Chapter 18—Planning for Change
TRUE/FALSE
1. Risk is a fact of life, but a company’s exposure to risk decreases as the venture grows.
2. The common practice of outsourcing the upstream activities of the business⎯raw materials,
manufacturing, assembly, and inventory⎯provides many advantages with little risk to the
entrepreneur.
3. It is extremely difficult to calculate with any degree of accuracy the probability that a given risk will
occur.
4. The U.S. Chamber of Commerce reports that piracy costs the United States alone over $250 billion
annually and 750,000 lost jobs every year.
5. Early in the operation of the business, it is important to identify a qualified attorney familiar with the
industry to handle any potential product liability claims.
6. Companies that rely heavily on Internet-based systems will want to get advice about securing a cyber
insurance policy.
7. Over half of family-owned businesses do not continue into the second generation.
8. Harvest entrepreneurs start and build a venture for the purpose of selling it.
9. The consolidation play has become a way for many small business owners to realize the wealth they
created in their business.
10. Savings and loan associations, banks, insurance companies, and foreign companies can all file for
bankruptcy protection.
MULTIPLE CHOICE
1. ____ refers to situations where a probability of the risk occurring and its potential impact can be
calculated because at least some of the variables involved in the decision can be controlled.
a.
Voluntary bankruptcy
b.
Risk
c.
Uncertainty
d.
Liquidation
e.
None of these choices
2. Traditional risk management proponents have typically adopted a/an ____ that sees risk as a physical
property that has associated probabilities of occurrence.
a.
objectivist view
b.
subjectivist view
c.
historical view
d.
Bayesian view
e.
None of these choices
3. The ____ takes into account the motives, trustworthiness, and process of the people involved in the
risk assessment and generally gives a better result.
a.
objectivist view
b.
subjectivist view
c.
historical view
d.
Bayesian view
e.
None of these choices
4. ____ plans help a growing business deal with events that regularly⎯and often without much
warning⎯disrupt the equilibrium of the firm.
a.
Risk assessment
b.
Contingency
c.
Liquidation
d.
Bankruptcy
e.
Succession
5. Which of the following is not involved in risk assessment?
a.
Identifying the potential risks associated with the venture
b.
Calculating the probability the risks will occur
c.
Assigning a level of importance to the losses
d.
Calculating the overall loss risk
e.
Securing a knowledgeable attorney
6. ____ are used to protect a company against potential risk that can’t be prevented.
a.
Buffer strategies
b.
Process improvement strategies
c.
Contingency strategies
d.
Objectivist strategies
e.
Supply chain strategies
7. The overall ____ is simply the product of the probability of occurrence times the cost of the impact to
the business times the level of significance of that impact.
a.
liquidity
b.
equity
c.
risk of loss
d.
cost to the business
e.
cost benefit analysis
8. Smaller businesses for sale often use the services of ____.
a.
investment bankers
b.
investment advisors
c.
financial attorneys
d.
business brokers
e.
None of these choices
9. A/An ____ is an employee benefit plan that buys and holds company stock in special employee trust
accounts that qualify as retirement accounts for tax purposes.
a.
Ownership Liquidity Plan
b.
Employee Stock Ownership Plan
c.
buy-sell agreement
d.
Individual Retirement Account
e.
None of these choices
10. Which of the following does not describe the career path of an entrepreneur?
a.
Growth entrepreneur
b.
Habitual entrepreneur
c.
Harvest entrepreneur
d.
Transition entrepreneur
e.
Helical entrepreneur
11. A “prepackaged bankruptcy” can take from four to nine months to complete, rather than the typical
nine months to two years, and is possible under ____.
a.
voluntary bankruptcy
b.
involuntary bankruptcy
c.
Chapter 7
d.
Chapter 11
e.
Chapter 13
12. Bankruptcy under ____ consists of the liquidation of the assets of the business and the discharging of
most types of debt.
a.
Chapter 7
b.
Chapter 11
c.
voluntary circumstances
d.
involuntary circumstances
e.
Chapter 13
13. A reorganization of the finances of the business so that it can continue to operate and begin to pay its
debts is a/an ____.
a.
Chapter 7 reorganization
b.
voluntary bankruptcy
c.
Chapter 11 reorganization
d.
involuntary bankruptcy
e.
Chapter 13 liquidation
14. It is an unfortunate fact of life that some entrepreneurs must exit their business through ____.
a.
liquidation
b.
purchase agreement
c.
buy-sell agreements
d.
ESOP
e.
phased sale
15. In a/an ____, the entrepreneur has the ability to cash out a portion of his or her investment and still
manage the business for an agreed-upon time when the business is sold at a prearranged price.
a.
consolidation
b.
buy-sell agreement
c.
asset sale
d.
phased sale
e.
ESOP
16. According to Jerome Katz, women entrepreneurs who are driven by what is going on in their personal
lives, such that their entrepreneurial tendencies emerge in spurts, are ____ entrepreneurs.
a.
harvest
b.
habitual
c.
spiral
d.
growth
e.
ongoing
17. According to Jerome Katz, people who love to start businesses and may start and run several at once
are ____ entrepreneurs.
a.
habitual
b.
growth
c.
harvest
d.
spiral
e.
flip-flop
18. According to Jerome Katz, entrepreneurs who measure their success by the size of their company are
____ entrepreneurs.
a.
habitual
b.
harvest
c.
growth
d.
spiral
e.
flip-flop
19. To prepare the best defense against a cash flow crisis, the entrepreneur must be continually committed
to all of the following except ____.
a.
leveraging financing
b.
producing goods of exceptional quality
c.
controlling the cost of overhead
d.
having a contingency plan in place
e.
controlling the cost of production
20. When sales decline and positive cash flow starts looking like a memory, entrepreneurs often go ____.
a.
to their banker/lender
b.
to their accountant
c.
into action
d.
into a period of denial
e.
to friends and family
21. An integral part of a team-based approach to organizational management is ____.
a.
contingency planning
b.
management by objectives
c.
cross-training
d.
employee empowerment
e.
human resource management
22. According to Pasmore and Torres, the second step in succession planning is ____.
a.
announcement of the process
b.
transition
c.
execution of the search
d.
situation assessment
e.
key-person insurance
23. Most product liability insurance covers all of the following except ____.
a.
cost of defense
b.
personal injury
c.
property damage
d.
lost sales
e.
None of these choices; that is, all are usually covered
24. The cost of hiring an employee is becoming so high that many companies are solving the problem by
____.
a.
using employment agencies
b.
subcontracting work
c.
hiring management consultants
d.
downsizing operations
e.
raising prices
25. The ____ declines for 13 months prior to the onset of a recession.
a.
leading index
b.
lagging index
c.
coincident-lagging index
d.
coincident index
e.
consumer price index
26. Such items as the producer price index, the consumer confidence index, and the manufactures’ orders
for durable goods are contained in the ____.
a.
lagging index
b.
leading index
c.
coincident index
d.
recession index
e.
inflation rate
27. By forcing entrepreneurs to consider multiple outcomes and possibilities, contingency plans help a
growing business deal with all of the following except ____.
a.
downturns and upturns in the economy
b.
new regulations
c.
changes in customer tastes and preferences
d.
exit strategies
e.
litigation
28. The immediately precipitating cause that forces a corporation into bankruptcy is ____.
a.
failure to pay debt
b.
failing to assess risk
c.
shifts in demand
d.
supplier problems
e.
None of these choices
29. Groups of hackers that act in the national interests of the country that sponsors them to provide nearly
constant attacks on the national security infrastructure of countries are known as ____.
a.
cyber militia
b.
cyber risk
c.
hacker militia
d.
security risks
e.
None of these choices
30. “What skills and experience does the second generation need to acquire?” and “What is the second
generation’s expectation for the future of the business, and is it congruent with the company’s vision?”
are two of the questions that should be examined to start the process of ____ planning.
a.
long-range
b.
short-range
c.
succession
d.
operational
e.
contingency
SHORT ANSWER
1. What are the four major types of entrepreneurial career paths?
2. Define and discuss the Social Venture Network (SVN).
3. What are the four steps to determining overall loss risk?
4. An effective contingency plan will answer what important questions?
5. What is Chapter 11?
6. What is Chapter 7?
7. List some events that cause a company to go bankrupt.
8. List some supply chain risks.
9. Define and explain process improvement strategies.
10. Why is succession planning important?
ANS:
