CBS Decision Making & Problem Solving 2 — Questions and Answers
Question 1: A company must choose between two projects. Project A has an expected value of $500K with moderate risk; Project B has an expected value of $600K but high variance. Which decision-making principle suggests choosing Project A for a risk-averse organization?
- Maximax criterion
- Minimax regret
- Expected utility theory (Correct answer)
- Pareto optimality
Correct answer: Expected utility theory
Expected utility theory accounts for risk preferences, meaning risk-averse decision makers favor lower variance even when expected monetary value is slightly lower.
Question 2: When a problem is described as 'ill-structured,' what does this primarily mean for the problem solver?
- The solution is known but implementation is unclear
- Goals, methods, and constraints are not well-defined (Correct answer)
- The problem requires only quantitative analysis
- Resources are insufficient to solve it
Correct answer: Goals, methods, and constraints are not well-defined
Ill-structured problems lack clear goals, solution methods, and constraints, requiring creative and iterative approaches rather than standard procedures.
Question 3: A strategist uses sensitivity analysis after building a financial model. What is the primary purpose of this technique?
- To identify which input variables most affect the outcome (Correct answer)
- To select the optimal decision from a payoff matrix
- To eliminate all uncertainty from the model
- To benchmark performance against competitors
Correct answer: To identify which input variables most affect the outcome
Sensitivity analysis tests how changes in individual inputs affect outputs, revealing which assumptions carry the most decision risk.
Question 4: During a crisis, a business strategist applies the concept of 'satisficing.' Which behavior best illustrates this approach?
- Evaluating every possible option before deciding
- Selecting the first option that meets a minimum acceptable threshold (Correct answer)
- Delegating the decision to the team with the most expertise
- Delaying the decision until more data is available
Correct answer: Selecting the first option that meets a minimum acceptable threshold
Satisficing, coined by Herbert Simon, means accepting a 'good enough' solution rather than exhaustively searching for the optimal one.
Question 5: A root cause analysis reveals that a recurring quality defect stems from operator error during shift changes. Using the 5 Whys method, what outcome is expected after fully applying the technique?
- A list of all possible causes ranked by frequency
- Identification of the systemic process failure underlying the symptom (Correct answer)
- A cost-benefit analysis of fixing each identified cause
- A reassignment of accountability to shift supervisors
Correct answer: Identification of the systemic process failure underlying the symptom
The 5 Whys method iteratively asks why a problem occurred until a root systemic cause—not just a surface symptom—is uncovered.
Question 6: Which cognitive bias causes a strategist to favor information that confirms a previously held belief while discounting contradictory data?
- Anchoring bias
- Availability heuristic
- Confirmation bias (Correct answer)
- Framing effect
Correct answer: Confirmation bias
Confirmation bias leads decision makers to seek and prioritize evidence that supports existing conclusions, potentially skewing strategic analysis.
Question 7: A decision tree shows two branches: Launch (NPV $800K, probability 0.6) and Delay (NPV $300K, probability 1.0). What is the expected monetary value of the Launch branch?
- $800,000
- $480,000 (Correct answer)
- $560,000
- $300,000
Correct answer: $480,000
Expected monetary value = $800K × 0.6 = $480,000, making Delay ($300K certain) the lower-value option unless risk aversion applies.
CBS Decision Making & Problem Solving 2
A company must choose between two projects.
Project A has an expected value of $500K with moderate risk; Project B has an expected value of $600K but high variance.
Which decision-making principle suggests choosing Project A for a risk-averse organization?