AICPA Strategic Management & Performance 3 — Questions and Answers
Question 1: A company sets a target ROI of 15% but achieves only 11%. Under management by exception, what action should be taken?
- No action, since the company is still profitable
- Investigate the unfavorable variance to identify its cause (Correct answer)
- Revise the target downward to match actual performance
- Reward managers for the positive return achieved
Correct answer: Investigate the unfavorable variance to identify its cause
Management by exception focuses attention on significant deviations from plan; an unfavorable 4% ROI gap warrants investigation.
Question 2: Which of the following best describes a 'stretch goal' in performance management?
- A goal set below current performance to build confidence
- An aspirational target that significantly exceeds current capabilities (Correct answer)
- A rolling forecast updated monthly
- A goal tied to industry average benchmarks
Correct answer: An aspirational target that significantly exceeds current capabilities
Stretch goals are ambitious targets designed to push an organization to achieve performance levels beyond its current comfortable reach.
Question 3: In the context of strategic risk, which tool helps organizations map risks by likelihood and potential impact?
- Sensitivity analysis
- Risk heat map (Correct answer)
- Monte Carlo simulation
- Decision tree
Correct answer: Risk heat map
A risk heat map visually plots risks on a matrix showing probability on one axis and impact on the other, aiding prioritization.
Question 4: Which Ansoff Matrix quadrant represents selling existing products to new markets?
- Market penetration
- Product development
- Market development (Correct answer)
- Diversification
Correct answer: Market development
Market development involves taking existing products into new geographic markets, customer segments, or distribution channels.
Question 5: A company's economic value added (EVA) is negative. This most directly indicates that:
- The company reported a net accounting loss
- The company earned a return below its weighted average cost of capital (Correct answer)
- The company has insufficient cash flow to pay dividends
- The company's assets are overvalued on the balance sheet
Correct answer: The company earned a return below its weighted average cost of capital
Negative EVA means the company failed to earn returns exceeding its cost of capital, destroying shareholder value even if accounting profit is positive.
Question 6: Which of the following is a leading indicator in a Balanced Scorecard?
- Annual revenue growth
- Net profit margin
- Customer retention rate
- Number of employee training hours completed (Correct answer)
Correct answer: Number of employee training hours completed
Training hours completed is a leading indicator because it drives future performance outcomes rather than measuring past results.
Question 7: A firm decides to exit a declining market by selling off assets and maximizing short-term cash flow. This is called a:
- Turnaround strategy
- Harvest strategy (Correct answer)
- Retrenchment strategy
- Divestiture strategy
Correct answer: Harvest strategy
A harvest strategy involves reducing investment in a business unit or product while extracting maximum cash flow before eventual exit.
AICPA Strategic Management & Performance 3
A company sets a target ROI of 15% but achieves only 11%.
Under management by exception, what action should be taken?