Deck 14: Economics and Justification of Electronic Commerce

Question 1

Given the diversity of activities involved in e-procurement,the metrics used to measure the value of e-procurement must reflect how well each process is accomplished and take into consideration whether the company is a buyer or seller.

Answer 1

True

Question 2

According to a CIO Insight report,EC justification decreases the credibility of EC projects.

Answer 2

False

Question 3

One basic way to categorize different EC investments is to distinguish between investment in infrastructure and investment in specific EC applications.

Answer 3

True

Question 4

Because many EC investments in eCRM take five to six years to show significant positive results,real productivity gains often do not get measured correctly.

Question 5

In an NPV analysis,analysts convert future values of benefits to their present-value equivalents by discounting future cash flows at the risk-free rate set by the Federal Reserve Bank.

Question 6

Creating a competitive advantage,providing a benefit to society,and improving the company's image are examples of tangible benefits that might be realized from an EC project.

Question 7

From 1995 through 2000,many EC projects and start-up companies were funded with little analysis of their business viability or finances.

Question 8

One reason why EC justification is needed is that companies now realize that EC is not necessarily the solution to all problems.

Question 9

Cost-benefit analysis is frequently assessed by return on investment (ROI),which is also the name of a specific method for evaluating investments.

Question 10

Infrastructure investments are made for the short-term because of frequent technological changes.

Question 11

Key performance indicators (KPI)are used to qualitatively track critical metrics or success factors.

Question 12

All EC investments need to be formally justified to insure that they align with the company's competitive strategy.

Question 13

The ROI method uses a formula that divides net revenues by the initial cost.The result is a ratio that measures the ROI for each year or for an entire period.

Question 14

After the dot-com bust,most IT executives acquired the knowledge and tools to do ROI calculations on proposed EC investments.

Question 15

The result of the rush to invest in EC projects and start-up companies was the 2001-2003 "dot-com bust," when hundreds of EC startups went out of business and the stock market crashed.

Question 16

Cannibalization occurs when a new EC initiative produces substantial online sales,but traditional sales fall such that no increase in total revenue occurs.

Question 17

The results of any investment justification in eCRM depend on the time frame used to measure changes in productivity.

Question 18

Metrics are used to describe costs,benefits,or the ratio between them and need to be defined properly with a clear way to measure them.

Question 19

A major difficulty in justifying EC projects is that many costs and benefits are intangible and therefore very difficult to measure.

Question 20

In preparing the business case for EC investment,managers should examine the potential additional revenues,such as increased revenues via products or services from a larger global market because of more effective product marketing on the Web.

Question 21

The average cost curve of regular products is U-shaped and has an optimal lowest point,but with digital products the average cost per unit declines and quantity increases.

Question 22

Metrics are used to describe all of the following except:

A)standards
B)costs
C)benefits
D)the ratio of costs to benefits

Question 23

Not all EC investments need to be formally justified.All of the following are cases where formal evaluation may not be needed except:

A)when the value of the investment is relatively small for the organization
B)when competitors have made that type of investment
C)when the relevant data are not available,are inaccurate,or are too volatile
D)when the EC project is mandated and must be done regardless of the costs and benefits

Question 24

Pouilly's Poodle Shop wants to produce monthly cash flows from its Internet Doggie-Cam investment.The most appropriate method for assessing this investment is:

A)break-even analysis.
B)total cost of ownership.
C)payoff.
D)internal rate of return (IRR).

Question 25

Dan Welch,who owns three World Cup Coffee shops in Portland,Oregon,estimates that his free Wi-Fi network has added 10 percent to his overall revenue.Welch credits Wi-Fi consumers with spending three times as much on food compared with the average consumer.This is an example of ________.

A)business ROI
B)business NPV
C)technology ROI
D)technology IRR

Question 26

According to recent surveys of eCRM applications,there have been mixed payoffs,but a majority of companies have demonstrated a significantly positive ROI for their eCRM investments.

Question 27

Large companies often have several integrated intranet and other information systems that determine the success of a Web portal.Thus,the justification for a Web portal must focus on both business ROI and technology ROI.

Question 28

The New York Metropolitan Transit Authority (MTA)did not need to open another airport for almost two decades,even though air traffic had tripled because of productivity gains derived from improved IT systems.IT systems added by the MTA played critical roles in ticket reservations,passenger and luggage check-in,crew assignment and scheduling,runway maintenance and management,and gate assignments.This case illustrates that:

A)intangible benefits can be complex,yet substantial.
B)tangible benefits can be complex,yet substantial.
C)tangible costs can be high,yet payoffs can be achieved quickly.
D)intangible costs can be high,yet payoffs can be achieved quickly.

Question 29

Developing economies often face power blackouts,unreliable telecommunications infrastructure,undependable delivery mechanisms,and a relatively few customers who own computers and credit cards.These limitations can be overcome when predicting EC investment payoffs by using a combination of break-even analysis and NPV.

Question 30

One basic way to categorize different EC investments is to distinguish between investments in infrastructure and investments in specific EC applications because benefits from infrastructure investments:

A)are made for the long-term.
B)depend on the EC applications.
C)are very complex.
D)have a low return.

Question 31

The relationship between EC investment and organizational performance is:

A)direct.
B)indirect.
C)shared with other investments.
D)not measurable.

Question 32

Critical elements that can affect the value of EC across cultures are perceived trust,consumer loyalty,regulation,political influences,and even the content of online ads.

Question 33

In B2C,an example of a tangible EC metric from the buyer's perspective is:

A)ease of use of EC.
B)convenience in purchasing
C)profit per customer.
D)cost/price of the product.

Question 34

EC costs and benefits can be classified into two broad categories:

A)direct and routine.
B)short-term and capital.
C)tangible and intangible.
D)operational and strategic.

Question 35

Traditional methods for evaluating EC investments include all of the following except:

A)ROI
B)break-even or payback period
C)discount rate
D)NPV

Question 36

The major steps in the process of justifying large-scale EC and IT projects include all of the following except:

A)Lay an appropriate foundation for analysis with your vendor,and then conduct your ROI.
B)Document and verify all figures used in the calculation.Clarify all assumptions.
C)Do not leave out strategic benefits,including long-term ones.
D)Be careful not to overestimate cost and underestimate benefits (a tendency of many managers).

Question 37

For governments,an example of an intangible EC metric is:

A)reelection of candidates.
B)lower tax rates.
C)increase in participation in government programs.
D)risk reduction.

Question 38

CIOs need to effectively communicate the value of proposed EC projects in order to gain approval for all of the following reasons except:

A)Companies now realize that EC is not necessarily the solution to all problems.
B)Some large companies,and many public organizations,mandate a formal evaluation of requests for funding.
C)The success of EC projects may be assessed in order to pay bonuses to those involved with the project.
D)Demand for expanding or initiating e-business projects is no longer strong so there are fewer requests for funding.

Question 39

Productivity benefits from using EC are difficult to measure because:

A)the payoffs are too short.
B)there is no time lag in EC gains.
C)EC gains in certain areas of the company may be offset by losses in other areas.
D)qualitative benefits do not count.

Question 40

The basic reasons that companies invest in IT and EC are all of the following except:

A)to improve business processes
B)to increase customer satisfaction and retention
C)to reduce time-to-market
D)to justify new marketing campaigns

Question 41

As a company moves to incorporate an online presence with its traditional brick-and-mortar operation,it adds the costs related to training for all personnel in the capabilities of the EC system and a new advertising campaign to announce its new site to the costs directly associated with building the new Web presence.In this case,training and advertising are examples of ________.

A)transaction costs
B)complementary investments
C)direct costs
D)indirect costs

Question 42

A ________ is a specific,measurable standard against which actual performance is compared.

Question 43

The ________ method for EC justification evaluation is used to measure the performance of the organization by looking at a broad set of factors,not just financial ones.

Question 44

McAfee allows users of its VirusScan virus-detection software to automatically update the latest security patches online.This is an example of ________ to attract customers who value this automatic update.

A)competitive advantage
B)core competency
C)product or service differentiation
D)agility

Question 45

________,which are the quantitative expression of critically important metrics,known as critical success factors,measure metrics that deal directly with performance,such as sales and profits.

Question 46

EC can increase revenues by all of the following except:

A)increasing both reach and richness
B)allowing customers to order anytime from any place via the use of m-commerce and l-commerce
C)becoming an online portal
D)creating value-added content from selling searches,access to data,and electronic documents

Question 47

The average-cost curves (AVC)of physical products and digital products:

A)are different because the AVC of digital products declines as quantity increases forming an L-shape,while the AVC of physical products is U-shaped.
B)are both U-shaped.
C)are both L-shaped.
D)are different because the AVC of physical products declines as quantity increases forming an L-shape,while the AVC of digital products is U-shaped.

Question 48

By calculating the difference between TCO and TBO,one can compute the ________ of an IT investment.

A)break-even analysis
B)total cost of ownership
C)payoff
D)internal rate of return (IRR)

Question 49

All of the following direct metrics indicate progress in e-procurement except:

A)increased order fulfillment rate
B)decreased number of rejects received from suppliers
C)reduced inventory costs
D)increased on-time deliveries

Question 50

Justifying an EC investment means comparing the costs of each project against its benefits in what is known as a ________.

Question 51

One of the strengths of EC is the ease with which its adopters can reach a global population of consumers.However,EC-driven businesses must consider the critical elements affecting the value of EC across cultures.Those elements include all of the following except:

A)delivery delays
B)perceived trust
C)consumer loyalty
D)political influences

Question 52

A Web-based seller of CDs carefully monitors the prices charged by its competitors for identical products.This company has the ability to change a given price within three minutes in response to changes by competitors.This is an example of EC:

A)competitive advantage.
B)core competency.
C)product or service differentiation.
D)agility.

Question 53

Justifying information security projects:

A)is not needed because it is well-known that preventing network security problems is less labor intensive than cleaning up virus infections.
B)is not done because ROI calculators are not available.
C)should focus on defending against external threats such as hackers and malware.
D)should be done because employee security training is usually poorly done.

Question 54

All of the following apply to EC in developing economies except:

A)Developing economies often face power blackouts and unreliable infrastructure and delivery mechanisms creating limitations that make it difficult for firms to predict whether EC investments will pay off,and when.
B)Developing economies,such as China and India,represent a significant opportunity for EC to connect businesses to customers,as well as other businesses.
C)Developing economies struggle with various issues that create too many business and technology risks to justify investment in those economies at this time.
D)The potential volume of transactions in developed countries can make EC investments more attractive for established firms than new firms because established firms have already recovered the costs of their IT infrastructures.

Question 55

All of the following are critical success factors (CSFs)of the Old Economy except:

A)deliver high-value products
B)compete to sell product
C)build market share to get economies of scale
D)create new partnerships,stay with core competency

Question 56

The disadvantage of the NPV method for evaluating EC and IT is:

A)the true benefits are difficult to measure.
B)it is difficult to compare projects of unequal life spans pans or sizes.
C)it assumes reinvestment at the same rate.
D)it may be difficult to classify outlays as expenses or investments.

Question 57

Transaction costs include all of the following except:

A)production costs incurred for labor and overhead
B)search costs incurred by buyers and sellers in locating each other and specific products and services
C)negotiation costs that result from meetings,communication-related expenses,exchanges of technical data or brochures,entertainment,and legal costs
D)monitoring costs incurred when buyers and sellers make sure that the exchange proceeds according to the terms under which the sale was made

Question 58

The ________ is a very common IT investment method,which maximizes value for unconstrained project selection.

Question 59

When computing agency cost,companies should:

A)consider both production-related costs and transaction costs.
B)consider only production-related costs and ignore transaction costs.
C)consider only transaction costs and ignore production-related costs.
D)ignore production-related costs and transaction costs.

Question 60

Antivirus investments are easily justified because more than ________ percent of viruses enter business networks via e-mail.

A)25
B)33
C)50
D)85

Question 61

With the ________,the organization evaluates intangible benefits using a low-cost,trial EC system before deciding to commit to a larger,more complete system.

Question 62

The value of competitive advantage,quality improvement,risk of not investing,and reputation are difficult to assess because they are ________ factors.

Question 63

The ________ represents the behavior of average costs as quantity changes.

Question 64

Vendors and consulting companies have accumulated experience in developing metrics and tools,such as a calculator that uses metrics and formulas to compute investment returns,which is known as a(n)________.

Question 65

________ are additional investments,such as training,made to maximize the returns from EC investments.

Question 66

The ________ is the discount rate that makes the NPV of those cash flows equal to zero.

Question 67

________ cover a wide range of costs that are associated with the distribution (sale)and/or exchange of products and services.

Question 68

Increased online sales may decrease offline sales resulting in a situation known as ________.

Question 69

Having special features available in products that make them distinguishable from other products is known as ________.

Question 70

An organization may use the ________ method to determine how much it should invest in large EC and IT infrastructures.

Question 71

________ is a formula for calculating the cost of owning,operating,and controlling an IT system.

Question 72

IT-enabled capabilities in the form of digitized enterprise work processes and knowledge systems are known as ________.

Question 73

In addition to buying and selling,________ also includes selecting suppliers,getting approval from buyers,processing purchase orders,delivering and receiving items,and processing payments.

Question 74

A ________ is the point at which the benefits of a project are equal to the costs.

Question 75

An EC firm's ability to capture,report,and quickly respond to changes happening in the marketplace and business environment is known as ________.

Question 76

________ attempts to quantify the net value added by an investment.

Question 77

Costs incurred in ensuring that the agent performs tasks as expected are known as ________.

Question 78

________ is the fair market value of a business or the price at which a property would change hands between a willing buyer and a willing seller who are both informed and under no compulsion to act.

Question 79

Benefits of ownership that include both tangible and intangible benefits are known as ________.

Question 80

________ are the costs to produce the product or service a company is selling.