Practice 5.7 Crisis management and contingency planning (HL only) with authentic IB Business Management exam questions for both SL and HL students. This question bank mirrors Paper 1, 2, 3 structure, covering key topics like systems and structures, human behavior and interaction, and sustainability and ethics. Get instant solutions, detailed explanations, and build exam confidence with questions in the style of IB examiners.
NeuroTech Ltd. is a European health technology company that develops wearable brain-monitoring devices for medical research institutions. The firm has invested heavily in research and development (R&D) to remain at the forefront of innovation, allocating nearly 18% of annual revenue toward new product development.
Recently, NeuroTech faced a major crisis after a software malfunction in one of its products caused data losses at several hospitals. Although no patients were harmed, the incident received significant media coverage. The firm initiated its crisis management plan, issuing public statements, recalling affected devices, and offering free replacements. Internally, the board has asked for a review of the company’s contingency planning and operational risk mitigation procedures.
Despite the crisis, NeuroTech is evaluating a new R&D investment in a second-generation neural interface. The project is expected to generate significant returns if successful. The finance department has prepared the following data to assist the board in evaluating its financial health and the viability of the investment.
Table 1: Financial Data – NeuroTech Ltd (2024)
| Item | Amount (€) |
|---|---|
| Revenue | 12,000,000 |
| Cost of goods sold | 6,800,000 |
| Operating expenses | 4,400,000 |
| Net profit | 800,000 |
| Capital employed | 6,000,000 |
| Average stock | 1,200,000 |
| Initial investment (R&D project) | 2,500,000 |
| Net cash inflow (Years 1–4) | 850,000 p.a. |
Explain one way contingency planning may have helped NeuroTech Ltd. manage the product failure crisis.
Calculate the return on capital employed (ROCE)
Show all your working.
Calculate the payback period for the proposed R&D project.
Show all your working.
Analyse how NeuroTech’s current financial efficiency may influence its ability to manage R&D risk.
Suggest one way NeuroTech can ensure its future R&D strategy balances innovation with operational risk management.
NexaHealth Equipment Ltd.
NexaHealth manufactures advanced diagnostic scanners for hospitals. Each scanner requires 72 imported components sourced using a just-in-time (JIT) model. NexaHealth spends £7.2 million annually on R&D, equal to 12% of its £60 million annual revenue, to maintain its innovation lead.
Last quarter, a global semiconductor shortage caused a six-week production delay, resulting in:
To manage this risk, the COO has proposed switching to a just-in-case (JIC) model for critical components, which would increase annual inventory holding costs by £1.5 million but reduce delay risk to below 1%. The operations team instead suggests investing £4.2 million in automation and adopting lean production and TQM practices to reduce dependency on external suppliers.
Identify the stock control method currently used by NexaHealth.
Explain how NexaHealth’s proposed JIC-based contingency plan could affect the business in terms of cost and risk.
Analyse how NexaHealth’s proposed conflict resolution and recruitment strategies could help reduce labour turnover.
Using the stimulus and your knowledge of business management, evaluate which strategy NexaHealth should prioritise to improve operational resilience and long-term competitiveness.
TerraVolt Ltd.
TerraVolt Ltd. is a European company specialising in the production of modular battery storage systems for renewable energy projects. After identifying an opportunity to expand into off-grid African markets, TerraVolt invested heavily in a new research and development (R&D) project to develop a lightweight, durable battery model.
However, unexpected production delays caused by supply chain disruptions forced TerraVolt to activate parts of its contingency plan, including outsourcing key components at higher costs. The finance team has prepared the company's final accounts and depreciation schedules to assess the financial impact and to plan for future investment needs.
Table 1: Statement of Profit or Loss for TerraVolt Ltd. for the year ending 31 December 2024 (figures in €000s)
| Item | Amount (€000) |
|---|---|
| Sales revenue | 10,200 |
| Cost of sales | 6,300 |
| Gross profit | 3,900 |
| Operating expenses | 2,400 |
| Depreciation expense | 400 |
| Interest | 150 |
| Profit before tax | — |
| Tax | 150 |
| Profit for the year | — |
Table 2: Statement of Financial Position for TerraVolt Ltd. as at 31 December 2024 (figures in €000s)
| Item | Amount (€000) |
|---|---|
| Non-current assets (at cost) | 2,000 |
| Accumulated depreciation | (800) |
| Current assets | 1,100 |
| Current liabilities | 750 |
| Long-term borrowings | 600 |
| Share capital | 700 |
| Retained earnings | — |
Additional information:
Calculate the profit before tax in 2024 for TerraVolt Ltd. Show all your working.
Calculate TerraVolt Ltd.’s net book value of non-current assets as at 31 December 2024. Show all your working.
Using the straight-line depreciation method, calculate TerraVolt Ltd.’s annual depreciation expense based on the machinery investment. Show all your working.
Calculate the current ratio for TerraVolt Ltd. as at 31 December 2024. Show all your working.
Comment on what the financial statements reveal about TerraVolt Ltd.’s profitability and liquidity position.
FlexFrame
FlexFrame is a European company that designs and assembles modular office furniture for B2B clients. Most of its production is done in-house at its central factory in Austria. FlexFrame promotes its use of lean production to reduce excess materials and shorten delivery times.
To support continuous improvement, FlexFrame recently introduced quality circles in its manufacturing division and is considering whether to implement total quality management (TQM) across the whole organization.
Identify one feature of lean production used by FlexFrame.
Explain one benefit and one risk of investing in R&D for FlexFrame.
Explain the impact of outsourcing production on FlexFrame’s operations.
Using the stimulus and your knowledge of business management, evaluate whether FlexFrame should implement the proposed contingency plan.
Global Solar Solutions (GSS)
With reference to business management motivation theory, describe one need that GSS satisfies for rural households requiring solar lighting.
Explain one human resource challenge and one operations challenge GSS may face if it accepts the DRD expansion contract.
Using all the resources provided and your knowledge of business management tools and theories, recommend a possible plan of action for GSS over the next five years.
NutraBeam Ltd. is a health food company that produces organic protein powders and snack bars using renewable energy. The business relies on a batch production method to manufacture its goods and integrates a customised management information system (MIS) that monitors ingredient inventory levels, order fulfilment, and energy consumption in real time.
In Q2 2024, NutraBeam experienced a serious disruption when a contaminated shipment of chia seeds halted production for two weeks. This led to missed retailer delivery targets and negative media coverage. The company activated its crisis management plan, which included supplier audits, public transparency statements, and temporary outsourcing of production.
NutraBeam’s operations manager is now reviewing the company’s production planning, including safety stock levels and quality control procedures. Meanwhile, the finance department has compiled actual vs. budgeted performance data to assess the financial implications of the crisis.
Table 1: Budgeted vs Actual Figures – Q2 2024
| Item | Budgeted ($) | Actual ($) |
|---|---|---|
| Sales revenue | 1,800,000 | 1,540,000 |
| Cost of goods sold | 960,000 | 1,200,000 |
| Operating expenses | 520,000 | 540,000 |
| Net profit | 320,000 | –200,000 |
Calculate the total adverse variance in costs and the revenue variance for NutraBeam Ltd. in Q2 2024.
Show all your working.
Comment on what these figures suggest about the financial impact of the production crisis.
Explain one weakness in NutraBeam’s production planning that may have contributed to the severity of the disruption.
Suggest one way NutraBeam could adapt its MIS to improve production resilience in the future.
Analyse how budgeting can support better decision-making during and after a crisis.
Alpha Robotics – Optimizing HR and Operations for Growth
| Issue | Percentage of Employees Concerned |
|---|---|
| Lack of leadership clarity | 42% |
| Poor communication from managers | 38% |
| Low motivation and workplace morale | 45% |
| Limited career advancement | 41% |
| Location | Labor Costs per Hour ($) | Setup Costs ($M) | Expected Efficiency Gains |
|---|---|---|---|
| India | 12 | 30 | 10% increase |
| Singapore | 22 | 50 | 18% increase |
Using an appropriate business management theory, describe an HR challenge that Alpha Robotics is facing.
Explain two operational challenges Alpha Robotics faces in improving production efficiency.
Using all the resources provided and your knowledge of business management, recommend a possible plan of action to improve both HR and operations management at Alpha Robotics.
PureActive Ltd (PA)
PureActive Ltd (PA) produces fitness apparel and accessories, based in New Zealand. PA recently faced a major public relations crisis after a popular product line had safety issues, leading to product recalls and reputational damage. Management acknowledged the need for improved crisis management and contingency planning.
PA’s leadership has traditionally been autocratic, but employee dissatisfaction has grown, prompting management to consider alternative management and leadership styles. Employees have also expressed concerns about insufficient financial rewards, affecting morale and productivity.
To finance the relaunch of their improved product line without external borrowing, PA is evaluating various internal sources of finance. Management is currently analyzing sales performance using both total contribution and contribution per unit, as they plan pricing and sales targets for the relaunched product.
Distinguish between total contribution and contribution per unit.
Explain two benefits of effective crisis management and contingency planning for PA.
Explain two advantages of using internal sources of finance for PA’s product relaunch.
Explain two ways financial rewards could improve employee motivation at PA.
Evaluate whether PA should shift from an autocratic to a democratic leadership style to address employee dissatisfaction and manage future crises effectively.
NutraBeam Ltd.
NutraBeam Ltd. is a health food company that produces organic protein powders and snack bars using renewable energy. The business relies on a batch production method to manufacture its goods and integrates a customised management information system (MIS) that monitors ingredient inventory levels, order fulfilment, and energy consumption in real time.
In Q2 2024, NutraBeam experienced a serious disruption when a contaminated shipment of chia seeds halted production for two weeks. This led to missed retailer delivery targets and negative media coverage. The company activated its crisis management plan, which included supplier audits, public transparency statements, and temporary outsourcing of production.
NutraBeam’s operations manager is now reviewing the company’s production planning, including safety stock levels and quality control procedures. Meanwhile, the finance department has compiled actual vs. budgeted performance data to assess the financial implications of the crisis.
Table 1: Budgeted vs Actual Figures – Q2 2024
| Item | Budgeted ($) | Actual ($) |
|---|---|---|
| Sales revenue | 1,800,000 | 1,540,000 |
| Cost of goods sold | 960,000 | 1,200,000 |
| Operating expenses | 520,000 | 540,000 |
| Net profit | 320,000 | –200,000 |
Calculate the total adverse variance in costs and the revenue variance for NutraBeam Ltd. in Q2 2024.
Show all your working.
Comment on what these figures suggest about the financial impact of the production crisis.
Suggest one way NutraBeam could adapt its MIS to improve production resilience in the future.
Analyse how budgeting can support better decision-making during and after a crisis.
FreshBlend Ltd (FB)
FreshBlend Ltd (FB) is a beverage company based in Canada specializing in health-focused smoothies and juices. FB currently operates multiple café locations domestically but is considering expanding internationally into the UK and Japan, recognizing significant opportunities in international marketing.
FB generates revenues primarily through direct café sales. Management is exploring additional revenue streams, such as franchising, online orders, and wholesale distribution.
The company recently invested heavily in a new production facility. Although profitability is strong, FB is facing liquidity issues, highlighting the complex relationship between investment, profit, and cash flow.
FB encountered a public relations crisis after a contamination scare affected one product line, emphasizing the importance of effective crisis management. Management has identified internal communication and contingency planning as key factors affecting crisis response effectiveness.
FB uses break-even analysis to determine product pricing and profitability targets. However, management recently expressed concerns about the accuracy and practicality of current break-even models.
Define the term ‘revenue streams’.
Explain the relationship between investment, profit, and cash flow at FB.
Explain two opportunities that international marketing presents for FB.
Explain two factors that could influence the effectiveness of FB’s crisis management.
Recommend two ways FB could improve its marketing planning using break-even analysis to support international expansion.