3.3

Question 1

what is time series

Answer 1

a set of observations that are measured at specific time intervals

Question 2

why is time series analysis useful

Answer 2

-attempts to identify factors that exert an influence on the values in the series
-trends can then be projected to the future and used in forecasting
-reveals a pattern in observations
-shows long-term underlying growth movement in a time series (trends)

Question 3

give some examples of time series

Answer 3

sales figures
gross national product
currency comparison
unemployment rates
economic growth
foreign debt
trade figures

Question 4

what are the 4 time series components

Answer 4

trend - long term underlying movement of sales
cyclical - long term variations about the trend caused by booms & slumps
seasonal - ie weather
irregular - unpredictable events

Question 5

what is a decision tree

Answer 5

method of tracing the alternative outcomes of any decisions

Question 6

what are decision points

Answer 6

points where decisions are made in decisions trees represented by a square, choosing between certain courses of action

Question 7

what are outcome points/chance nodes

Answer 7

points where there are different possible outcomes in a decision tree represented by a circle

Question 8

when are decision trees used

Answer 8

a new product launch
a new marketing campaign on the current product
relocation to a new building

Question 9

what are the advantages of using decision trees

Answer 9

enables a business to quantify decision making
useful when outcomes are uncertain
places a numerical value on likely or potential outcomes
allows comparison of different possible decisions
encourages clear thinking and planning

Question 10

what are the disadvantages of using decision trees

Answer 10

reliant on the accuracy if data used
requires qualitative input to complete picture
probabilities are only estimated
real time data problems

Question 11

what is the problem 3 point moving averages

Answer 11

businesses will often report their sales in quarters so the 3 cycle points are different so not useful for forecasting

Question 12

how do you calculate earliest start time

Answer 12

earliest start time of previous activity + duration of previous activity

Question 13

what is critical pathway analysis (CPA)

Answer 13

a project management technique that requires mapping out every key task that is necessary to complete a project

Question 14

what is free float

Answer 14

the spare time available without delaying the next activity

Question 15

how do you calculate free float

Answer 15

(est at start + duration) - est at the end

Question 16

what is total float

Answer 16

the spare time available without delaying the whole project

Question 17

how do you calculate total float

Answer 17

(est + duration) - latest start time

Question 18

what is a dummy activity

Answer 18

an activity that is purely to show dependencies, they are not labelled on critical pathway as they take up no time or resources

Question 19

what are the advantages and disadvantages of CPA

Answer 19

+/ maximize efficiency & use of time
generates cost saving in the use of resources
beneficial to monitoring cash flow
-/ usefulness may be limited in complex and large scale operations
necessity of having clear and reliable information
skilled management and team philosophy is essential

Question 20

what is payback period

Answer 20

the period of time required to recoup the funds expended on an investment/reach break even point

Question 21

what are the advantages and disadvantages of payback

Answer 21

+/ simple & easy to calculate
focuses on cash flow
emphasizes speed of return
easy to compare projects
-/ ignored cash flows which arise after payback has been reached
doesn’t take into account the time value of money
encourages short term thinking
ignored qualitative aspects of the decision

Question 22

what is average rate of return

Answer 22

looks at the total accounting return for a project to see if it meets target return

Question 23

how do you calculate average rate of return

Answer 23

add up all cash flows
minus the original cost of the project
then divide this by the number of years the project runs for
then divide by the cost of the project
times by 100 to get a percentage

Question 24

what are the advantages and disadvantages of average rate of return

Answer 24

+/ provides a percentage return which can be compared with a target return
looks at profitability of the entire project
focuses on profitability
-/ does not take into account cash flow
takes no account of the time value of money
treats profits arising late the same as those arising early

Question 25

what is net present value and how is it calculated

Answer 25

calculates the monetary value now of the projects future cash flow
the total of present values - original investment

Question 26

what are the advantages and disadvantages of net present value

Answer 26

+/ takes into account time value of money
places emphasis on earlier cash flows
looksat all cash flow involved in the life of the project
helps with decision making
-/ complicated to create
difficult to select correct discount rate
sensitive to investment cost

Question 27

how do you calculate present value

Answer 27

net cash flow x discount factor