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ICSAN Strategic Operations study materials
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ICSAN Strategic Operations practice questions

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Question 1Strategic Planning and Governance

Under the ICSAN strategic governance framework, which board committee typically carries primary responsibility for reviewing the organization's strategic plan before it is presented to the full board for approval?

  1. The remuneration committee
  2. The nominations and governance committee
  3. The strategy and planning committee Correct answer.
  4. The audit and risk committee

Explanation

Strategic plans are normally scrutinized by a dedicated strategy or planning committee, which consolidates management's proposals and stress-tests assumptions before full board deliberation. The audit committee focuses on financial reporting and control, while remuneration and nominations committees handle people and governance matters. Assigning strategic review to the strategy committee preserves clear accountability for plan quality.

Question 2Strategic Planning and Governance

A strategic operations manager is drafting the annual strategy document for board approval. Which element most clearly distinguishes a strategic objective from an operational target?

  1. It is assigned to a single department for quarterly delivery
  2. It is recorded in the departmental budget spreadsheet
  3. It is expressed as a multi-year outcome tied to the organization's mission Correct answer.
  4. It is reviewed monthly by frontline supervisors

Explanation

Strategic objectives describe longer-horizon outcomes that connect directly to mission and competitive positioning, typically spanning several years. Operational targets translate those outcomes into near-term, unit-level deliverables. The distinguishing feature is therefore the time horizon and the linkage to mission rather than the location of the record.

Question 3Strategic Planning and Governance

During a strategy review, a director asks how the organization ensures that approved strategic initiatives are actually resourced and tracked. Which governance mechanism best answers this concern?

  1. Publishing the strategy on the corporate intranet
  2. Linking the annual budget and performance scorecard to strategic initiatives Correct answer.
  3. Delegating strategy execution entirely to middle management
  4. Holding a single annual town hall to announce the plan

Explanation

Strategy becomes executable when resource allocation and performance measurement are explicitly tied to it, which is achieved by aligning budgets and scorecards with strategic initiatives. Communication activities support awareness but do not ensure resourcing. Delegation without oversight removes board visibility over execution.

Question 4Strategic Planning and Governance

In the ICSAN governance model, the principle of board independence is best supported by which arrangement?

  1. The chief executive also chairs the board
  2. All directors are drawn from the executive team
  3. The board meets only when management requests
  4. A majority of directors are independent of management Correct answer.

Explanation

Independence is protected when a sufficient proportion of directors have no material relationship with management, allowing objective challenge of executive proposals. Combining the chair and chief executive roles concentrates power and weakens oversight. Boards composed entirely of executives, or convened only at management's request, cannot provide independent scrutiny.

Question 5Strategic Planning and Governance

Which document most appropriately sets out the formal division of decision rights between the board and executive management in a strategic governance framework?

  1. The marketing plan
  2. The board charter and delegation-of-authority schedule Correct answer.
  3. The employee handbook
  4. The annual training calendar

Explanation

A board charter combined with a delegation-of-authority schedule defines which decisions are reserved to the board and which are delegated to management, including financial thresholds. This is the core instrument for clarifying decision rights. The other documents address employment terms, marketing activity, or staff development and do not allocate strategic authority.

Question 6Strategic Planning and Governance

A board is reviewing whether its strategy remains fit for purpose after a major regulatory change. Which action best reflects effective strategic governance in this situation?

  1. Instruct management to continue the existing plan unchanged to avoid disruption
  2. Commission a structured reassessment of strategic assumptions and approve any required adjustments Correct answer.
  3. Refer the question to the audit committee as a compliance matter
  4. Defer the matter to the next annual strategy cycle

Explanation

When the external environment shifts materially, effective governance requires the board to re-examine the assumptions underpinning the strategy and approve changes where warranted. Waiting for the annual cycle or preserving the plan for stability leaves the organization exposed. Treating a strategic shift purely as a compliance issue misreads its scope.

Question 7Strategic Planning and Governance

An organization uses a balanced scorecard to govern strategy. Which practice best preserves the scorecard's value as a strategic governance tool?

  1. Adding every available metric to maximize coverage
  2. Restricting scorecard access to the finance department
  3. Cascading measures from strategic objectives down to operational units Correct answer.
  4. Updating the scorecard only when the annual report is prepared

Explanation

A scorecard retains strategic relevance when measures are derived from and cascade out of strategic objectives, connecting frontline activity to board-level outcomes. Metric proliferation dilutes focus, infrequent updating removes its value as a steering instrument, and restricting access prevents managers from using it.

Question 8Strategic Planning and Governance

In strategic risk governance, which approach best ensures that risks to the strategy are surfaced at board level?

  1. Relying on the internal audit plan to identify all strategic risks
  2. Delegating risk oversight wholly to the chief financial officer
  3. Discussing risks only when an incident occurs
  4. Maintaining a strategic risk register reviewed regularly by the board Correct answer.

Explanation

A strategic risk register, reviewed on a regular cycle by the board, provides a structured and forward-looking mechanism for surfacing threats to strategic objectives. Internal audit provides assurance but does not own strategic risk identification. Incident-driven discussion and full delegation to one executive both leave the board without systematic visibility.

Question 9Strategic Planning and Governance

A director argues that the board should approve the strategic plan but leave all implementation decisions to management. Which governance position is most defensible?

  1. Approve the plan and monitor implementation through agreed milestones and reporting Correct answer.
  2. Decline to approve the plan until every operational step is specified
  3. Approve the plan and take no further interest in execution
  4. Approve the plan and personally direct operational teams

Explanation

Boards set direction and then hold management to account through milestones and reporting, which preserves both managerial autonomy and board oversight. Taking no further interest removes accountability, direct operational involvement blurs roles, and demanding every operational detail inverts the governance hierarchy.

Question 10Strategic Planning and Governance

Which scenario best illustrates a governance failure in strategic planning rather than a merely poor strategic choice?

  1. The board selected a market segment that grew more slowly than forecast
  2. The board adopted a planning horizon of five years
  3. The board approved a plan that later proved commercially unsuccessful
  4. The board approved a plan without any documented deliberation or challenge Correct answer.

Explanation

Governance failure concerns the quality of the decision process, such as absence of documented deliberation and challenge, rather than the commercial outcome. A plan that later fails, a slower-growing segment, or a five-year horizon are substantive choices that may be perfectly defensible. The distinguishing factor is whether proper process was followed.

Question 11Strategic Planning and Governance

When a board sets its strategic agenda for the year, which allocation best reflects sound governance practice?

  1. Most time on reviewing past financial results, with strategy handled briefly
  2. Substantial scheduled time on strategy and forward risk, with performance oversight alongside Correct answer.
  3. Strategy discussed only at the annual retreat
  4. Strategy delegated to a single director who reports occasionally

Explanation

Sound governance gives strategy and forward-looking risk substantial, scheduled board time while retaining regular performance oversight. Backward-looking financial review alone crowds out strategic direction, a single annual retreat is too infrequent for meaningful steering, and delegating strategy to one director weakens collective responsibility.

Question 12Strategic Planning and Governance

An organization's strategy document lists ten priorities but the budget funds only three. What does this most likely indicate about its strategic governance?

  1. A disconnect between strategic prioritization and resource allocation Correct answer.
  2. A sign that the budget process is more rigorous than the strategy process
  3. An appropriate separation of planning and finance functions
  4. A deliberate portfolio approach that stages funding over time

Explanation

When stated priorities vastly exceed what is funded, the strategy is not genuinely guiding resource allocation, which is a core governance expectation. A staged portfolio would normally be explicit in the plan, and rigor in one process does not excuse incoherence between them. Separation of functions does not justify unfunded priorities.

Question 13Strategic Planning and Governance

Which mechanism best enables a board to discharge its duty to monitor strategic performance without micromanaging management?

  1. A monthly dashboard of key strategic indicators with agreed tolerance thresholds Correct answer.
  2. An open invitation for directors to attend any operational meeting
  3. Daily operational reports sent to every director
  4. Quarterly reviews of individual staff performance

Explanation

A dashboard of key strategic indicators with tolerance thresholds gives the board exception-based oversight, focusing attention where performance deviates from plan. Daily operational reports, individual staff reviews, and open attendance at operational meetings all draw the board into management's domain.

Question 14Strategic Planning and Governance

A newly appointed chief executive proposes a radical strategic pivot within weeks of joining. Which governance response best reflects the ICSAN principle of constructive challenge?

  1. Require a documented strategic case with evidence, risk assessment, and staged board decision points Correct answer.
  2. Approve immediately to demonstrate support for new leadership
  3. Reject the proposal outright to preserve continuity
  4. Ask the audit committee to decide on the pivot

Explanation

Constructive challenge requires the board to test major proposals against evidence, risk, and strategic fit before committing, often through staged decision gates. Immediate approval substitutes enthusiasm for scrutiny, outright rejection is equally unexamined, and the audit committee is not the forum for strategic direction.

Question 15Strategic Planning and Governance

In evaluating whether to enter a new market, a board applies a stage-gate governance process. What is the principal governance benefit of this approach?

  1. It transfers decision accountability to the project team
  2. It guarantees the market entry will succeed
  3. It commits resources incrementally as evidence accumulates at each gate Correct answer.
  4. It removes the need for board involvement after the first gate

Explanation

Stage gates release resources in tranches, with the board reviewing evidence at defined points before further commitment, which limits exposure and preserves oversight. No process can guarantee success, and the approach is designed specifically to retain board involvement and accountability rather than transfer it.

Question 16Strategic Planning and Governance

A board discovers that management has been reporting strategic progress using selectively favorable metrics. Which governance control most directly addresses this integrity risk?

  1. Increasing the frequency of management presentations
  2. Adding more strategic initiatives to the plan
  3. Shortening the strategy horizon to one year
  4. Independent verification of strategic performance data and defined metric standards Correct answer.

Explanation

Data integrity is protected by independent verification and by pre-agreed metric definitions that remove discretion over how progress is measured. More frequent presentations from the same source do not correct bias, and adding initiatives or shortening the horizon does not address measurement integrity.

Question 17Strategic Planning and Governance

An organization's board and executive team hold materially different understandings of the organization's top three strategic priorities. Which governance intervention addresses the root cause most directly?

  1. Increasing the frequency of financial reporting
  2. Running a facilitated strategy alignment session to agree and document shared priorities Correct answer.
  3. Commissioning a new brand identity
  4. Recruiting additional middle managers

Explanation

Divergent interpretations of strategic priorities indicate a failure of shared sense-making, which is resolved by facilitated alignment that produces a single documented set of priorities. Branding, more frequent financial reporting, and extra managers do not create shared strategic understanding.

Question 18Strategic Planning and Governance

A board is assessing a proposal whose financial model depends on assumptions the directors cannot independently verify. Which governance response is most appropriate?

  1. Request independent validation of critical assumptions before deciding Correct answer.
  2. Approve the proposal but reduce the investment amount by half
  3. Approve the proposal subject to management's assurance that the assumptions are sound
  4. Defer the decision indefinitely until conditions become certain

Explanation

Where critical assumptions cannot be verified internally, the board should obtain independent validation so that its decision rests on tested evidence. Relying on management's assurance is circular, arbitrary halving does not test the assumptions, and indefinite deferral avoids the governance duty to decide.

Question 19Strategic Planning and Governance

Which statement best captures the relationship between corporate governance and strategic planning in the ICSAN framework?

  1. Governance constrains strategy by limiting what management may propose
  2. Governance replaces strategy when performance declines
  3. Governance and strategy are separate functions that should not interact
  4. Governance provides the accountability structure within which strategy is set, resourced, and reviewed Correct answer.

Explanation

Governance supplies the accountability architecture, including decision rights, oversight, and review cycles, within which strategy is formulated and delivered. It is not merely a constraint, the two are deeply interdependent, and governance does not substitute for strategic management when results disappoint.

Question 20Strategic Planning and Governance

What is the primary purpose of a board's statement of strategic risk appetite?

  1. To define the level of risk the board is willing to accept in pursuit of strategic objectives Correct answer.
  2. To assign blame when initiatives fail
  3. To list every risk the organization faces
  4. To transfer risk to external insurers

Explanation

A risk appetite statement articulates how much uncertainty and potential loss the board will tolerate in pursuing its strategy, guiding management's choices. It is not an exhaustive risk inventory, an insurance instrument, or a mechanism for attributing blame after failure.

Question 21Strategic Planning and Governance

A board wants to strengthen its oversight of a multi-year digital transformation. Which governance arrangement is most appropriate?

  1. Reviewing progress only at project completion
  2. Delegating oversight to the technology vendor
  3. A dedicated transformation oversight forum reporting to the board at agreed intervals Correct answer.
  4. Relying on the annual audit report as the sole oversight channel

Explanation

Long, complex programmes benefit from a dedicated oversight forum that reports to the board at agreed intervals, providing continuity and escalation routes. The annual audit report is too narrow and infrequent, vendors cannot oversee the organization's interests, and end-point review provides no opportunity to correct course.

Question 22Strategic Planning and Governance

In strategic planning, what distinguishes a 'strategic bet' from a routine operating commitment?

  1. It requires no board visibility
  2. It is reversible within a single quarter
  3. It carries significant uncertainty and materially affects competitive position Correct answer.
  4. It is always funded from the operating budget

Explanation

A strategic bet involves material uncertainty and the potential to shift competitive position, which is why it warrants explicit board attention. Routine operating commitments are typically lower-variance, funded through normal budgets, and handled within delegated authority.

Question 23Strategic Planning and Governance

A board reviews a proposal to diversify into an unrelated industry. Which governance question is most central to testing strategic fit?

  1. Whether competitors have considered a similar move
  2. Whether the proposal requires new office space
  3. Whether the proposal uses the organization's existing capabilities and advances its stated mission Correct answer.
  4. Whether the proposal can be executed within the current financial year

Explanation

Strategic fit turns on whether a diversification leverages existing capabilities and remains consistent with the organization's mission and positioning. Timeline, competitor interest, and facilities requirements are execution details that do not establish strategic coherence.

Question 24Strategic Planning and Governance

Which practice most effectively safeguards continuity of strategic direction when a chief executive departs unexpectedly?

  1. Allowing each division to set its own direction in the interim
  2. Suspending all strategic activity until a permanent successor is appointed
  3. A documented strategy endorsed by the board and a clear interim succession plan Correct answer.
  4. Relying on the departing executive's informal guidance during handover

Explanation

Board-endorsed documentation of the strategy plus an interim succession plan preserves direction and accountability through leadership transition. Informal guidance is unreliable, suspending activity creates drift, and letting divisions set independent direction fragments the organization.

Question 25Strategic Planning and Governance

Which outcome best demonstrates that a board has exercised effective oversight of strategy execution?

  1. The board received a comprehensive report at year end
  2. The board met its scheduled number of meetings
  3. The board approved the plan without amendment
  4. The board identified a material deviation early and directed a corrective response Correct answer.

Explanation

Effective oversight is evidenced by early detection of deviation and timely corrective direction, which shows that monitoring and challenge are working. A year-end report is retrospective, unamended approval may reflect insufficient scrutiny, and meeting counts measure activity rather than quality of oversight.

Question 26Strategic Planning and Governance

In the ICSAN governance view, which statement best describes the board's role in strategic planning?

  1. The board sets direction and approves strategy while management formulates and executes it Correct answer.
  2. The board writes the strategic plan and hands it to management for implementation
  3. The board confines itself to financial audit and leaves strategy to the executive team
  4. The board delegates strategy formulation entirely to management and reviews results annually

Explanation

Governance doctrine separates direction-setting from execution: the board approves and challenges strategy, and management formulates detail and delivers it. This preserves accountability without the board taking over executive work.

Question 27Strategic Planning and Governance

Which element most clearly belongs to the governance layer rather than the management layer of strategic planning?

  1. Negotiating supplier contracts for the next financial year
  2. Preparing the monthly sales forecast for the coming quarter
  3. Approving the strategic risk appetite that bounds the plan Correct answer.
  4. Drafting the detailed marketing plan for a new product line

Explanation

Setting and approving risk appetite is a reserved governance decision because it defines the boundaries within which management may commit the organization. Operational planning artifacts such as forecasts, marketing plans and contracts sit with management.

Question 28Strategic Planning and Governance

A board wants its strategic plan to function as a genuine governing instrument. Which characteristic matters most?

  1. It specifies measurable strategic objectives with owners and review points Correct answer.
  2. It is refreshed only when a new chief executive is appointed
  3. It is written in detailed operational language for staff instruction
  4. It is kept confidential to prevent competitors learning the direction

Explanation

A strategy governs only when it contains measurable objectives, named accountability and scheduled review, which allow the board to test progress. Length, secrecy or refresh triggered by leadership change do not create that governing discipline.

Question 29Strategic Planning and Governance

Which practice best demonstrates that a board is governing strategy rather than merely receiving it?

  1. Requesting weekly operational reports from each business unit
  2. Endorsing the strategy paper without amendment at each annual retreat
  3. Delegating all strategic discussion to the audit committee
  4. Testing management's strategic assumptions against independent evidence Correct answer.

Explanation

Governance adds value when directors challenge the assumptions and evidence underpinning a plan, not simply when they endorse it. Independent testing keeps approval meaningful while avoiding operational intrusion.

Question 30Strategic Planning and Governance

A board is defining its strategic planning cycle. Which sequence best reflects sound governance practice?

  1. Environmental scan, strategy formulation, board approval, execution with periodic review Correct answer.
  2. Execution, environmental scan, board approval, strategy formulation
  3. Board approval, environmental scan, execution, strategy formulation
  4. Strategy formulation, execution, environmental scan, board approval

Explanation

Sound cycles begin with analysis, move to formulation, obtain formal board approval and then execute with scheduled review. Approval before the analysis or after execution begins defeats the purpose of governing the plan.

Question 31Strategic Planning and Governance

An organization's board delegates strategy development to a committee chaired by the chief executive. What governance concern does this arrangement most directly raise?

  1. The committee will lack the technical expertise to address strategy
  2. Independence of challenge may be weakened when the executive chairs the body Correct answer.
  3. Strategy development will take longer than a full board process
  4. The committee cannot lawfully consider financial information

Explanation

When the executive who proposes strategy also chairs the body scrutinising it, independent challenge is structurally reduced. Expertise, timeliness and access to financial data are not the central governance issue here.

Question 32Strategic Planning and Governance

A board approves a strategy but the following year's budget funds none of its new initiatives. Which governance conclusion is most warranted?

  1. The board should withdraw the strategy and restart formulation
  2. Management has complied by funding only proven activities
  3. The strategy and resource allocation processes are not integrated Correct answer.
  4. The budget process has correctly overridden an unrealistic strategy

Explanation

Strategy becomes real only when capital and operating resources follow it, so an unfunded strategy signals a broken link between planning and budgeting. The remaining options assume facts about the strategy's realism that the scenario does not establish.

Question 33Strategic Planning and Governance

Which arrangement best allows a board to oversee a long-horizon strategic programme while preserving management accountability?

  1. Require the programme manager to attend every board meeting
  2. Assign a single non-executive director to direct the programme team
  3. Review the programme only at its scheduled completion date
  4. Agree milestone-based reporting with defined escalation triggers to the board Correct answer.

Explanation

Milestone reporting with pre-agreed escalation thresholds gives the board visibility at decision points without assuming executive control. Directing the team or meeting attendance by a non-executive would cross into management.

Question 34Strategic Planning and Governance

A board is asked to approve a strategy whose success depends on a technology the organization has never used. Which governance response is most appropriate?

  1. Defer the decision indefinitely until the technology is proven elsewhere
  2. Approve in full and delegate all technology risk to the executive
  3. Reject the strategy outright because unfamiliar technology is too risky
  4. Approve conditionally, with staged investment gates and defined exit criteria Correct answer.

Explanation

Conditional approval with staged gates and exit criteria lets the board take a calculated strategic risk while retaining control over exposure. Blanket rejection, indefinite deferral and unmonitored delegation all avoid the governance judgement required.

Question 35Strategic Planning and Governance

Which metric set best supports board oversight of strategy execution?

  1. Only customer satisfaction scores collected quarterly
  2. A large volume of operational statistics from every department
  3. A small balanced set of leading and lagging strategic indicators Correct answer.
  4. Only audited financial results reported annually

Explanation

A compact balanced set combining leading and lagging indicators gives directors a forward view and a record of outcomes. Volume without focus, purely financial reporting or a single metric family each leave material dimensions of strategy unmonitored.

Question 36Strategic Planning and Governance

A board's strategy assumes stable input prices, but procurement data show sustained increases. Which governance action best closes this gap?

  1. Reissue the strategy unchanged to reassure stakeholders
  2. Wait for the next annual planning cycle to reconsider
  3. Instruct procurement to absorb the increases silently
  4. Trigger a strategy review against the revised assumption set Correct answer.

Explanation

When a load-bearing assumption fails, the board should trigger a review rather than let the plan drift on outdated premises. Waiting for the cycle, suppressing information or reissuing unchanged all preserve a known misalignment.

Question 37Strategic Planning and Governance

A board is reviewing whether its strategy remains aligned with its purpose after a shift in stakeholder expectations. Which governance test is most direct?

  1. Whether competitors have published similar strategies
  2. Whether strategic choices still serve the stated purpose and obligations Correct answer.
  3. Whether the plan can be delivered within the current budget
  4. Whether the strategy document uses current terminology

Explanation

Alignment is tested by asking whether the chosen strategic direction still serves the organization's purpose and its obligations to stakeholders. Terminology, competitor behaviour and budget capacity are relevant inputs but do not directly test purpose alignment.

Question 38Strategic Planning and Governance

A board wishes to strengthen strategic foresight rather than forecast accuracy. Which practice contributes most directly?

  1. Increasing the frequency of budget variance reports
  2. Extending the financial model to ten decimal places
  3. Structured scenario planning around critical uncertainties Correct answer.
  4. Commissioning a single definitive long-range forecast

Explanation

Foresight improves when directors rehearse several plausible futures built around genuinely uncertain drivers, which prepares them for strategic choice under ambiguity. Precision modelling, a single forecast and variance reporting all optimise prediction rather than foresight.

Question 39Strategic Planning and Governance

An organization's board approves strategy, but the executive team sets its own priorities and reports only favourable outcomes. Which governance weakness is most fundamental?

  1. The executive team has too many members to coordinate effectively
  2. Accountability for strategic delivery is not enforced through the reporting line Correct answer.
  3. The board lacks sufficient industry knowledge to set strategy
  4. The strategy document is too short to guide decisions

Explanation

The defining failure is that the accountability chain between board approval and executive delivery has broken down, allowing self-selected priorities and selective reporting. Knowledge gaps, team size and document length may matter but do not explain the absence of accountability.

Question 40Strategic Planning and Governance

A board must decide how much strategic change it can absorb in one cycle while maintaining operational stability. Which governance judgement is most central?

  1. Delegating the change portfolio decision entirely to business units
  2. Balancing transformation ambition against the organization's capacity to absorb change Correct answer.
  3. Avoiding change until current operations are fully optimised
  4. Maximising the number of initiatives to demonstrate strategic momentum

Explanation

The board's distinctive contribution is judging the portfolio balance between transformation and the capacity to absorb it without destabilising operations. Initiative volume, indefinite delay and full delegation each evade that judgement.

Question 41Operations Strategy and Performance Management

In operations strategy, the 'order winners' of a firm are best described as the competitive criteria that:

  1. describe internal process efficiency targets set by finance
  2. directly secure customer orders in the target market segment Correct answer.
  3. must be met simply to be considered by customers at all
  4. are used only to benchmark competitors' cost structures

Explanation

Order winners are the criteria that cause a customer to choose one firm's offering over another's, so they directly drive order acquisition. Order qualifiers, by contrast, are minimum standards a firm must meet merely to be eligible for consideration. Confusing the two leads to misallocated improvement investment.

Question 42Operations Strategy and Performance Management

A manufacturer competes on reliable short lead times but also must offer a basic product range to be considered at all. In Slack's framework, the product range is functioning as a(n):

  1. core competence
  2. order winner
  3. order qualifier Correct answer.
  4. strategic constraint

Explanation

A criterion that a firm must satisfy to be in the market but that does not by itself win orders is an order qualifier. The product range here only earns the firm the right to compete. Lead time, by contrast, is the criterion that actually secures the order.

Question 43Operations Strategy and Performance Management

Which performance objective of operations is primarily concerned with the ability to change the timing, volume, or mix of output in response to demand?

  1. Dependability
  2. Quality
  3. Speed
  4. Flexibility Correct answer.

Explanation

Flexibility is the operations objective concerned with the ability to adapt output, timing, or mix to changing requirements. Speed concerns how quickly products are made available, and dependability concerns keeping promises. Quality concerns conformance and specification.

Question 44Operations Strategy and Performance Management

The 'productivity' ratio used in operations performance measurement is conventionally expressed as:

  1. input divided by output
  2. output divided by input Correct answer.
  3. revenue minus total cost
  4. actual output divided by design capacity

Explanation

Productivity measures how much output is produced per unit of input, so it is output divided by input. Higher values indicate more efficient conversion of resources. Input divided by output is its reciprocal and is not the standard definition.

Question 45Operations Strategy and Performance Management

A plant has a design capacity of 1,000 units per week and an effective capacity of 800 units. It actually produces 720 units. What is its capacity utilisation?

  1. 72% Correct answer.
  2. 90%
  3. 125%
  4. 80%

Explanation

Capacity utilisation is actual output divided by design capacity, so 720 divided by 1,000 equals 72%. Effective capacity is used for the efficiency ratio instead. Mixing the two denominators is the common error here.

Question 46Operations Strategy and Performance Management

Using the same plant with design capacity 1,000, effective capacity 800, and actual output 720, what is the efficiency ratio?

  1. 80%
  2. 72%
  3. 111%
  4. 90% Correct answer.

Explanation

Efficiency compares actual output with effective capacity, so 720 divided by 800 equals 90%. Utilisation compares actual output with design capacity. Efficiency therefore isolates losses attributable to the operation rather than to planned capacity gaps.

Question 47Operations Strategy and Performance Management

A firm produces 4,000 units using 500 labour hours. Labour productivity is:

  1. 0.125 units per labour hour
  2. 2,000 units per labour hour
  3. 500 units per labour hour
  4. 8 units per labour hour Correct answer.

Explanation

Labour productivity equals output divided by labour input, so 4,000 divided by 500 equals 8 units per labour hour. This single-factor measure isolates the contribution of labour. Multifactor productivity would instead aggregate several inputs.

Question 48Operations Strategy and Performance Management

A firm's output rises 10% while its total input rises 5%. What is the approximate change in multifactor productivity?

  1. It is unchanged
  2. It rises by about 15%
  3. It rises by about 4.8% Correct answer.
  4. It falls by about 5%

Explanation

Multifactor productivity is output divided by input, so the new ratio is 1.10 divided by 1.05, roughly 1.048, an increase of about 4.8%. Productivity growth is therefore the output growth rate less the input growth rate, approximately. Adding the two percentages overstates the gain.

Question 49Operations Strategy and Performance Management

The 'sandcone' model of operations improvement proposes that capabilities should be built in which sequence?

  1. Flexibility, then cost, then quality, then speed, then dependability
  2. Speed, then flexibility, then cost, then quality, then dependability
  3. Quality, then dependability, then speed, then flexibility, then cost Correct answer.
  4. Cost, then speed, then flexibility, then quality, then dependability

Explanation

Ferdows and De Meyer's sandcone model argues that quality forms the foundation, followed by dependability, then speed, then flexibility, with cost efficiency emerging last. Each layer must be consolidated before the next is built, otherwise earlier gains erode. The analogy is to layers of sand in a cone.

Question 50Operations Strategy and Performance Management

The 'trade-off' view of operations strategy is challenged by the 'cumulative capabilities' view primarily because the latter argues that:

  1. improvements in one objective can reinforce rather than erode others over time Correct answer.
  2. cost is the only objective that genuinely matters in the long run
  3. firms should always prioritise flexibility above all other objectives
  4. performance objectives are unrelated to one another in practice

Explanation

The cumulative capabilities view holds that well-managed improvement in one objective, such as quality, can build the foundation for gains in others. The trade-off view assumes objectives compete for the same limited resources, so improving one must worsen another. Empirical manufacturing studies supported the cumulative position.