Practice Test 2

Chapter 3 Decision Analysis

State True/ False

1) EVPI (expected value of perfect information) provides the decision maker a value of
the lowest amount she should be willing to pay for additional information.

2) EOL will always result in the same decision as the maximum EMV with revenue data,
but will pick the worst alternative with cost data.

3) Optimistic decision makers tend to discount favorable outcomes.

4) Utility theory may help the decision maker include the impact of qualitative factors
that are difficult to include in the EMV model.

Multiple Choice

5) An analytic and systematic approach to the study of decision making is referred to as

A) decision making under risk.
B) decision making under uncertainty.
C) decision theory.
D) decision analysis.

6) Which of the following is not considered a criterion for decision making under
uncertainty?
A) optimistic
B) pessimistic
C) equally likely
D) random selection

7) Which of the following is true about the expected value of perfect information?
A) It is the amount you would pay for any sample study.
B) It is calculated as EMV minus EOL.
C) It is calculated as expected value with perfect information minus maximum EMV.
D) It is the amount charged for marketing research.

8) Which of the following is not one of the steps considered in the "Six Steps in Decision
Making"?
A) Clearly define the problem at hand.
B) List the possible alternatives.
C) Apply the model and make your decision.
D) Evaluate the success of the decision.
9) Optimistic decision makers tend to
A) magnify favorable outcomes.
B) ignore bad outcomes.
C) discount favorable outcomes.
D) A and B

Table 2-1

The following is a payoff table giving costs for various situations.

State 1 State 2 State 3

Alternative 1 45 37 83
Alternative 2 16 59 72
Alternative 3 23 65 91
Alternative 4 44 33 55

10) According to the data in Table 2-1, what decision would a pessimist make?
A) Alternative 1
B) Alternative 2
C) Alternative 3
D) Alternative 4

11) According to the data in Table 2-1, what decision should be made based on the
minimax regret criterion?
A) Alternative 1
B) Alternative 2
C) Alternative 3
D) Alternative 4

Table 2-2

The following is a payoff table giving profits for various situations.

State 1 State 2 State 3

Probability 0.4 0.35 0.25
Alternative 1 45 37 83
Alternative 2 16 59 72
Alternative 3 23 65 91
Alternative 4 44 33 55

12) Based on the data in Table 2-2, if a person were to use the expected monetary
value criterion, what decision would be made?
A) Alternative 1
B) Alternative 2
C) Alternative 3
D) Alternative 4
13) How are decision tables organized?
A) alternatives down the left, states of nature on top, payoffs inside
B) states of nature down the left, alternatives on top, payoffs inside
C) alternatives down the left, payoffs on top, states of nature inside
D) payoffs down the left, alternatives on top, states of nature inside

14) In decision making under ________, there are several possible outcomes for each
alternative, and the decision maker does not know the probabilities of the various
outcomes.
A) risk
B) utility
C) certainty
D) uncertainty

15) In decision making under ________, there are several possible outcomes for each
alternative, and the decision maker knows the probability of occurrence of each
outcome.
A) risk
B) utility
C) certainty
D) probability

Chapter 11 Project Management

State True/ False

16) A PERT/CPM network is a graphical display of a project that connects activities.

17) With PERT, we are able to calculate the probability of finishing the project within a
specified time.

18) The identification of the project activities and their time, cost, resource
requirements, predecessors, and person(s) responsible is called PERT planning.

19) One PERT/COST assumption is that money is spent at a constant rate over the
time taken to complete an activity.

20) The value of work completed is computed by multiplying budgeted cost by the
percent completion.

Multiple Choice

21) PERT
A) assumes that we do not know ahead of time what activities must be completed.
B) assumes that activity time estimates follow the normal probability distribution.
C) is a network technique that uses three time estimates for each activity in a project.
D) is a deterministic network technique that allows for project crashing.

22) CPM
A) assumes we do not know ahead of time what activities must be completed.
B) assumes that activity time estimates follow the normal probability distribution.
C) is a deterministic network technique that allows for project crashing.
D) is a network technique that allows three time estimates for each activity in a project.

23) The expected time in PERT is

A) a weighted average of the most optimistic time, most pessimistic time, and four times
the most likely time.
B) the modal time of a beta distribution.
C) a simple average of the most optimistic, most likely, and most pessimistic times.
D) the square root of the sum of the variances of the activities on the critical path.

24) Given an activity's optimistic, most likely, and pessimistic time estimates of 4, 6, and
14 days respectively, compute the PERT expected activity time for this activity.
A) 8
B) 6
C) 7
D) 9

Table 2-3

Immediate Most Standard

Activity Predecessor Optimistic Likely Pessimistic Deviation Variance
A -- 4 5 6 0.333 0.111
B -- 12 16 18 1.000 1.000
C A 2 8 14 2.000 4.000
D A 5 5 5 0.000 0.000
E B, C 6 7 8 0.333 0.111

25) According to Table 2-3, there are five activities in a PERT project. Which activities
are on the critical path?
A) A-C-E
B) B-D
C) A-B-C-D
D) B-E

26) According to Table 2-3, there are five activities in a PERT project. What is the
variance of the critical path?
A) 5.222
B) 4.222
C) 1.222
D) 1.111
27) According to Table 2-3, there are five activities in a PERT project. If the normal
distribution were used to find the probability of finishing this project in 24 weeks or
fewer, what mean and variance would be used?
A) 30 and 5.222
B) 20 and 5.222
C) 30 and 4.222
D) 22.667 and 1.111

28) The project described by

Immediate Time
Activity Predecessor (days)
A -- 10
B A 4
C A 6
D B, C 7
E C 5

has a critical path length of?

A) 21 days.
B) 14 days.
C) 23 days.
D) 32 days.

29) PERT assumes that the total completion time of a project follows which of the
following probability distributions?
A) normal
B) exponential
C) binomial
D) Poisson

30) Activity D of a project has a budgeted cost of $45,000 and is 20% complete. What is
the value of work completed?
A) 450
B) 4500
C) 900
D) 9000
 Practice Test 2 Answer Section

Chapter 3 Decision Analysis

State True/ False

1) Answer: FALSE
2) Answer: FALSE
3) Answer: FALSE
4) Answer: TRUE

Multiple Choice
5) Answer: C
6) Answer: D
7) Answer: C
8) Answer: D
9) Answer: D
10) Answer: D
11) Answer: B
12) Answer: C
13) Answer: A
14) Answer: D
15) Answer: A

Chapter 11 Project Management

State True/ False

16) Answer: TRUE
17) Answer: TRUE
18) Answer: FALSE
19) Answer: TRUE
20) Answer: TRUE
Multiple Choice
21) Answer: C
22) Answer: C
23) Answer: A
24) Answer: C
25) Answer: D
26) Answer: D
27) Answer: D
28) Answer: C
29) Answer: A
30) Answer: D