TMA Operational Turnaround 2 — Questions and Answers
Question 1: What is a '100-day plan' in the context of a turnaround engagement?
- A long-term five-year strategic plan
- A structured short-term action plan to achieve critical stabilization milestones (Correct answer)
- A plan filed with the bankruptcy court
- A plan to sell the company within 100 days
Correct answer: A structured short-term action plan to achieve critical stabilization milestones
A 100-day plan outlines the specific actions, owners, and milestones a turnaround team commits to achieving in the first three months to stabilize and begin improving the business.
Question 2: Why is supplier relationship management critical during an operational turnaround?
- Suppliers can provide equity financing
- Maintaining supplier trust preserves the supply chain needed to continue operations (Correct answer)
- Suppliers vote on restructuring plans
- It satisfies SEC disclosure requirements
Correct answer: Maintaining supplier trust preserves the supply chain needed to continue operations
If suppliers lose confidence in a distressed company and tighten credit terms or stop shipments, it can accelerate the crisis by disrupting production and revenue.
Question 3: What is a 'contribution margin' analysis used for in operational turnaround?
- Measuring total company profit
- Identifying which products or customers generate positive cash flow after variable costs (Correct answer)
- Calculating tax obligations
- Determining enterprise value
Correct answer: Identifying which products or customers generate positive cash flow after variable costs
Contribution margin analysis reveals which products, services, or customer segments cover their variable costs and contribute to fixed cost recovery, guiding resource allocation.
Question 4: In a turnaround, what does 'customer concentration risk' refer to?
- Having too many customers to manage
- Excessive revenue dependence on a small number of customers (Correct answer)
- A marketing strategy to focus on premium clients
- Geographic clustering of the customer base
Correct answer: Excessive revenue dependence on a small number of customers
Customer concentration risk means a distressed company relies on few customers for most of its revenue, making it highly vulnerable if those customers reduce orders or leave.
Question 5: Which of the following best describes 'zero-based budgeting' in a turnaround context?
- Budgeting based on prior year plus inflation
- Building the budget from zero, justifying every expense from scratch (Correct answer)
- Eliminating the budgeting process entirely
- Setting the budget to zero and freezing all spend
Correct answer: Building the budget from zero, justifying every expense from scratch
Zero-based budgeting requires managers to justify every line of expenditure from scratch rather than assuming prior-year spending is appropriate, exposing unnecessary costs.
Question 6: What is the role of a Chief Restructuring Officer (CRO) in an operational turnaround?
- To represent creditors in court
- To provide independent leadership and execute the turnaround plan with authority (Correct answer)
- To replace the board of directors
- To manage only the financial restructuring
Correct answer: To provide independent leadership and execute the turnaround plan with authority
A CRO is an experienced turnaround professional brought in to lead the distressed company with the authority and credibility needed to execute both operational and financial changes.
TMA Operational Turnaround 2
What is a '100-day plan' in the context of a turnaround engagement?