CPM Analytical Decision Frameworks 3 — Questions and Answers
Question 1: A manager uses a PEST analysis before entering a new market. Which category would 'rising interest rates' fall under?
- Political
- Economic (Correct answer)
- Sociocultural
- Technological
Correct answer: Economic
Rising interest rates are an economic factor that affects borrowing costs, consumer spending, and investment decisions in a new market.
Question 2: In decision tree analysis, an 'expected value' node (circle) differs from a 'decision' node (square) in that it:
- Represents a choice made by the manager
- Represents a chance event with probabilistic outcomes (Correct answer)
- Indicates a dead-end path with no further branches
- Marks the starting point of the decision sequence
Correct answer: Represents a chance event with probabilistic outcomes
Circle nodes in decision trees represent chance events where outcomes occur with assigned probabilities, unlike square nodes which represent deliberate choices.
Question 3: A manager applies the Kepner-Tregoe (KT) decision analysis framework. Which step comes IMMEDIATELY after defining the decision statement?
- Evaluating alternatives against musts and wants
- Establishing objectives (musts and wants) (Correct answer)
- Performing a risk assessment on the top choice
- Selecting the final alternative
Correct answer: Establishing objectives (musts and wants)
In KT decision analysis, defining the decision statement is followed by establishing objectives, which are classified as mandatory 'musts' and desirable 'wants.'
Question 4: Which cognitive bias causes managers to overweight the first piece of information received when making subsequent judgments?
- Confirmation bias
- Sunk cost fallacy
- Anchoring bias (Correct answer)
- Availability heuristic
Correct answer: Anchoring bias
Anchoring bias occurs when the initial data point (the 'anchor') disproportionately influences all subsequent estimates or decisions.
Question 5: A manager conducting a break-even analysis determines that fixed costs are $120,000, selling price per unit is $40, and variable cost per unit is $25. What is the break-even quantity?
- 3,000 units
- 4,800 units
- 8,000 units (Correct answer)
- 6,000 units
Correct answer: 8,000 units
Break-even quantity = Fixed Costs ÷ (Price − Variable Cost) = $120,000 ÷ ($40 − $25) = $120,000 ÷ $15 = 8,000 units.
Question 6: In the context of analytical decision-making, 'satisficing' differs from 'optimizing' in that satisficing:
- Requires more data collection and processing time
- Selects the first option that meets minimum acceptable criteria (Correct answer)
- Always produces a mathematically superior outcome
- Involves ranking all alternatives before choosing
Correct answer: Selects the first option that meets minimum acceptable criteria
Satisficing, coined by Herbert Simon, means selecting the first adequate option rather than exhaustively searching for the best possible solution.
Question 7: A manager uses scenario planning as part of strategic analysis. The PRIMARY purpose of developing multiple scenarios is to:
- Predict the single most likely future state with precision
- Prepare the organization to respond flexibly to a range of possible futures (Correct answer)
- Replace quantitative forecasting models entirely
- Assign probability values to each future state for budgeting
Correct answer: Prepare the organization to respond flexibly to a range of possible futures
Scenario planning helps organizations build strategic flexibility by preparing responses for several plausible futures rather than betting on one predicted outcome.
CPM Analytical Decision Frameworks 3
A manager uses a PEST analysis before entering a new market.
Which category would 'rising interest rates' fall under?