CHAPTER 7 MANAGING PROCESSES

TRUE/FALSE

1. Decision makers are inherently reactive.

(False; Moderate; Individual Decision-Making Style)

2. Weighing decision criteria should precede the development of alternatives.

(True; Easy; The Decision-Making Process)

3. Herbert Simon introduced the concept of problem avoiders.

(False; Moderate; Factors That Influence the Rationality of Decision Making)

4. Bounded rationality is often exhibited in the hiring process.

(False; Hard; Factors That Influence the Rationality of Decision Making)

5. Identifying constraints should be the first step in the decision-making process.

(False; Moderate; The Decision-Making Process)

6. The directive decision-making style is characterized by a low tolerance for ambiguity and a rational
way of thinking.
(True; Moderate; Individual Decision-Making Style)

7. The behavioral decision-making style is characterized by a high tolerance for ambiguity and a
rational way of thinking.
(False; Moderate; Individual Decision-Making Style)

8. Rational decision making and rational analysis may complement each other.
(True; Hard; The Role of Intuition)

9. T-accounts provide a summary record of financial transactions.

(False; Moderate; What Performance Measurement Tools and Techniques Are Available?)

10. The income statement is also known as the “P&L.”

(True; Moderate; What Performance Measurement Tools and Techniques Are Available?)

11. Inventory turnover is an example of an productivity ratio.

(False; Moderate; Financial Ratio Analysis)

12. The current ratio is calculated by dividing current assets by current liabilities.
(True; Hard; Financial Ratio Analysis)

13. The liquidity ratio is the most important financial indicator for small business owners.
(False; Moderate; Financial Ratio Analysis)

14. The “big three” of cash flow are profits, losses, and equity.
(False; Moderate; Cash Flow Analysis)

15. Processing orders as accurately as possible will improve receivables.

(False; Easy; Tips for Managing the Big Three)

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MULTIPLE CHOICE

16. An inconsistency between actual and desired results is known as a(n):

a. incongruity.
b. problem
c. opportunity.
d. negative trend.
(b; Easy; The Decision-Making Process)

17. The concept of making decisions with limited information is referred to as:
a. satisficing.
b. guessing.
c. hypothesizing.
d. bounded rationality.
(d; Moderate; Factors That Influence the Rationality of Decision Making)

18. Which of the following decision-making steps comes first?

a. Identifying decision criteria
b. Developing alternatives
c. Identifying a need
d. Weighing decision criteria
(c; Moderate; The Decision-Making Process)

19. Which of the following decision-making steps comes last?

a. Identifying decision criteria
b. Developing alternatives
c. Evaluating alternatives
d. Weighing decision criteria
(c; Easy; The Decision-Making Process)

20. A negative trend can also be referred to as a(n)

a. opportunity.
b. incongruity.
c. windfall.
d. threat.
(d; Easy; The Decision-Making Process)

21. _________________ is often exhibited in the hiring process.

a. Satisficing
b. Improper decision making
c. Bounded rationality
d. Guessing
(a; Hard; Factors That Influence the Rationality of Decision Making)

22. ______________ are inherently proactive.

a. Decision makers
b. Problem avoiders
c. Problem seekers
d. Satisficers
(c; Moderate; Individual Decision-Making Style)

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23. ________________ often raise objections in order to make people uncomfortable.
a. Decision makers
b. Problem avoiders
c. Problem seekers
d. Satisficers
(b; Moderate; Individual Decision-Making Style)

24. _______________ types don’t have to process information in a certain order.

a. Rational
b. Intuitive
c. Directive
d. Analytic
(b; Moderate; Individual Decision-Making Style)

25. _______________ types tend to look at information in order before making a decision.
a. Rational
b. Intuitive
c. Directive
d. Analytic
(a; Moderate; Individual Decision-Making Style)

26. The ______________ decision-making style is characterized by a low tolerance for ambiguity and a
rational way of thinking.
a. conceptual
b. behavioral
c. directive
d. analytic
(c; Moderate; Individual Decision-Making Style)

27. The ______________ decision-making style is characterized by a high tolerance for ambiguity and
a rational way of thinking.
a. conceptual
b. behavioral
c. directive
d. analytic
(d; Moderate; Individual Decision-Making Style)

28. The _____________ decision-making style is characterized by a high tolerance for ambiguity and
an intuitive way of thinking.
a. conceptual
b. behavioral
c. directive
d. analytic
(a; Moderate; Individual Decision-Making Style)

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29. The _____________ decision-making style is characterized by a low tolerance for ambiguity and an
intuitive way of thinking.
a. conceptual
b. behavioral
c. directive
d. analytic
(b; Moderate; Individual Decision-Making Style)

30. ______________ decision making and rational analysis may complement each other.
a. Conceptual
b. Rational
c. Directive
d. Analytic
(b; Hard; The Role of Intuition)

31. Investigating how much interest is being offered by local banks is an example of _____________.
a. certainty
b. uncertainty
c. risk
d. None of the above
(a; Easy; Decision-Making Conditions)

32. ____________ is an estimate of the likelihood of certain outcomes.

a. Certainty
b. Uncertainty
c. Risk
d. None of the above
(c; Moderate; Decision-Making Conditions)

33. ____________ measures define activities with numbers.

a. Quantitative
b. Qualitative
c. Efficient
d. Certain
(a; Moderate; What Performance Results Are Important?)

34. ____________ concerns the amount of resources used to meet stated goals.
a. Effectiveness
b. Quality
c. Efficiency
d. Quality management
(c; Moderate; Organizational Efficiency and Effectiveness)

35. ____________ concerns whether an organization is meeting its stated goals.

a. Effectiveness
b. Quality
c. Efficiency
d. Quality management
(a; Moderate; Organizational Efficiency and Effectiveness)

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36. _________ represents standards to ensure that all businesses create uniform financial statements.
a. FASB
b. GAAP
c. ESOP
d. JIT
(b; Moderate; What Performance Measurement Tools and Techniques Are Available?)

37. The ________________ provides a snapshot of a firm’s financial condition.

a. balance sheet
b. T-accounts
c. general ledger
d. income statement
(a; Moderate; What Performance Measurement Tools and Techniques Are Available?)

38. The _______________ is also known as the “P&L.”

a. balance sheet
b. T-accounts
c. general ledger
d. income statement
(d; Moderate; What Performance Measurement Tools and Techniques Are Available?)

39. The total cost of all products sold during a specified time period is known as:
a. gross expenses.
b. cost of goods sold.
c. gross income.
d. expense budget.
(b; Easy; What Performance Measurement Tools and Techniques Are Available?)

40. The _____________ presents a firm’s assets, liabilities, and equity.

a. worth statement
b. material goods statement
c. inventory statement
d. balance sheet
(d; Easy; What Performance Measurement Tools and Techniques Are Available?)

41. The quick test is an example of a(n) ___________________ ratio.

a. profitability
b. equity
c. liquidity
d. risk
(c; Moderate; Financial Ratio Analysis)

42. Inventory turnover is an example of a(n) ________________ ratio.

a. material goods
b. control
c. operating
d. inventory
(c; Moderate; Financial Ratio Analysis)

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43. How is the current ratio calculated?
a. Current assets/Current liabilities
b. Current equity/Current Assets
c. Current equity/Current liabilities
d. Current liabilities/Current assets
(a; Hard; Financial Ratio Analysis)

44. The __________________ is most important for small business owners.

a. P&L
b. balance sheet
c. cash flow statement
d. liquidity ratio
(c; Moderate; Financial Ratio Analysis)

45. The “big three” of cash flow are:

a. receivables, payables, and inventory.
b. profits, losses, and equity.
c. cash, checks, and equity.
d. cash on hand, line of credit, and equity.
(a; Moderate; Cash Flow Analysis)

46. Processing orders as quickly as possible will:

a. improve receivables.
b. improve payables.
c. improve equity ratios.
d. improve profitability ratios.
(a; Easy; Tips for Managing the Big Three)

47. Just-in-time supply will:

a. improve inventory management.
b. improve cash flow.
c. improve payables.
d. All of the above
(d; Moderate; Tips for Managing the Big Three)

48. The entrepreneur who closely monitors the environment is demonstrating a(n):
a. scanning focus.
b. responsiveness focus.
c. open-system focus.
d. environmental focus.
(c; Moderate; Cultivating Innovation)

49. Which of the following is an element of a total quality organization?

a. Marketing on the basis of quality
b. Minimizing financial risk
c. Keeping a long-range outlook
d. All of the above
(c; Hard; Tools for Managing Quality)

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50. ISO 9000 focuses on:
a. efficiency.
b. continuous improvement.
c. standardization.
d. customer satisfaction.
(c; Moderate; Tools for Managing Quality)

ESSAY

51. What is the difference between bounded rationality and satisficing?

Answer: Bounded rationality refers to the fact that individuals can only consider a limited amount of
information in making decisions. Satisficing refers to making decisions that are adequate
rather than the best possible decision. This reflects the understanding that it is seldom
possible or practical to consider all possible information or options.

Teaching Note: The instructor can ask the class to think of different decisions they have
made in the past where bounded rationality or satisficing have been
demonstrated.

52. Contrast conceptual and directive decision-making.

Answer: Conceptual decision makers are very intuitive and have a high tolerance for ambiguity.
Conversely, directive decision makers are very rational and have very little tolerance for
ambiguity.

Teaching Note: The instructor can ask members of the class to evaluate their own
decision-making styles in light of the decision-making matrix.

53. Contrast effectiveness with efficiency.

Answer: Effectiveness reflects the degree to which people or businesses are “doing the right thing.”
Efficiency, on the other hand, deals with the amount of resources used to do the job. It can
also be viewed as the degree to which things are “done right.”

Teaching Note: The instructor can have members of the class examine the business
section of various newspapers for stories that demonstrate efficiency and
effectiveness.

54. What is the difference between the cash flow statement and the income statement.
Answer: The cash flow statement tracks cash inflows and outflows during a given period. It is the
most important financial statement because it indicates the firm’s ability to pay its bills. The
income statement indicates a firm’s profit or loss over a given period.

Teaching Note: This essay can be used to stimulate a good class discussion about what
would make the P&L and cash flow statements of a business look
considerably different over the same time period.

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55. Why are leverage ratios important?
Answer: By tracking a firm’s leverage ratios over time, a business owner can identify if the firm’s
level of debt is reaching a point where the business may be overextended. Excessive leverage
ratios can also be a sign that management is actually funding poor operations with debt.

Teaching Note: The instructor can gather the annual reports from several companies and
lead the class in calculating leverage ratios for these firms over the past
few years. This exercise can also be used to highlight differences in firm
leverage that exist across various industries.

CASE ESSAY

56. What are some of the risks faced by Joe Montgomery as he attempts to bring a new
generation of motorized bicycles to market?
Answer: While Joe’s products are certainly innovative, he runs the risk of being too far ahead of his
customers. He must also monitor his cash flow very closely, to ensure that sales keep up with
his R&D expenses.

Teaching Note: The instructor can lead the class in discussing some businesses that were
created before the market was ready. Which survived and which failed?

57. How does Timbuk2 maintain a pipeline of creative new products?

Answer: Timbuk2 relies heavily on suggestions from employees and customers to improve both
efficiency and effectiveness.

Teaching Note: The class can brainstorm some new ideas for products or services that do
not yet exist.

58. What risks did Rosenfeld and Flax face in launching California Pizza Kitchen?
Answer: They entered one of the always volatile and saturated restaurant market. They entered a
business with very little experience, and they gave away a great deal of control in exchange
for access to investment capital.

Teaching Note: Although having significant product or industry experience can be a real
plus for an entrepreneur, it can also carry certain risks. The instructor
can lead the class in discussing some of the risks that can be created by a
great deal of experience or expertise.

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59. What are some of the problems a successful entrepreneur like Martha Stewart may encounter
in coming up with the “second great set of ideas?”
Answer: Many entrepreneurs make the mistake of trying to squeeze every last bit of profits out of their
first great idea. The most successful entrepreneurs build innovation and change into their
businesses and make this a part of the employee culture. Martha Stewart turned homemaking
into an industry.

Teaching Note: The instructor can challenge the class to identify examples of companies
that have successfully moved beyond their initial round of successful
products or services and, perhaps, examples of those that have not.

60. What are some of the potential risks a company could face in pursuing The Baldridge Award?
Answer: Some firms become so preoccupied with winning awards, such as the Baldridge Award, that
they can actually lose their focus. Quality goals should be driven by customer needs. The
best business leaders never lose sight of this.

Teaching Note: The class can be assigned the task of identifying the Baldridge Award
winners for the past few years and discussing whether or not there are
any surprises in the list.

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