M18/3/BUSMT/HP1/ENG/TZ0/XX

Business management
Higher level
Paper 1

Friday 27 April 2018 (afternoon)

2 hours 15 minutes

Instructions to candidates
 Do not open this examination paper until instructed to do so.
 A clean copy of the business management case study is required for this examination paper.
 Read the case study carefully.
 A clean copy of the business management formulae sheet is required for this examination
paper.
 Section A: answer two questions.
 Section B: answer question 4.
 Section C: answer question 5.
 A calculator is required for this examination paper.
 The maximum mark for this examination paper is [60 marks].

2218 – 5011
7 pages © International Baccalaureate Organization 2018
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Section A

Answer two questions from this section.

1. (a) With reference to Table 2, describe two advantages for Su of using a cash-flow
forecast. [4]

(b) With reference to Su and her managers at HH and AS, explain the differences between
leadership and management. [6]

2. (a) With reference to AK Bank, describe two features of for-profit microfinance providers. [4]

(b) Su is considering two possible locations for the production facility (lines 51–52).
Explain the factors (reasons) that Su may consider when deciding between the two
locations. [6]

3. (a) Describe two advantages for AS of using cellular manufacturing in the production of its
solar power systems. [4]

(b) Explain the advantages for Su of forming AS as a private limited company. [6]

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Section B

Answer the following question.

4. It is now mid-2019. Production of solar power systems has been going for over a year and sales
have exceeded forecasts and reached 5000 systems for the year. Profits have been reinvested
into developing new outlets and distribution channels for solar power systems in Afghanistan.
Lean production techniques have enabled AS to keep costs low, but AS has had some quality
issues: some cells produce lower quality systems than others. AS has found faults in components
bought from suppliers. Some solar power systems have been damaged in the supply chain.
Salima is thinking of instituting total quality management (TQM). She also needs to forecast sales
for 2020 but has decided the situation is not suitable for a four-part moving average.

In a separate development, Doorway Foundation (DF), a multibillion-dollar charity established by

the owners of one of the world’s largest IT businesses, has approached Su. The foundation has
a major IT initiative to bring IT to schools in Afghanistan, Myanmar and Bangladesh. By forming a
joint venture, DF could use AS’s expertise and local knowledge to help solve some of the electricity
supply and IT problems in Afghanistan.

The possibility of a joint venture encouraged managers and investors to think about whether AS
should grow. In response, Su decided to analyse the possibility of growth through change using a
force field analysis of AS.

[Source: © International Baccalaureate Organization 2018]

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(Question 4 continued)

Table 3: Force field analysis for growth through change at AS

Driving forces Su’s score Restraining forces Su’s score

Su wants to widen the

Possible diseconomies
scope of the social 5 4
of scale from growing
enterprise

Team of volunteers
keen to make even 3 Resistance to change 2
more of a difference

Su does not want to

Businesses need to
1 neglect Afghanistan 4
grow
project

Opportunities to be Su has already put a

taken in other Asian 2 great deal of finance 2
countries into the business
Growth
Opportunities to through Worldwide economic
2 3
develop new products change recession affecting HH

Clear needs for help Quality issues need to

3 1
beyond Afghanistan be solved first

Su still feels a need to Might not get further

5 2
make a difference financial support

Possibility of bringing
Too much
in new ideas from 2 3
responsibility for Su
external recruitment

All stakeholders share

External recruitment
Su’s enthusiasm for 3 1
may cause problems
progress so far

The business is
2
already high risk

[Source: © International Baccalaureate Organization 2018]

(a) Define the term four-part moving average. [2]

(b) With reference to AS, explain the difference between commercial marketing and social
marketing of the solar power systems (line 53). [4]

(c) Explain how total quality management (TQM) could help AS improve the quality of its
products. [4]

(d) Using information from the case study, additional information from pages 4 and 5
and appropriate business tools, discuss the value to Su of the force field analysis in
deciding whether to grow through change. [10]

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Section C

Answer the following question.

5. Su is considering two options.

Option 1: The joint venture

If AS goes ahead with the joint venture in 2019, there will be consequences it will need to face.
DF would have majority ownership in the joint venture, provide most of the senior managers, and
is likely to expect changes in the way AS operates. AS would have to significantly increase the
production of solar power systems and would have to restructure. Some managers may lose
influence over decisions. Su is worried that her Afghanistan project (AS) would take second place.

Having a close working relationship with DF would reduce AS’s risk of failure. Employees at AS
have heard rumours about the joint venture and are unhappy with the idea. They fear a loss of
identity, being overwhelmed by a much larger organization and possibly losing their jobs. Su is
concerned that resistance to change, particularly by employees and managers, is going to be an
important consideration in the decision. However she sees the situation as a huge opportunity to
make a real change in young people’s lives.

AS would invest $1 million. The net cash inflows to AS (ignoring inflows to DF and before
deduction of the investment cost) are forecast to be $0.4 million per year, giving a net present value
(NPV) at 6 % discount rate of $0.68 million and a payback of two years and six months. Su gives
the project a life of five years.

Option 2: Diversification into biomass

The research and development section of AS has developed a portable electricity generation
system based on biomass, a biomas power system (BPS), as an alternative to solar power
systems. A new factory costing $3 million will be needed. BPS will be particularly useful to those
communities that keep cattle − the dung* produced provides the fuel for BPS. Su has assembled
some relevant information.

[Source: © International Baccalaureate Organization 2018]

* dung: animal waste from the cattle

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(Question 5 continued)

Table 4: Information relevant to the BPS project

Start Mid-2019

Likely level of BPS sales per year 10 000 (target level of sales)

Likely payback period Four years

Accounting rate of return (ARR) 13.3 %

Probable net present value (NPV) +$1.04 million

Impact on sales of solar power systems Not known

Location of factory One idea is to locate in Afghanistan

Employment created 100 new jobs

Risk High

[Source: © International Baccalaureate Organization 2018]

Using the case study, additional information on pages 6 and 7 and appropriate planning
tools, recommend whether Su should choose Option 1, Option 2, or neither. You will find it
useful to calculate the ARR for Option 1. [20]