Deck 2: Strategic Management and Project Selection

Question 1

A project selected using the sacred cow model will 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 1

C

Question 2

Project proposals should include all of the following, EXCEPT __________.

A)a section describing the past experience of the proposing group
B)an executive summary
C)a description of the ability of the proposer to supply the facilities, needed during the project
D)a list of the top executives in the proposing firm

Answer 2

D

Question 3

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

Answer 3

A

Question 4

Which of the following is NOT a type of nonnumeric model?

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

Question 5

A formalized method for transforming the opinions of a group of individuals into quantitative measures that can be aggregated for use in decision-making is referred to as the __________.

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

Question 6

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

Question 7

Which of the following demonstrates the quality of flexibility 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 8

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 easily be adapted to changes in managerial philosophy.
D)They can help avoid a short-term focus on profitability.

Question 9

The Astebro 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 10

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 11

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 12

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 13

The __________is the value of an opportunity foregone.

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

Question 14

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 15

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 16

The __________ is also called the benefit-cost ratio.

A)Q-sort method
B)profitability index
C)internal rate of return
D)payback period

Question 17

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 18

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

Question 19

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

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

Question 20

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

Question 21

Contrast the real options selection approach with profitability models.

Question 22

The process of "carving away the unwanted reality from the bones of a problem" is called __________.

Question 23

The set of documents submitted when evaluating a project is referred to as the __________.

Question 24

If the initial project investment is $50,000 and the average net cash flow is $10,000 per year into the foreseeable future, the payback period is __________.

Question 25

Financial forecasts are reported as __________ financial statements.

Question 26

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

Question 27

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 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.

Question 29

The sophistication and experience of an organization in managing multiple projects is called ________.

Question 30

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?

Question 31

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 32

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

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. If only one project could be undertaken, the organization should select __________.

Question 34

__________ 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.

Question 35

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

Question 36

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

Question 37

Explain the difference between risk and uncertainty.

Question 38

Explain why it is necessary for the project manager to understand the reasons leading to the selection of a project.

Question 39

In a project portfolio process, the main purpose of the __________ is to establish and articulate a strategic direction for those projects spanning the internal or external boundaries of the organization.