–2– N11/3/BUSMT/HP2/ENG/TZ0/XX

SECTION A

Answer one question from this section.

1. Revive Livre (RL)

Revive Livre (RL), a bookshop located in central London, has one of the largest collections of
second-hand books in Europe. RL operates as a partnership of two brothers, James and Nick Cusack.
The bookshop is known for its untidy store layout and lack of space. These features have given the
bookshop its memorable promotional catchphrase, “Hard to find but worth the time”, which has
generated substantial brand value through word-of-mouth promotion. RL claims that it can find and
order any second-hand book.

Changes in reading habits and technology have impacted on RL. The availability of second-hand
books from online competitors such as Amazon has become a real concern. Despite the popularity
of RL, there has been new negative feedback on customer service and the size of the bookshop.
Customers have complained that it is too time-consuming to find a specific book. A liquidity
problem has also emerged. RL is holding too much working capital in unsold second-hand books.

James has identified three options of physical expansion for RL. He argues that all options would
provide a better service to customers and help with the liquidity problem if they proved successful.

The estimated cost and financial return for each option is given below (for all options the probability
of being successful is 0.6 and the probability of not being successful is 0.4):

Option Cost Financial return if Financial return if

(UK£) successful (UK£) not successful (UK£)
1. Purchase additional storage
space nearby 200 000 400 000 150 000
2. Purchase the building next
door to expand the current
bookshop:
(a) without a café 900 000 2 000 000 400 000
(b) with a café Extra 200 000 2 500 000 –100 000
3. Move the bookshop to a
large shopping centre outside
of central London 1 600 000 2 500 000 1 000 000

(This question continues on the following page)

8811-5012
 –3– N11/3/BUSMT/HP2/ENG/TZ0/XX

(Question 1 continued)

Nick has a completely different strategic vision for RL, which he believes is a less risky and cheaper
solution to the store’s liquidity and customer service problems. He argues to keep the original central
London bookshop and set up an e-commerce facility. The web site will also attract new customers and
Nick believes many second-hand books in the shop may finally be sold.

(a) Define the following terms:

(i) partnership [2 marks]

(ii) working capital. [2 marks]

(b) Explain two disadvantages for RL of having too much working capital in
unsold second-hand books. [4 marks]

(c) (i) Construct a fully labelled decision tree for James’ “three options of
physical expansion for RL”. Calculate the predicted outcome for each
option and identify the most profitable option (show all your working). [7 marks]

(ii) Explain one advantage and one disadvantage for RL of using a

decision tree as a decision-making tool. [4 marks]

(d) Contrast James’ strategy of physical expansion with Nick’s e-commerce strategy. [6 marks]

8811-5012 Turn over

 –5– N11/3/BUSMT/HP2/ENG/TZ0/XX/M

SECTION A

1. (a) Define the following terms:

(i) partnership [2 marks]

A partnership is a type of unincorporated organization made up of no more

than 20 owners (depending on the country of origin). A partnership will
normally have unlimited liability for its owners and key functions will be
shared out according to the partnership agreement.

Candidates are not expected to word their definition exactly as above.

Award [1 mark] for a basic definition that conveys partial knowledge and
understanding.

Award [2 marks] for a full, clear definition that conveys knowledge and
understanding similar to the answer above.

For only a relevant: example or application to the stimulus award [1 mark].

(ii) working capital. [2 marks]

Working capital, sometimes called circulating capital, is the amount of

money needed to pay for the day-to-day running of a business. Without
working capital, businesses cannot trade. Working capital provides funds to
purchase raw materials or pay invoices to creditors. It is shown in a balance
sheet as the difference between current assets and current liabilities.

Candidates are not expected to word their definition exactly as above.

Award [1 mark] for a basic definition that conveys partial knowledge and
understanding.

Award [2 marks] for a full, clear definition that conveys knowledge and
understanding similar to the answer above.

For only a relevant: example or application to the stimulus award [1 mark].

 –6– N11/3/BUSMT/HP2/ENG/TZ0/XX/M

(b) Explain two disadvantages for RL of having too much working capital in
unsold second-hand books. [4 marks]

Possible disadvantages could include:

• Opportunity costs of too much money tied up in stock, which is leading to a
significant liquidity issue.
• Space in the central London bookshop is being used up in such a manner that
customers are beginning to provide negative feedback which could lead to
some concerns around word-of-mouth promotion and customer service.
• It would seem that with the growing influence of competition, the value of
RL’s stock of unsold second-hand books may decrease. If the closing stock
value of unsold books decrease then cost of sales will increase, negatively
impacting on RL’s gross profit.
• Accept any other relevant disadvantage.

Mark as 2+2.

Award [1 mark] for each appropriate disadvantage identified for RL of having too
much working capital and [1 mark] for an appropriate explanation that directly
refers to RL up to a maximum of [2 marks].

Award [1 mark] for a relevant explanation which is theoretical and has not been
applied to RL.
 –7– N11/3/BUSMT/HP2/ENG/TZ0/XX/M

(c) (i) Construct a fully labelled decision tree for James’ “three options of
physical expansion for RL”. Calculate the predicted outcome
for each option and identify the most profitable option (show all
your working). [7 marks]
Probability Financial return

Successful
£400 000
0.6
Option 1
1
–£200 000
Not successful
£150 000
0.4

Successful
£2 000 000
Without café 0.6
2(a)
–£900 000 Not successful
Option 2 £400 000
0.4
Successful
£2 500 000
With café 0.6
2(b)
–£1 100 000 Not successful
–£100 000
0.4

Successful
£2 500 000
Option 3 0.6
3
–£1 600 000 Not successful
£1 000 000
0.4
Key

Decision point

Possible outcomes

Rejected options

Option 1 = (400 000 × 0.6) + (150 000 × 0.4) − 200 000 = £100 000
Option 2(a) = (2 000 000 × 0.6) + (400 000 × 0.4) − 900 000 = £460 000
Option 2(b) = (2 500 000 × 0.6) + (−100 000 × 0.4) − 1 100 000 = £360 000
Option 3 = (2 500 000 × 0.6) + (1 000 000 × 0.4) − 1 600 000 = £300 000

On financial grounds the best option is to purchase the building next door
without a café (2(a)).
 –8– N11/3/BUSMT/HP2/ENG/TZ0/XX/M

[1 to 2 marks]
The decision tree is not accurately constructed, the calculations of each
option are not all presented or accurate, but there is some evidence of a
general knowledge of the model.

[3 to 5 marks]
The principal elements of the decision tree are constructed but may not be
entirely accurate. The calculations of each option are largely correct and
clearly presented at the top end of the markband. Deduct [1 mark] per
error. Working may not be shown.

[6 to 7 marks]
The decision tree is accurately constructed. The calculations of each option
are correct and well presented. For [7 marks] a key is provided. Workings
are shown.

N.B. if the candidate does not draw two decision points, the top markband
cannot be reached.

(ii) Explain one advantage and one disadvantage for RL of using a decision
tree as a decision-making tool. [4 marks]

Possible advantages for RL include:

• The brothers can clearly see all the options and sub-options in the visual
representation which gives a clear indication of costs and outcomes
for RL.
• The model provides a quantification of the outcomes of each option as
well as the risk attached with the probabilities of success and failure for
RL.

Possible disadvantages for RL include:

• The expected financial return (and thus the final decision) will depend on
the probabilities. We have no information as to how James arrived at
these figures as they are estimated.
• External and non-financial figures are not included in the diagram, for
example moving the bookshop to a large shopping centre outside of
central London could alienate some loyal customers. The reactions of
competitors are unknown and the risk attitude of the brothers is not
reflected in the decision tree.

Accept any other relevant explanation.

Mark as 2+2.

Award [1 mark] for identifying one appropriate advantage/disadvantage for

RL of using a decision tree as a decision-making tool and [1 mark] for an
appropriate explanation that directly refers to RL up to a maximum of
[2 marks].
 –9– N11/3/BUSMT/HP2/ENG/TZ0/XX/M

(d) Contrast James’ strategy of physical expansion with Nick’s e-commerce

strategy. [6 marks]

James’ expansion option 2(a) without a café produces an expected monetary value
of UK£460 000. This money will go some way to easing some of the liquidity
problems and with more space perhaps it will allow RL to sell some of the older
stock which may become worth less as time passes.

However, the cost of the expansion will be UK£900 000 and we have no
information on how the brothers intend to pay for this. The liquidity problem
could indicate difficulty in obtaining financial support from external sources of
funds. Also we need to consider the non-financial factors and the current external
environment, which could influence the decision to take a calculated risk on
moving the bookshop outside of central London.

Nick’s idea of an e-commerce facility is perceived as a cheaper option and may

allow RL to compete head on with the new and existing online booksellers such as
Amazon and allow them to find new customers to sell to. There could be some
considerable savings to be made as well as easing growing customer frustration.

However, RL’s brand value may diminish if it is now perceived as just another
online bookseller. It may also find it hard to compete with Amazon which has a
greater presence online and brand loyalty of its own. Will RL have to find a new
promotional catchphrase or can “Hard to find but worth the time” be successfully
applied in an e-commerce environment? There could be considerable hidden
costs of training and the setting up of a supply chain if an e-commerce facility is
to be successfully established.

Accept any other relevant answer.

Apply Own Figure Rule (OFR).

For one relevant issue that is one-sided, with no analysis award up to a maximum
of [3 marks]. For more than one relevant issue that is one-sided, with no analysis
award up to a maximum of [4 marks].

Marks should be allocated according to the markbands on page 3.

 –3– M16/3/BUSMT/HP2/ENG/TZ0/XX

2. Aroma Corporation (AC)

Aroma Corporation (AC) is a mass-market cosmetics company that produces soaps.

Concerned about falling market share and profit, AC conducted new market research.

The senior management team is considering two strategic options.

• Option 1: research and develop new environmentally friendly soaps

• Option 2: buy new machinery to produce more of the current products

The probabilities, forecast costs and revenues of each option are given below:

Option 1 Forecast costs Forecast revenue Forecast revenue

if successful if not successful

Probability: 0.45 Probability: 0.55

research and develop $990 000 $1 700 000 $550 000
new environmentally
friendly soaps

Option 2 Forecast costs Forecast revenue Forecast revenue

if successful if not successful

Probability: 0.60 Probability: 0.40

a) buy new machinery $450 000 $1 000 000 $250 000
without training
b) buy new machinery $475 000 $1 250 000 $200 000
with training

(a) Describe one method (source) of secondary market research that AC could have used. [2]

(b) Construct a fully labelled decision tree, calculate the predicted outcome for each option
and identify the best option for AC (show all your working). [6]

(c) Explain one limitation of using a decision tree as a planning tool for AC. [2]

Turn over
 –8– M16/3/BUSMT/HP2/ENG/TZ0/XX/M

2. (a) Describe one method (source) of secondary market research that AC could
have used. [2]

Possible methods (sources) of secondary market research include:

• fashion/health magazines for women
• cosmetics industry reports
• annual reports of competing cosmetics companies
• consumer / social media comments on products (soaps, gels)
• internet to search for companies’ information, market trends, government
publications on the cosmetic industry and so on.
• accept any other relevant method.

N.B. do not accept searching online, or internet use without being specific.

Award [1] for each method (source) of secondary market research stated and
award an additional [1] for a description up to a maximum of [2].
 –9– M16/3/BUSMT/HP2/ENG/TZ0/XX/M

(b) Construct a fully labelled decision tree, calculate the predicted outcome for each
option and identify the best option for AC (show all your working). [6]

EMV 1= (1700000 x 0.45 + 550000 x 0.55 ) – 990000 = $77500

EMV2a = (1000000 x 0.60 + 250000 x 0.40 ) − 450000 = $250000
EMV2b = (1250000 x 0.60 + 200000 x 0.40−) 475 000
= $355000
Best option: 2b buy new machinery with training to produce more of the current
products.

[0]
The decision tree does not reach a standard described below.

[1–2]
The decision tree is not accurately constructed, and / or the calculations of each
option are not presented or accurate. However, there is some evidence of a
general understanding of the model.

[3–4]
The principal elements of the decision tree are constructed, but may not be
entirely accurate. The calculations of each option are largely correct.
Allow up to two mistakes in calculations and / or presentation for [3].
Allow for either one error in calculation or one error in presentation [4].
For an accurately constructed decision tree with incorrect calculations, award up
to a maximum of [3].
For an accurately constructed decision tree with EMV calculations, but no
working [4].

[5–6]
The decision tree is accurately constructed. The calculations of each option are
correct and well presented. A key is provided. Workings are shown. As well as
the rejected options [6]. Full marks can be awarded even if the headings of
expected return/forecast revenue and probabilities are not explicitly written.

N.B. for only correct calculations of all options without a decision tree award a
maximum of [2].

Apply candidate own figure rule (OFR) throughout this response.

 – 10 – M16/3/BUSMT/HP2/ENG/TZ0/XX/M

(c) Explain one limitation of using a decision tree as a planning tool for AC. [2]

Despite the fact that AC actually conducted new market research, the figures of
revenue and the probabilities of success and failure in a cosmetics market are
still estimated. Different figures might have resulted in a different final decision.
This quantitative model does not take qualitative issues into consideration like the
impact on employees’ morale / motivation if the new machinery results in
redundancies.

The model does not take into consideration the importance for AC of being an
environmentally friendly organization by developing the new soaps.

Accept any other relevant limitation.

Award [1] for a relevant generic limitation identified or described and [1] for any
additional explanation in context.

[2] can not be awarded for the limitation if the response lacks either explanation
and / or application.
For example:
For an identification or a description of the limitation with or without application
[1].
For explanation of the limitation with no application [1].
For explanation of the limitation and application [2].
 –2– M12/3/BUSMT/HP2/ENG/TZ0/XX

SECTION A

Answer one question from this section.

1. Safe Passage (SP)

Trent Peters is one of seven partners at Safe Passage (SP). It provides bodyguard* services to
film stars, politicians and other important people in Europe and the Americas. Trent would like to
satisfy a growing demand from Asia but has to choose from two options for the recruitment and
training of bodyguards. These are:
• offshoring by setting up it’s own overseas branch in Asian country X or Y or Z
• subcontracting by using an external agency in Asian country X or Y or Z.

The forecast costs and revenues of offshoring are given below (all figures in US$ millions):

Option Forecast costs Forecast revenue Forecast revenue

if successful if not successful

Probability: 0.3 Probability: 0.7

1. Offshore to country X: has 4 19 2
a history of earthquakes,
good infrastructure
2. Offshore to country Y: has 5 16 4
no history of earthquakes,
poor infrastructure
3. Offshore to country Z: 6.4 21 4.2
under reconstruction after
a recent earthquake

The forecast costs of subcontracting to the same Asian countries are given below:

Country X: US$1.5 million.

Country Y: US$2.8 million.
Country Z: US$4.2 million.

* bodyguard: a person who is responsible for protecting a person from harm

(This question continues on the following page)

2212-5012
 –3– M12/3/BUSMT/HP2/ENG/TZ0/XX

(Question 1 continued)

The three suitable Asian countries are located in earthquake zones. An earthquake expert assured
Trent that all three areas are safe. Trent is concerned and decides to prepare a contingency plan for
each possible location in Asia.

Control over recruitment and training of bodyguards is vital to SP. Customer service and trust are
their unique selling propositions (USP). Clients will pay high fees to ensure their safe transport to
concerts, meetings and important events. However, Trent is refusing valuable contracts in Asia due
to a lack of suitably trained bodyguards. As a result SP is missing out on large profits.

Trent has mentioned to a previous customer of his plans to subcontract the recruitment and training
of bodyguards. She has threatened not to use SP again and would tell her friends if the plans
went ahead. Trent is concerned as word-of-mouth promotion is crucial to SP.

He calls a meeting of all the partners. Three partners prefer subcontracting the recruitment and
training as it is cheaper, quicker and less risky. The three other partners prefer offshoring.
They believe that subcontracting will damage SP’s USP. They argue that the higher costs of
offshoring will be covered by the forecast high revenue.

(a) Describe two features of a partnership. [4 marks]

(b) Explain two benefits and one cost to SP of preparing a contingency plan of the
three possible locations in Asia. [6 marks]

(c) (i) Construct a fully labelled decision tree and calculate the predicted outcome
of each offshoring option (show all your working). [6 marks]

(ii) Comment on the value for SP of using a decision tree as a decision-making

tool. [3 marks]

(d) Examine two disadvantages for SP of subcontracting its recruitment and training
of bodyguards. [6 marks]

2212-5012 Turn over

 –5– M12/3/BUSMT/HP2/ENG/TZ0/XX/M

SECTION A

1. (a) Describe two features of a partnership. [4 marks]

Features could include the following:

 up to 20 partners depending on the country of operation
 limited or no requirement for published accounts depending on country of
operation
 unlimited liability for partners
 a written agreement / deed of partnership to be drawn to decide on
responsibilities / profit and loss sharing / conflict resolution
 responsibilities are shared as well as risk and profit
 accept any other relevant feature and description.

N.B.
 Features are attributes and are not advantages or disadvantages of this
organizational form.
 Do not accept “that partners may disagree with each other”.
 Do not credit separately “the share of responsibility, profit and risk”
(count as one answer).

Mark as 2+2.

Award [1 mark] for identifying each appropriate feature and [1 mark] for an
appropriate description up to a maximum of [2 marks].
 –6– M12/3/BUSMT/HP2/ENG/TZ0/XX/M

(b) Explain two benefits and one cost to SP of preparing a contingency plan of
the three possible locations in Asia. [6 marks]

Possible benefits could include:

 A contingency plan enables SP to be proactive with regards to possible changes
in the environment and to avoid crisis management. This planning enables
Trent to cope with some negative effects in various countries and to reduce the
risk of the unknown especially given the concern with regards to the
earthquake / natural problem.
 It allows SP to reassure clients that their safety is crucial and that the company
is planning ahead as far as possible to cover any possible problem.
 The contingency plan could be used in SP’s marketing materials to illustrate to
new clients that SP provides the best service available to protect their USP.
 The contingency plan will allow SP to continue to charge high fees given the
added value the contingency plan would add to the service the company offers.
 Accept any other relevant benefit.

Possible costs could include:

 Opportunity costs of researching and preparing the contingency plan, in
addition to any other financial costs such as hiring suitable consultants to
advise SP.
 Accept any other relevant cost.

Accept any other relevant explanation.

Mark as 4 + 2.

Award [1 mark] for identifying each appropriate benefit to SP of preparing a

contingency plan up to a maximum of [2 marks] and [1 mark] for an appropriate
explanation of each benefit that directly refers to SP up to a maximum of
[2 marks]. [4 marks] in total for two benefits.

Award [1 mark] for identifying one appropriate cost to SP of preparing a

contingency plan and [1 mark] for an appropriate explanation that directly refers
to SP up to a maximum of [2 marks].
 –7– M12/3/BUSMT/HP2/ENG/TZ0/XX/M

(c) (i) Construct a fully labelled decision tree and calculate the predicted
outcome of each offshoring option (show all your working). [6 marks]

Probability Forecast
revenue
Successful
US$19m
Option 1 0.3
1
US$4m Not successful
US$2m
0.7
Successful
US$16m
Option 2 0.3
2
US$5m Not successful
US$4m
0.7
Successful
Option 3 0.3 US$21m
3
US$6.4m Not successful
US$4.2m
0.7
Key
Decision point

Possible outcomes

Rejected options

EMV of Option 1  (19  0.3)  (2  0.7)  5.7  1.4  7.1m  4m  US$3.1m

EMV of Option 2  (16  0.3)  (4  0.7)  4.8  2.8  7.6m  5m  US$2.6m
EMV of Option 3   21 0.3   4.2  0.7   6.3  2.94  9.24m  6.4m  US$2.84m

[1 to 2 marks]
The decision tree is not accurately constructed, the calculations of each
option are not all presented or accurate, but there is some evidence of a
general knowledge of the model.

[3 to 4 marks]
The principal elements of the decision tree are constructed, but may not be
entirely accurate. The calculations of each option are largely correct and
clearly presented at the top end of the markband. Working may not
be shown.

[5 to 6 marks]
The decision tree is accurately constructed. The calculations of each option
are correct and well presented. For [6 marks] a key is provided. Workings
are shown.

N.B. For an accurately constructed decision tree with incorrect calculations,

award up to a maximum of [5 marks].
 –8– M12/3/BUSMT/HP2/ENG/TZ0/XX/M

(ii) Comment on the value for SP of using a decision tree as a

decision-making tool. [3 marks]

The decision tree will allow SP to:

 visually represent all possible offshoring options
 quantify the outcomes of each option in terms of expected values
compared to cost
 incorporate the probabilities of the outcomes
 decide on an appropriate course of action based on quantitative factors
only.

Given the substantial non-financial factors in the stimulus (such as the level
of earthquake risk) surrounding the contingency plan, the lack of non-
financial considerations of the decision tree calculations reduces the value of
the decision tree to SP as a decision-making tool.

Accept any other relevant comment.

N.B. It is not expected that the candidate produce a balanced response.

Apply candidate Own Figure Rule (OFR).

Award up to a maximum of [3 marks] for at least two relevant comments.

Award up to a maximum of [2 marks] if there is no relevant application

to SP.
 –9– M12/3/BUSMT/HP2/ENG/TZ0/XX/M

(d) Examine two disadvantages for SP of subcontracting its recruitment and

training of bodyguards. [6 marks]

The subcontracting of the recruitment and training to an external agency will

create disadvantages for SP.

Possible disadvantages could include:

 Direct financial costs like setting up the contract/relationship.
 There might be issues of quality and hence the delivery of the service.
SP’s USP may be seriously eroded. SP may lose control of the whole quality
of the bodyguard and the delivery of the service. It is mentioned in the
stimulus material that quality of the service is vital to SP. One may say that SP
outsources its core activity.
 Uncertainty about how the new external agency could impact on SP’s
perception in the eyes of their customers. This is important given the
importance of word-of-mouth promotion and the need to maintain the quality
of customer service. One customer has already threatened not to use the
service of SP.
 Costs of monitoring and maintaining the new subcontracting relationship.
 There could be considerable cultural issues to take into account when trusting
and transferring these key functions to an external agency as it would appear
that SP have limited experience of working within Asia.
 There will be time delays in establishing a new working relationship.
 Accept any other relevant disadvantage.

However / possible balance:

 SP need to move quickly as the business is missing out on potential profits.
Subcontracting to a specialist might enable SP to respond more quickly.
 It is stated that this option is cheaper (set-up cost) than offshoring.
 Perceived as “less risky” compared to offshoring as the decision can be more
easily reversed in case the expected new level of demand in Asia is not
sustained and thus is a much cheaper option than setting up an overseas branch.

Accept any other relevant examination.

N.B. It is not expected that the candidates incorporate all of the above
points/issues.

For one relevant disadvantage that is one-sided, with no examination award up to

a maximum of [3 marks]. For two relevant disadvantages that are one-sided,
with no examination award up to a maximum of [4 marks].

Marks should be allocated according to the markbands on page 3.

 –2– N19/3/BUSMT/HP2/ENG/TZ0/XX

Section A

Answer one question from this section.

1. Sassy

Sassy, a partnership between fashion designers, produces clothes for teenagers. Capacity
utilization is very high.

The partners are considering some strategic changes. After conducting research, they
presented three options and outlined the costs and expected revenue. They also predicted
that the economy would either improve or stay the same. The probability of the economy
staying the same is 0.3.

The options, costs and expected revenue are given below:

Table 1: Information relating to the three strategic options for change

Options Costs Expected revenue

Option 1: Increase $200 000 $300 000 (economy improves)

production capacity $250 000 (economy stays the same)

Option 2: Dissolve the Not applicable $150 000

partnership and sell
Sassy’s brand name to a
competitor

Option 3: Become a $150 000 Not applicable

private limited company (legal costs)
and:

(a) Stay with the No additional $220 000 (economy improves)

current product costs $170 000 (economy stays the same)
range and
production level

OR

(b) Develop a new $170 000 $550 000 (economy improves)

product range of additional cost $450 000 (economy stays the same)
children’s clothes.

(a) Describe one disadvantage for an organization of operating at high capacity utilization. [2]

(b) Construct a fully labelled decision tree and identify the best option for Sassy (show all
your working).[6]

(c) Explain one limitation for Sassy of using a decision tree as a planning tool. [2]
 –6– N19/3/BUSMT/HP2/ENG/TZ0/XX/M

Section A
1. (a) Describe one disadvantage for an organization of operating at high capacity
utilization. [2]

Some of the disadvantages for an organisation of operating at high capacity:

 Workers might feel the pressure / tiredness / mistakes / demotivation, which
can reduce productivity.
 Machinery is more likely to break down, so production may be halted.
 Higher maintenance costs, due to constant use.
 Inability to respond to a sudden increase in demand, so potential customers
may be lost.

Accept any other relevant disadvantage.

Award [1] for a relevant disadvantage with appropriate description up to a

maximum of [2].

For [2] marks responses must link the disadvantage to an outcome as in the
examples above.

It is not expected that candidates explain the benefits to any stakeholder.

Application to the organization is not required.

Do not credit an example.

 –7– N19/3/BUSMT/HP2/ENG/TZ0/XX/M

(b) Construct a fully labelled decision tree and identify the best option for Sassy
(show all your working). [6]

Calculations:

EMV 1 = (300 000  0.7  250 000  0.3) – 2 00,0 00 = $85 000
EMV 2 = $150 000
EMV 3a = (220 000  0.7  170 000  0.3) – 150 000 = $55 000
EMV 3b = (550 000  0.7  450 000  0.3) – (170 000  150 000) = $200 000

Best option 3(b) should be followed.

[0]
The decision tree does not reach a standard described below.

[1–2]
The decision tree is not accurately constructed, and / or the calculations of each option
are not presented or accurate. However, there is some evidence of a general
understanding of the model.

[3–4]
The principal elements of the decision tree are constructed, but may not be entirely
accurate. The calculations of each option are largely correct. Allow up to three mistakes
in calculations and / or presentation for [3].

Allow for either two errors in calculation or two error in presentation [4].

For an accurately constructed decision tree with incorrect calculations, award up to a

maximum of [3].
 –8– N19/3/BUSMT/HP2/ENG/TZ0/XX/M

For an accurately constructed decision tree with EMV calculations, but no working [4].

[5-6]
The decision tree is accurately constructed. The calculations of each option are correct
and well presented. A key is provided. Workings are shown. As well as the rejected
options [6]. Full marks can be awarded even if the headings of expected return/forecast
revenue and probabilities are not explicitly written.

Deduct [1] if a key is not provided.

Deduct [1] if the best option is not identified either on the diagram OR following the EMV
calculations.

N.B. for only correct calculations of all options without a decision tree award a
maximum of [2].

Essentially treat the lack of key or rejected options as presentation errors as errors.
Hence three presentation/calculation errors = [3].

Apply candidate own figure rule (OFR) throughout this response.

(c) Explain one limitation for Sassy of using a decision tree as a planning tool. [2]

While a general limitation of the decision tree model is the nature of the predicted
outcome, here the use of the model is even more limited as it has been done by
the partners who are designers. Due to lack of experience/qualification, they
ignored the possibility that the economy might deteriorate. The predicted financial
returns for each option might be inaccurate, especially in the volatile, ever-
changing fashion industry. Hence, possible bias and different numerical
outcomes.
NB. Do not accept “worsening economy” if there is no other reference to the
stimulus since this is often cited as a generic limitation.

Accept any other relevant limitation.

Candidates do not have to cover all of the applicable issue above. One is
sufficient.

Award [1] for a relevant generic limitation identified or described and [1] for any
additional explanation in context.

[2] cannot be awarded for the limitation if the response lacks either explanation
and / or application.

For example:
For an identification or a description of the limitation with or without application [1].
For explanation of the limitation with no application [1].
For explanation of the limitation and application [2].
 InThinking Business Management
Paper 2 Exam Practice Question – Gel Nails
https://www.thinkib.net/businessmanagement

Gel Nails

Gel Nails (GN) produces a range of nail beauty products for multinational retailers.

(a) State two features of multinational companies. [2 marks]

………………………………………………………………………………………………………

………………………………………………………………………………………………………

………………………………………………………………………………………………………

………………………………………………………………………………………………………

With operations currently only in Singapore, where locals speak Malay and Singaporean
Mandarin, GN is considering expanding its production in one of three locations: Vietnam,
Indonesia or Thailand. The estimated costs and benefits of these three options are shown
in Table 1 below, with the probabilities of success, no change and failure also shown.

Table 1 - Estimated costs and benefits of growth options for GN

Potential Cost of
Chance
Option Outcome return project
(%)
($m) ($m)

Success 45 25.0
Vietnam Unchanged 30 20.0 12.5
Failure 25 12.0
Success 55 22.0
Indonesia Unchanged 20 12.5 10.5
Failure 25 8.5
Success 50 20.0
Thailand Unchanged 25 10.0 14.5
Failure 25 -2.0

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 InThinking Business Management
Paper 2 Exam Practice Question – Gel Nails
https://www.thinkib.net/businessmanagement

(b) Construct a fully labelled decision tree, showing the predicted outcome for each option
faced by GN. [6 marks]

(c) Outline one non-financial factor that GN needs to consider before choosing any of
these locations to expand into. [2 marks]

………………………………………………………………………………………………………

………………………………………………………………………………………………………

………………………………………………………………………………………………………

………………………………………………………………………………………………………

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 InThinking Business Management
Paper 2 Exam Practice Question – Gel Nails
https://www.thinkib.net/businessmanagement

Mark Scheme

(a) State two features of multinational companies. [2 marks]

Features of multinational companies could include:

• Having operations in two or more host countries.

• Typically having the company’s headquarters based in the home country, i.e., the
country of origin.
• Naturally large in size, as they usually have operations in many locations.
• Centralized ownership and control in the home country (headquarters), although
very large MNCs may have regional offices / headquarters.
• Accept any other feature of MNCs, e.g., MNCs dealing with multiple currencies
as they have operations in different overseas markets.

Award [1 mark] for each appropriate feature, up to the maximum [2 marks].

(b) Construct a fully labelled decision tree and calculate the predicted outcome
for each option faced by Gel Nails. [6 marks]

Working out:

Total
Potential Expected Forecast
Chance expected Cost
Option Outcome return yield return
(%) yield ($m)
($m) ($m) ($m)
($m)
Success 45 25.0 11.25
Vietnam Unchanged 30 20.0 6.0 20.250 12.5 $7.75
Failure 25 12.0 3.0
Success 55 22.0 12.1
Indonesia Unchanged 20 12.5 2.5 16.725 10.5 $6.225
Failure 25 8.5 2.125
Success 50 20.0 10.0
Thailand Unchanged 25 10.0 2.5 12.0 14.5 -2.5
Failure 25 -2.0 -0.5

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 InThinking Business Management
Paper 2 Exam Practice Question – Gel Nails
https://www.thinkib.net/businessmanagement

Expected Forecast
yields return

Success
$11.25m
$25m (0.45)

Vietnam Unchanged
B $6m $7.75m
($12.5m) $20m (0.3)

Failure
$3m
$12m (0.25)

Success
$12.1m
$22m (0.55)

Indonesia Unchanged
A C $2.5m $6.225m
($10.5m) $12.5m (0.2)

Failure
$2.125m
$8.5m (0.25)

Success
$10m
$20m (0.5)

Thailand Unchanged
D $2.5m ($2.5m)
($14.5m) $10m (0.25)

Failure
$(0.5m)
($2m) (0.25)

Award [1 mark] if the answer shows some understanding of a decision tree, but
otherwise the response is largely inaccurate, incomplete, or illegible.

Award [2 – 3 marks] if a decision tree is constructed, but either it is untidy (so illegible
in places) and/or the forecast contains three or more errors or omissions.

Award [4 – 5 marks] if the decision tree is constructed essentially correctly and neatly
in a generally accepted format (including the use of a key), but there is one error for
[5 marks] or two errors for [4 marks].

Award [6 marks] if the decision tree is constructed accurately and neatly in a generally
accepted format (including an appropriate key), and is error free (including striking
out the two options that should not be pursued on financial grounds).

Note: Apply the Own Figure Rule (OFR) – error carried forward – where appropriate.

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 InThinking Business Management
Paper 2 Exam Practice Question – Gel Nails
https://www.thinkib.net/businessmanagement

(c) Outline one non-financial factor that Gel Nails needs to consider before
choosing any of these locations to expand into. [2 marks]

Possible non-financial factors could include an outline of any one of the following:

• Management preferences, e.g., familiarity with the different locations and

potential language barriers (as Malay and Singaporean Mandarin are not widely
spoken in Vietnam, Indonesia or Thailand).
• The possible impacts on staffing, e.g., will staff be resistant to change (such as
having to relocate from Singapore)?
• Existing competition in overseas markets, such as manufacturers of beauty
products in Vietnam, Indonesia and Thailand.
• Political stability (or volatility) and its impact on local currencies for example (i.e.,
Vietnamese dong, Indonesian rupiah, and Thai baht) because fluctuations in the
exchange rate will affect the profits of Gel Nails.
• Accept any other valid financial or non-financial factor that is explained.

Award [1 mark] if the answer briefly outlines one non-financial factor. There is some
use of appropriate business management terminology.

Award [2 marks] for an answer that clearly outlines one non-financial factor that Gel
Nails needs to consider before choosing any of three options for overseas expansion.
Appropriate business management terminology is used.

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InThinking Business Management

Exam Practice Question – Helena-Myers Ski School (HM)
https://www.thinkib.net/businessmanagement

Helena-Myers Ski School (HM)

Helena Myers started skiing at a very young age in Lenggries, a small German ski resort located in
Bavaria with an altitude up to 1,712m. After being a ski instructor for many years, Helena decided to
open her own ski school, Helena Myers Ski School (HM). Helena operates as a sole trader offering
private and group lessons ranging from beginners to advanced level. Helena has a unique selling
point for her knowledge of the mountain’s terrain, her passion for skiing, and her good relationship
with the local community.

(a) Define the term unique selling point/proposition (USP). [2 marks]

…………………...……………………………………………………………………………………..……

…………………...……………………………………………………………………………………..……

…………………...……………………………………………………………………………………..……

HM has become very popular, and Helena has identified four distinct market segments:

Local children School trips Family vacation Other tourists

• 3 – 11 years old • Teenagers and • Families with school • Adults aged 18
• Use the ski school High School aged aged children and above
throughout the children • Travel to the resort • Groups of friends
winter season • Travel to the resort during school or couples
mainly in February holidays at • Travel to learn to
• Mainly schools in Christmas and ski any time
Germany, but also February during the winter
from England and • From Germany or season
the Netherlands other European
countries

(b) Explain two advantages of market segmentation for HM. [4 marks]

…………………...……………………………………………………………………………………..……

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…………………...……………………………………………………………………………………..……

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Exam Practice Question – Helena-Myers Ski School (HM)
https://www.thinkib.net/businessmanagement

HM has been affected by various factors in the external environment, including the COVID-19 global
pandemic throughout 2020/2021 and the adverse weather conditions in the winter of 2022/2023. In
particular, the lack of snow in Lenggries during 2022/2023 forced many customers to cancel their ski
holidays in the South of Germany and to travel to other destinations in Europe.

The data below represents the quarterly sales revenue of HM in the last 5 years.

Table 1: HM’s quarterly sales revenue in the last 5 years ($000)

2018 2019 2020

Period Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Sales ($’000) 150 30 0 130 170 40 0 150 90 20 0 35

2021 2022 2023

Period Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Sales ($’000) 25 10 0 60 70 50 0 100 90

HM sales revenue ('000)

180
160
140
120
100
80
60
40
20
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
18 18 18 18 19 19 19 19 20 20 20 20 21 21 21 21 22 22 22 22 23

Figure 1: Bar chart showing HM’s sales revenue in the last 5 years.

(c) Using all the values in Table 1 and Figure 1, (i) calculate the mean, and (ii) calculate the
mode. [2 marks]

…………………...……………………………………………………………………………………..……

…………………...……………………………………………………………………………………..……

…………………...……………………………………………………………………………………..……

…………………...……………………………………………………………………………………..……

…………………...……………………………………………………………………………………..……

…………………...……………………………………………………………………………………..……

…………………...……………………………………………………………………………………..……

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Exam Practice Question – Helena-Myers Ski School (HM)
https://www.thinkib.net/businessmanagement

(iii) Describe the fluctuations in HM’s sales revenue. [2 marks]

…………………...……………………………………………………………………………………..……

…………………...……………………………………………………………………………………..……

…………………...……………………………………………………………………………………..……

…………………...……………………………………………………………………………………..……

Helena has always been very entrepreneurial and passionate about her business. She is now
worried about the sales data displayed in Figure 1. She has done further market research and has
identified two growth options for the business to expand to.

Option 1
Open a ski school in Zell am See, Austria with three ski resorts, 408 km of slopes and an altitude up
to 3,029 metres. This resort can get very busy. The Kitzsteinhorn glacier allows a ski season from
October to May. For this growth option, the probability of being successful is 0.7 and the probability
of not being successful is 0.3.

Option 2
Open a ski school in St. Moritz in Switzerland, with 155 km of slopes and an altitude up to 3,057
metres. The ski season is from November to April. It is a little more expensive than other resorts in
the region but has long runs and provides a great experience for beginners, families with children,
and seasoned skiers. HM is also considering opening a ski rental shop as part of this growth option.
For Options 2(a) and 2(b) the probability of being successful is 0.6 and the probability of not being
successful is 0.4.

Table 2: Estimated cost and financial return for each option (in $)

Options Costs Total revenue if Total revenue if not

successful successful

Option1: Open a ski 300 000 500 000 200 000

school in Austria

Option 2: Open a ski

school in Switzerland:

a) without ski rental 500 000 600 000 250 000

shop

b) with ski rental shop extra 100 000 800 000 350 000

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Exam Practice Question – Helena-Myers Ski School (HM)
https://www.thinkib.net/businessmanagement

Table 3: General information and economic data related to Austria and Switzerland

Austria Switzerland
Area 83 879 Km2 41 290 Km2
Inhabitants/km2 106.8 210.8
GDP per 1,000 inhabitants US$53.64m US$91.9m
Unemployment rate 6.3% 5.3%
Cost of living (USA = 100%) 95.9% 142.40%
Average income US$52,760 US$90,600
CO2 emissions (metric tons) 64.77 Mt 37.38 Mt
Hospital beds per 1,000 inhabitants 7.27 4.63
Passenger airports 6 5
Source: adapted from https://www.worlddata.info/country-comparison.php?country1=AUT&country2=CHE

(d) Using the data provided in Table 2, in Table 3, other information in the stimulus, and a
decision tree, recommend which growth option HM should choose. [10 marks]

Decision tree:

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Exam Practice Question – Helena-Myers Ski School (HM)
https://www.thinkib.net/businessmanagement

Question (d) continued...

…………………...……………………………………………………………………………………..……

…………………...……………………………………………………………………………………..……

…………………...……………………………………………………………………………………..……

…………………...……………………………………………………………………………………..……

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…………………...……………………………………………………………………………………..……

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…………………...……………………………………………………………………………………..……

…………………...……………………………………………………………………………………..……

…………………...……………………………………………………………………………………..……

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InThinking Business Management

Exam Practice Question – Helena-Myers Ski School (HM)
https://www.thinkib.net/businessmanagement

Mark scheme

(a) Define the term unique selling point/proposition (USP). [2 marks]

USP refers to any aspect of the organization, the brand, or its products that allows customers to
differentiate it from competitors in a positive way.

Accept any other relevant response.

Award [1 mark] for a basic definition that shows some understanding,

Award [2 marks] if the student provides a clear and accurate definition including reference to being
different/distinctive from competitors.

(b) Explain two advantages of market segmentation for HM. [4 marks]

Segmentation is the process of dividing customers into groups that have similar characteristics.
Students should refer to any two advantages of market segmentation, written in the context of
HM, such as the following:

• Market segmentation allows HM to better understand the needs and wants of its different
customer groups. HM has identified that there are four market segments for its services.
For example, children need shorter ski lessons with more breaks, whereas schools from
England may need instructors who speak English.
• Effective market segmentation can help HM to identify existing gaps in the market and
new opportunities in Germany and abroad.
• Small businesses like HM can specialize in one or two market segments in order to
improve their profitability.
• The marketing mix and different types of promotion could be modified to meet the needs
and wants of the different segments that HM targets.
• Different marketing strategies can be used to focus on the different target markets. This
helps to make HM’s marketing more cost effective.
• Market segmentation can increase the loyalty of customers for a particular brand, This
is because having a more specific and targeted marketing strategy can build a long-term
relationship with HM. For example, HM can offer a tailored ski trip for specific schools
with students who attend the resort every year.

Mark as 2+2

Award [1 mark] for an explanation of each appropriate advantage, with a further [1 mark] for
application to HM.

Award up to a maximum of [2 marks] per advantage.

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InThinking Business Management

Exam Practice Question – Helena-Myers Ski School (HM)
https://www.thinkib.net/businessmanagement

(c) Using all the values in Table 1 and Figure 1, (i) calculate the mean, and (ii) calculate the
mode. [2 marks]

(i) Mean= SUM / 21 = $1,220,000 / 21 = $58,095.238

Accept = $58,095.24

(ii) Mode = 0 (which appears five times in the data set).

For each question, award [1 mark] for each correct answer.

Accept answers rounded to one decimal place.

(iii) Describe the fluctuations in HM’s sales revenue. [2 marks]

Possible points could include:

• HM’s sales revenue has been affected by the COVID-19 pandemic from Q2 2020 to Q2
2022.
• Sales for Q4 2022 and Q1 2023 were also lower due to the adverse weather conditions.
• The sales in Q3 in all the five years is 0 due to the summer season and the low altitude
of the Lenggries resort.

Award [1 mark] for an answer that shows some understanding of the fluctuations in the sales
data.

Award [2 marks] for an answer that refers to the sales figures in the different quarters and
reasons behind this, such as COVID-19, high temperatures, and seasonal variations. HL
students could refer to random variations (such as COVID-19) and seasonal variations.

(d) Using the data provided in Table 2, in Table 3, other information in the stimulus, and a
decision tree, recommend which growth option HM should choose. [10 marks]

Successful 0.7
$ 500 000
Not successful 0.3
$ 200 000

Successful 0.6
$ 600 000

Not successful 0.4 $ 250 000

Successful 0.6
$ 800 000

Not successful 0.4 $ 350 000

Key

Decision point Possible outcomes Rejected options

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Exam Practice Question – Helena-Myers Ski School (HM)
https://www.thinkib.net/businessmanagement

Decision tree calculations

• Option 1: ($500 000 × 0.7 + $200 000 × 0.3) – $300 000 = $110 000
• Option 2a: ($600 000 × 0.6 + $250 000 × 0.4) – $500 000 = ($40 000)
• Option 2b: ($800 000 × 0.6 + $350 000 × 04) – $600 000 = $20 000

Candidates should construct a decision tree to identify the best option, on financial grounds.

Based on the financial data, the best option for HM will be to open the ski school in Austria, i.e.,
Option 1.

Using the information in the case study and in Table 3, students should discuss arguments for and
arguments against each of the growth options:

Option 1
Arguments for:
• Provides the best financial return of $110 000
• It is the cheaper option at $300 000 yet has the higher probability of success.
• The cost of living is lower than in Switzerland, so it will be cheaper for most customers.
• There are more hospital beds per 1,000 inhabitants, so this is better for customers if they have
ski accidents and have to be hospitalized.
• It has more airports for tourists travelling by air.
• The ski season is open from October to May (whereas it is only open from November to April in
Switzerland).
• There are 408 km of slopes, whereas the site in Switzerland only has 155 km of slopes.

Arguments against:
• It can get very busy.
• Austria has a lower GDP per 1,000 inhabitants than Switzerland and hence a lower average
income, i.e., local people are not as well off as in Switzerland and may not be able to afford
skiing. This could affect some of the market segments. HM may therefore have to rely on tourists
from overseas.
• There are higher CO2 emissions than in Switzerland, which can affect environmentally
conscious customers.

Option 2
Arguments for:
• It has long runs and provides a great experience for beginners, families with children, and
seasoned skiers, i.e., the market segments identified by Helena.
• As Switzerland has a higher GDP per 1,000 inhabitants than Austria, people have a higher
average income so local people will be more able to afford skiing.
• There are lower CO2 emissions than in Austria, so environmentally conscious customers may
prefer to ski in Switzerland.

Arguments against:
• The financial returns for growth options (a) and (b) are lower than for Option 1.
• Option 2 is a more expensive growth strategy.
• There are fewer beds in hospitals, so customers may be affected if they have ski accidents and
have to be hospitalized.
• It has fewer airports for tourists travelling by air.
• There are only 155 km of slopes, compared to the 408 km of slopes in Austria.

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Exam Practice Question – Helena-Myers Ski School (HM)
https://www.thinkib.net/businessmanagement

Based on the information provided, Option 1 is clearly more favourable for HM. However, do not
penalise if students choose Option 2 as long as there are clear arguments for and against each
option provided in the answer.

Candidates should refer to the limitations of the case study to achieve the top marks. For example,
the case study does not provide information about the prices Helena will charge for its services in
both locations / options. The case study does not mention if Helena has more knowledge of Austria
or Switzerland mountain terrains which will allow her to maintain her USP of being a highly
knowledgeable ski instructor. Intuitive decision making may supersede scientific decision making
based on quantitative techniques such as the decision tree.

Marks should be allocated according to mark bands shown on pages 44 – 45 of the Business
Management Guide.

Additional guidance:

HL students could also refer to the opportunities and threats of entering an international market (Unit
4.6 HL only) and could refer to some of the STEEPLE factors using the data in Table 3.

Some students may also refer to Ansoff matrix and identify a market development strategy for Option
1 and Option 2a and related diversification for Option 2b.

For one relevant issue that is one-sided, award up to [3 marks].

If the candidate makes no reference to the data provided in Table 3, then the maximum mark to be
awarded is [4 marks] even if there is some balance.

If the candidate discusses only one option (with balanced and substantiated arguments) then award
a maximum of [5 marks].

To reach the [7 – 8 marks], the candidate must construct the decision tree correctly and calculations
should be accurate. They should refer to the data in Table 3, consider both options in a balanced
way, and substantiate their arguments.

Candidates cannot reach the [9 – 10 marks] if they do not consider the limitations of the case study
or to the stimulus material.

Sources:
https://www.zellamsee-kaprun.com/en/sport/winter/skiing/ski-resorts
https://www.stmoritz.com/en/directory/sports/ski-snowboard
https://www.worlddata.info/country-comparison.php?country1=AUT&country2=CHE
https://www.skiresort.info/

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