Deck 11: Risk, Uncertainty and Strategy

Question 1

For strategists, the concepts of risk and uncertainty are interchangeable

Answer 1

False

Question 2

Briefly describe some limitations of risk analysis techniques.

Answer 2

They can provide false certainty because they are based on quantitative techniques. They rely on accurate consideration of variables and probabilities in a given situation. Modelling techniques which are based on past data are inherently flawed because we cannot assume that causal relationships will continue into the future. Soft factors such as culture are difficult to measure sPerceived risk differs between individuals and firms

Question 3

In what type of industries would scenario building be an appropriate tool for dealing with the future?

Answer 3

Hypercompetitive industries Large, capital intensive industries where sunk costs are huge Industries that contain typically large firms that cannot react quickly to changes eg. oil exploration

Question 4

What is a risk indice and why should it be used with caution?

Question 5

Briefly explain the purpose of a gap analysis.

Question 6

Decision tree analysis can be used to

A) make choices between alternative courses of action
B) anticipate how competitors are likely to respond to a strategic move
C) combine PESTEL variables to create alternative visions of the future
D) assess the risk of a particular course of action

Question 7

Scenario building can be used to help reduce risk and uncertainty. What type of technique is it?

A) A forecasting technique
B) A trend extrapolation technique
C) A decision tree technique
D) A 'what if?' technique

Question 8

For the automobile industry, how far into the future should scenarios project?

A) 5-10 years
B) 10 -15 years
C) 20-30years
D) 40-50 years

Question 9

Prospect theory can be used to

A) Assess the probability of an outcome
B) Extrapolate long term trends
C) Understand risk assessment behaviour
D) Categorize uncertainties

Question 10

Knight (1921) states that we '[do not] infer the future from the present with any high degree of dependability...'. What is Knight referring to in this statement?

A) Satisficing behaviour
B) Bounded rationality
C) Risk
D) Uncertainty

Question 11

A good scenario building exercise creates alternative visions of the future that are completely divorced from what is happening today.

Question 12

Which of the following issues could be categorized as 'predictable uncertainty'?

A) Technological
B) Demographic
C) Economic
D) Scientific

Question 13

Which of the following is an example of 'pure risk'?

A) The risk of sensitive data being stolen
B) The risk of an investment not producing a return
C) The risk of a new product being unpopular with customers
D) The risk of integrating two firms in a merger

Question 14

According to McGee (2010) risk can be defined as '.....the measurable consequence of ______________for an organization'

Question 15

The 'risky shift' syndrome (Stoner, 1968) describes a situation where

A) Individuals take greater risks than groups
B) Individuals take greater risks where the potential rewards are greater
C) Groups take greater risks than individuals
D) Groups take greater risks where the potential rewards are greater

Question 16

Which of the following events can be defined as an 'exogenous' risk?

A) The Icelandic volcanic erruption that occured in 2010
B) Fraudulent banking activity
C) The Challenger Space Shuttle disaster
D) The BP oil leak that occured in 2010

Question 17

Baird and Thomas (1990) argue that organizational risk needs to be distinguished from which type of risk?

A) exogenous
B) managerial
C) endogenous
D) industry

Question 18

Which of the following types of risk can be described as organizational risk according to Palmer and Wiseman (1999)?

A) Slack
B) Scarcity-Munificence
C) Dynanism
D) Simple-complex environments

Question 19

A tool to assess risk is NPV. What does NPV stand for?

A) Net present value
B) Net present variable
C) Net potential value
D) Null point variable

Question 20

In scenario development exercises, what is considered to be an ideal number of future scenarios to arrive at?

A) 2
B) 3
C) 5
D) 7

Question 21

All risk is essentially man made.

Question 22

The __________________ technique involves asking a number of experts for their opinions about the future.

Question 23

What is 'gap analysis'?

A) The identification of industry spaces that have no competition present
B) The identification of 'blue oceans'
C) The identification of appropriate resources and competences to deal with the future
D) The identification of new market segments

Question 24

Managers sometimes become overconfident and make high-risk decisions because they mistakenly believe that a past success was due to their decision, when it may have been because of 'luck' such as a competitor making an error. The manager in this case is making

A) An intuition error
B) An attribution error
C) A trade-off error
D) An aspiration error