need two
benchmarks including: Criticality and Cost

Criticality
Criteria to use to decide
which type of data to migrate first
( Is it critical to in-hand operation?) (A)

Cost

( How much resource it requires to migrate

successfully?,..) (B)

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Question 8 of 9

EXPLANATION

Step 2: Analyzing the given options, we have the following table:

Option Correct Explanation

A No Does not fit into any branch in the structure

Covers branch A, but option D is a more accurate choice.

B No
All data that needs migrating is necessary to company but this option has not referred to priority.

C No Does not fit into any branch in the structure. Acquiring data is not part of this process.

D Yes Corresponds to branch A

E Yes Fits into branch B

F No Does not fit into any branch in the structure

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Question 9 of 9

QUESTION TEXT

The PM asks you about the current state of the analysis.

Summarize your suggestions and reasoning up to this point within 4-6 lines.

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Question 9 of 9

EXPLANATION

This is a Summary / Pitching question, with Long-text answer format.

The official BCG guideline recommends you to use a maximum of 3-4 lines. The suggested structure of the answer is:
● 1st sentence: Case objective
● 2nd sentence: Insights
● 3rd sentence: Actions
Notice that this is a little different from a typical pitch in a real case interview, where you are expect you spend much more volume on the action part.

SUGGESTED ANSWER

We are asked to evaluate on-premise vs. cloud-based options for Mugal Motor's data storage and choose the cheaper option. We have recommended the
cloud-based option due to its cheaper-being and ease of scalability.

Additionally, we've emphasized phased data migration, prioritizing critical data and considering the required resource (workload,..) . We've also suggested
exploring cloud-based shared infrastructure among sister companies, highlighting standalone value like reducing upfront-cost pressure and operational
synergies value like data sharing or standardization while addressing data security concerns.

This approach ensures cost-effectiveness, efficiency, and long-term sustainability in Mugal Motor's digital transformation.

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