Deck 2: Strategic Management and Project Selection

Question 1

If a system is being updated due to operating necessity,the project was selected because__________.

A)the system is worth saving at any cost
B)the system is worth saving at the estimated cost of the project
C)the dimension of cost is not relevant to execution of the project
D)the cost overruns can be hidden in someone else's budget

Answer 1

B

Question 2

The __________is the value of an opportunity foregone.

A)real option
B)profit
C)opportunity cost
D)revenue

Answer 2

C

Question 3

A project selected using the sacred cow model is likely to be maintained until successfully completed or until __________.

A)the project exceeds its budget
B)the project falls behind schedule
C)the boss recognizes the project as a failure and terminates it
D)the project manager is terminated

Answer 3

C

Question 4

The Åstebro study (2004)of R&D projects found that all the characteristics below were excellent predictors of project commercial success,except __________.

A)technological opportunity
B)managerial support
C)expected profitability
D)development risk

Question 5

If the NPV for a project is < 0,it indicates that the project will __________.

A)report a profit loss
B)report a profit gain
C)fail to cover its required rate of return
D)fail to generate cash inflows

Question 6

The drawback of the __________ model is that it fails to consider cash flows obtained once the initial investment has been recovered.

A)payback period
B)average rate of return
C)discounted cash flow
D)profitability index

Question 7

Which of the following is not an advantage of the discounted cash flow approach to project selection?

A)Simple to use and understand
B)The accounting data is usually available
C)The accounting data is possibly inaccurate
D)They can be adjusted to account for project risk

Question 8

__________ is the process of evaluating individual projects or groups of projects,and then choosing to implement some set of them so that the objectives of the parent organization will be achieved.

A)Project selection
B)Project initiation
C)Project management
D)Project control

Question 9

For a project selected using nonnumeric models,identify the true statement regarding relative priorities for project selection.

A)Operating necessity projects have priority over competitive necessity projects.
B)Competitive necessity projects have priority over operating necessity projects.
C)Operating necessity and competitive necessity projects have equal priority.
D)Product line extension projects have priority over operating necessity projects.

Question 10

A project selection criteria that focuses on environmental and social issues is

A)sustainability
B)comparative benefit model
C)production line extension
D)operating necessity

Question 11

A small project has a cost of $12,000 to implement and is expected to have annual cash flows of $3,000.What is its payback period?

A)One year
B)Two years
C)Three years
D)Four years

Question 12

The two basic types of project selection models identified in the text are ________.

A)biased and unbiased
B)numeric and nonnumeric
C)active and passive
D)numeric and qualitative

Question 13

A project selection criteria that focuses on how well new products would fit the firm's existing product line would be

A)sustainability
B)comparative benefit model
C)production line extension
D)operating necessity

Question 14

The __________ is the interest rate set by an organization as the minimum acceptable rate of return for a project.

A)hurdle rate
B)acceptable rate
C)internal rate of return
D)net present value

Question 15

There is usually some oversight committee,typically called a _____ or such,for every project,of which the project owner is usually a member.

A)task force
B)steering committee
C)project management office
D)project council

Question 16

If a company predicted rate of inflation goes down (deflation),what happens to the net present value (NPV)of their projects?

A)Goes up
B)Unchanged
C)Goes down
D)Positive NPV's go up,negative NPV's go down

Question 17

If a company raises their hurdle rate,what happens to the net present value (NPV)of their projects?

A)Goes up
B)Unchanged
C)Goes down
D)Positive NPV's go up,negative NPV's go down

Question 18

Which of the following is a type of numeric model?

A)the sacred cow
B)the operating necessity
C)payback period
D)the product line extension

Question 19

The underlying premise of the real options approach is that __________.

A)delaying an investment may lead to greater returns or may lead to elimination of marginal projects
B)rushing into an investment more quickly may lead to lower returns or may lead to elimination of marginal projects
C)delaying an investment may lead to increased costs due to delays
D)rushing into an investment more quickly may lead to less risk

Question 20

The mastery of the skills required to manage projects competently is referred to in the literature as __________.

A)project management conformance
B)project management maturity
C)project success
D)project portfolio management

Question 21

______ is a modeling technique for emulating a process,usually conducted a considerable number of times to understand the process better and measure its outcomes under different policies.

A)Simulation
B)Project management
C)Projectizing
D)Modeling

Question 22

Which of the following is not a disadvantage of the discounted cash flow approach to project selection?

A)It cannot account for project risk
B)It ignores all nonmonetary factors
C)It is strongly biased toward short-term solutions
D)It is highly sensitive to data errors in the early years of a project

Question 23

Occasionally,organizations will approve projects that are forecast to lose money when fully costed and sometimes even when only direct costed.Which of the following is not a good reason for doing this.

A)Acquire knowledge concerning a specific or new technology
B)Get the organization's "foot in the door"
C)Improve their competitive position
D)They plan on cutting corners on work and material,or forcing subsequent contract changes to make up the cost

Question 24

Which of the following should not be members of the project council?

A)Senior management
B)Accounting department
C)Project owners or sponsors of major projects
D)Head of the project management office

Question 25

The discounted cash flow method determines the net present value of all cash flows by discounting them by the __________.

A)hurdle rate
B)acceptable rate
C)internal rate of return
D)net present value

Question 26

According to research by Sanchez and Robert (2010),which of the following is not a reason why strategic benefits may be difficult to appraise?

A)Not immediately realized
B)Difficult to quantify
C)May be confounded with other factors
D)Easy to plan for when they occur

Question 27

Wheelwright identified four separate categories of projects.Which of the following are not one of those categories?

A)Sacred cow projects
B)Platform projects
C)Breakthrough projects
D)R&D projects

Question 28

In a project portfolio,a project that involves a new technology or even a disruptive technology that is known to the industry would serve as an example of a __________ project.

A)breakthrough
B)R&D
C)platform
D)derivative

Question 29

A technique useful for developing numeric values that are equivalent to subjective,verbal measures of relative value is the __________.

A)Delphi system
B)expert system
C)portfolio
D)simulation

Question 30

Which of the following is not a disadvantage that favors the use of weighted scoring models?

A)Scores are relative measures
B)Easy to include too many factors
C)Can handle non-numeric criteria
D)Can only include profits in a non-numeric fashion

Question 31

Firms usually have two or more projects and this collection of projects is referred to as __________.

A)a portfolio
B)an initiation
C)a program
D)a stochastic model

Question 32

Scoring models are most often used to overcome this disadvantage of profitability models.

A)The inability to account for the time value of money.
B)The inability to account for project results beyond the payback period.
C)The inability to account for multiple decision criteria.
D)The inability to account for cash flow.

Question 33

Project Typhoon has a net present value of $10,000 and a profitability index of 1.01.Project Cyclone has a net present value of $10,000 and a profitability index of 1.10.Project Surf'sUp has a net present value of $10,000 and a profitability index of 1.05.If only one project could be undertaken,the organization should select __________.

A)Project Typhoon
B)Project Cyclone
C)Project Surf'sUp
D)Not enough information is provided

Question 34

Which of the following demonstrates the quality of realism required of a project selection model?

A)It does not require special interpretation,data that are difficult to acquire,or excessive personnel.
B)It gives valid results within the range of conditions that the firm might experience.
C)It reflects the multiple objectives of both the firm and its managers.
D)It deals with situations both internal and external to the project.

Question 35

In a project portfolio,__________ projects have objectives or deliverables that are only incrementally different in both product and process from existing offerings.

A)breakthrough
B)R&D
C)platform
D)derivative

Question 36

Real options seek to reduce which of the following risks in projects?

A)political
B)environmental
C)technological and commercial
D)sociological

Question 37

When the decision maker's information is not complete,he / she will have to make a decision under conditions of __________.

A)proof
B)uncertainty
C)management
D)risk mitigation

Question 38

A project has four criteria,represented by A-D.There weights are 0.1,0.2,0.4,and 0.3.A particular project has scores of 4,5,8,and 9 respectively.What is its total score for the project?

A)6)5
B)7)1
C)7)3
D)26

Question 39

Financial forecasts are reported as __________ financial statements.

A)final
B)initial
C)pro forma
D)hypothetical

Question 40

Which of the following is not an advantage that favors the use of weighted scoring models?

A)Multiple objectives can be considered.
B)Decision makers are compelled to stick with the decision once it has been made.
C)The models can be adapted to changes in managerial philosophy.
D)They can help avoid a short-term focus on profitability.

Question 41

Explain the difference between risk and uncertainty.

Question 42

Contrast the real options selection approach with profitability models.

Question 43

Suppose that you have been assigned as the project manager to execute a project that was selected using the sacred cow method of project selection.The project sponsor is an executive who has been with the company for three years.Based on past employment history,the average tenure of a senior executive at your company is 5 years.After reviewing the project's expectations and requirements,the project team has determined that the payback period will be 3.5 years.What are the implications for you and the project team?

Question 44

Project Boulder has a payback period of 2.4 years,an NPV of $10,000,and a profitability index of 1.10.Project Flintstone has a payback period of 3.0 years,an NPV of $10,000 and a profitability index of 1.05.If only one project can be executed,which project should be selected? Explain your reasoning.

Question 45

Consider the following three-year projects A and B each with the same initial investment of $1000.You are presented with the following measures for the projects:
Project A: NPV $400; Payback 24 months
Project B: NPV $545; Payback 26 months
Which project would you choose and why?