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MCQs on Evaluating Strategic Options

When evaluating a strategy, management should consider whether an individual strategy involves an unacceptable amount of risk. If it does, it should be

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MCQs on Evaluating strategic options

When evaluating a strategy, management should consider whether an individual strategy involves an unacceptable amount of risk. If it does, it should be eliminated from further consideration in the planning process. Here on MCQs.CLUB we have written helpful Multiple-Choice Questions (MCQs) on How to Evaluate Corporate Strategy, Evaluating strategic options that fully cover practice questions and quizzes on strategic options its tools, framework, with examples and types, evaluation of strategic alternatives using SAF Strategy Model, the exit and product strategy options, business strategy options, Qualitative evaluation of strategic choice. These MCQ on Questions on Strategy Evaluation are also useful for competitive exams, business management exams and professional accountancy exams.

Strategic choices are evaluated according to their:

1. suitability (to the organisation and its current situation)
2. feasibility (e.g. in terms of usefulness or competences)
3. acceptability (e.g. to relevant stakeholder groups)
4. All of the above

A company should consider the overall important strategic issues when assessing the suitability of an option, such as:

1. Does it fit with any existing strategies which the company is already employing, and which it wants to continue to employ?
2. How well does the option actually address the company’s strategic issues and priorities?
3. Will the option contribute to a sustainable competitive advantage for the company, in the light of the competitive environment?
4. All of the above

The acceptability of a strategy relates to whether it is acceptable to an organisation’s stakeholders. It is particularly important that any potential strategy is acceptable to these key stakeholders.

1. True
2. False

Feasibility asks whether the strategy can in fact be implemented. Strategies which do not make use of the existing competences, and which therefore call for new competences to be acquired, might not be feasible.

1. The above statement is correct
2. The above statement is incorrect

Which of the following is correct?

1. Risk is sometimes used to describe situations where outcomes are not known, but their probabilities can be estimated.
2. Uncertainty is present when the outcome cannot be predicted or assigned probabilities.
3. Both A&B
4. None

Types of risk are:

1. Physical risk, Economic risk, Financial risk
2. Business risk, Political risk and Competitor risk
3. Both A&B
4. None

If the primary financial target can be converted into a target rate of return for individual capital projects, how can risk be expressed in practical terms for decision makers?

1. A premium for risk can be added to the target DCF rate of return.
2. To protect cash flows, it might be made a condition of all new capital projects that the project should pay back within a certain period of time, say three to four years.
3. Both A&B
4. None

When evaluating a strategy, management should consider:

1. Whether an individual strategy involves an unacceptable amount of risk. If it does, it should be eliminated from further consideration in the planning process.
2. The risk of an individual strategy should be considered in the context of the overall portfolio of investment strategies adopted by the company.
3. Both A&B
4. None

Cost-Volume-Profit Analysis (CVP) – ‘Study of the effects on future profit of changes in fixed cost, variable cost, sales price, quantity and mix.’

1. The above definition is correct
2. The above definition is incorrect

A related risk is the cost structure of the business. Which of the following is correct?

1. A high level of fixed costs means that large losses are made if sales are less than breakeven, but that once breakeven is achieved, larger profits follow.
2. A high proportion of variable product costs means that the total costs are always sensitive to actual production volumes. Losses are lower, but so are profits.
3. Both A&B
4. None

Which of the following is correct?

1. Where there is a high proportion of fixed costs, a strategy might be more risky, although it promises a higher return.
2. A high proportion of genuinely variable costs can mean more flexibility.
3. Both A&B
4. None

Strategies deal with future events, and the future cannot be predicted with any certainty. Techniques such as CVP analysis can be used to reduce this risk of uncertainty.

1. True
2. False

Decision-making processes can be supported by rational techniques, including:

1. decision trees, cost/benefit analysis
2. ranking and scoring, scenario building
3. decision matrices and sensitivity analysis
4. All of the above

Which the following is correct for ‘Decision trees’?

1. Decision Tree is the ‘Pictorial method of showing a sequence of interrelated decisions and their expected outcomes.
2. Decision trees can incorporate both the probabilities of, and values of, expected outcomes, and are used in decision making.’
3. Decision trees are a useful tool for helping managers choose between different courses of action. The tree structure allows them to lay out options and investigate the possible outcomes of choosing these options.
4. All of the above

The stages in preparing a decision tree are:

1. Drawing the tree itself, to show all the choices and outcomes.
2. Putting in the numbers – the probabilities, outcome values and expected values (EVs).
3. Both A&B
4. None

The role of decision trees in strategic planning is to assess which choices are mutually exclusive, and to try and give them some quantitative value. As such, they are useful in:

1. Clarifying strategic decisions when they are complex
2. Using risk (in probability terms) as an input to quantifying the decision options
3. Ranking the relative costs and benefits of the options
4. All of the above

Which of the following is correct for “Cost/benefit analysis”?

1. Cost/benefit analysis is a strategy evaluation technique often used in the public sector, where many of the costs and benefits of a project are intangible.
2. Cost/Benefit Analysis involves a comparison between the cost of the resources used, plus any other costs imposed by an activity and the value of the financial and non- financial benefits derived.
3. Both A&B
4. None

A cost/benefit analysis is conducted on:

1. The project and its overall objectives are defined.
2. The benefits, including social benefits, are analysed in detail. It is not always easy to put a value on social costs.
3. The net benefits for the project are estimated, if possible. A road might reduce journey times, and so save money.
4. All of the above

Scenario building is the process of identifying alternative futures. A strategy can be evaluated in terms of the various models of the future a company has.

1. True
2. False

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MCQs on Evaluating Strategic Options

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MCQs on Evaluating strategic options