File: ch02, Chapter 2: Strategic Management and Project Selection

R V James Changes Jan 2006

Revised by Dwayne Whitten - July, 2008
Multiple Choice

1. The text identifies two basic types of project selection models. They are
a) Biased and fair
b) Iconic and analog
c) Numeric and nonnumeric
d) Numeric and qualitative
Ans: c
Response: Refer to section 2.4.
Level: intermediate

2. If a system is being updated due to operating necessity, the project was selected because
a) The system is a sacred cow system that is not important to business success
b) The system is worth saving at the estimated cost of the project
c) The dimension of cost is not relevant to execution of the project
d) The cost overruns can be hidden in someone else's budget
Ans: b
Response: Refer to section 2.4, the operating necessity nonnumeric model.
Level: easy

3. The payback period model fails to consider ________.

a) Any cashflows generated by the project
b) Any cashflows generated during the projects execution
c) Any cashflows generated after the projects execution has been completed
d) Any cashflows beyond those required to recover the initial project investment
Ans: d
Response: Refer to section 2.4, numeric models.
Level: intermediate

4. If the NPV for a project is > 0, it indicates that the project will
a) Report a profit loss
b) Report a profit gain
c) Cover its hurdle rate
d) Fail to cover its hurdle rate
Ans: c
Response: Refer to section 2.4, numeric models, discounted cash flow.
Level: advanced

5. Identify the numeric model that usually does not account for all cashflows.
a) Internal rate of return
b) Average return on investment
c) Net present value
d) Payback period
Ans: d
Response: Refer to section 2.4, numeric models.
Level: easy
6. Which of the following is an incorrect statement?
a) Project management success has not been good.
b) One study found that 30% of all projects were cancelled midstream.
c) One study found that over half of the completed projects came in over budget.
d) Project management techniques have solved all project management problems.
Ans: d
Response: Introduction section
Level: Intermediate
7. Using this nonnumeric model, a project to develop and distribute new projects would be
judged on the degree to which it fits the firms existing product line, fills a gap, strengthens
a weak link, or extends an existing line.
a) sacred cow
b) operating necessity
c) product line extension
d) comparative benefit model

e) real options
Ans: c
Response: Section 2.4, nonnumeric models
Level: easy

8. Using the ______, the relative importance of individual selection criteria are given
weights.
a) unweighted factor scoring model
b) weighted factor scoring model
c) window of opportunity analysis
d) unweigthed 0-1 factor model
e) real options
Ans: b
Response: Section 2.4, Weighted Factor Scoring Model
Level: Easy
9. When considering a project, the set of documents submitted for evaluation is called
a) project proposal
b) project complexity
c) project summary
d) project quotation
e) project initiation
Ans: a
Response: Section 2.8
Level: Easy

Short Answer
10. The process of modeling a problem seeks to carve away the ________ from the bones
of a problem.
Ans: unwanted reality.
Response: Refer to section 2.2.
Level: intermediate

11. Reference to an external standard is necessary when taking an ________ measurement.

Ans: objective.
Response: Refer to section 2.6, measurements.
Level: advanced

12. If repetitions of a measurement produce results that vary from one another by less than
a pre-specified amount, the measurement is said to be a ________ measurement.
Ans: reliable.
Response: Refer to section 2.6, measurements.
Level: advanced

13. According to Wheelwright et al, ________ projects have objectives or deliverables that
are only incrementally different in both product and process from existing offerings.
Ans: derivative.
Response: Refer to section 2.7, step 2: identify project categories and criteria
Level: intermediate
True/False
14. For a project selected using nonnumeric models, operating necessity projects have
priority over competitive necessity projects.
Ans: True
Response: Refer to section 2.4, nonnumeric models.
Level: easy

15. In order to compute the internal rate of return for a project, the value for NPV must be
greater than inflation in order to have a return on investment.
Ans: False
Response: Refer to section 2.4, numeric models, internal rate of return.
Level: intermediate

16. Scoring models are used to overcome the inability of profitability models to account for
multiple decision criteria.
Ans: True
Response: Refer to section 2.4, numeric models, scoring.
Level: intermediate

17. The distinction between subjective and objective refers to the difference between an
opinion and a fact.
Ans: False
Response: Refer to section 2.6, measurements. (External standards = objective; internal
standards = subjective)
Level: advanced
18. All models, no matter how complex, are only partial representations of the reality they
hope to reflect.
Ans: True
Response: Section 2.3
Level: Intermediate
19. Uncertainty plagues all aspects of the work on projects and is present in all stages of
project life cycles.
Ans: True
Response: Section 2.5
Level: easy