5.7 Crisis management and contingency planning (HL only) Questionbank

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.

Paper

Level

Question 1

HLPaper 2

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:

The initial investment in machinery was €2,000,000.
Machinery has an expected useful life of 5 years and a residual value of €0.

Calculate the profit before tax in 2024 for TerraVolt Ltd. Show all your working.

[2]

Calculate TerraVolt Ltd.’s net book value of non-current assets as at 31 December 2024. Show all your working.

[2]

Using the straight-line depreciation method, calculate TerraVolt Ltd.’s annual depreciation expense based on the machinery investment. Show all your working.

[2]

Calculate the current ratio for TerraVolt Ltd. as at 31 December 2024. Show all your working.

[2]

Comment on what the financial statements reveal about TerraVolt Ltd.’s profitability and liquidity position.

[2]

Question 2

HLPaper 3

Global Solar Solutions (GSS)

Resource 1 – Background of the social enterprise Three years ago, electrical engineer and entrepreneur Nadira Khan founded Global Solar Solutions (GSS) as a social enterprise in Morocco. Her goal was to provide affordable, modular solar lighting kits to off-grid rural communities. These kits, manufactured at GSS’s urban facility, include rechargeable LED lights and mobile charging ports. GSS reinvests 100% of profits into R&D and local hiring. GSS operates in partnership with local NGOs and community councils. Its workforce includes 40 technicians and 20 community trainers who educate households about solar usage and maintenance. GSS applies lean production, Kaizen, and maintains a strong internal emphasis on quality control and after-sales support.

Resource 2 – Recent internal report on workforce issues "High staff turnover and trainer burnout have increased over the past 12 months. Trainers, who work in remote villages for weeks at a time, report fatigue and a lack of recognition. Some have requested additional health support and clearer promotion opportunities." The HR department suggested non-financial incentives such as increased job rotation and monthly feedback sessions but reported mixed engagement.

Resource 3 – Email from the Director of Rural Development (DRD) To: nadira.khan@GSS.org Subject: Expansion proposal Dear Ms. Khan, We are impressed by GSS’s impact. The Ministry would like to propose a contract to expand the solar program to 80,000 homes across North and West Africa over five years. Your team would need to train local technicians and build capacity in three new countries. Please note, the contract requires local sourcing of at least 60% of parts. We will require an initial trial rollout in 5,000 homes and evidence of social impact. Regards, Director, DRD

Resource 4 – Extract from a marketing audit summary GSS currently relies on word-of-mouth and NGO referrals. Its brand is associated with trust and affordability. However, a 2024 brand perception survey in new markets revealed low awareness and concerns about product durability compared to larger multinationals such as SolarX. GSS’s marketing team is small (3 staff) and has no formal digital strategy. There is also no localized messaging for francophone West African markets.

Resource 5 – Operations update from the Head of Production Our current facility is operating at 92% capacity. To meet a major scale-up, we would need to either expand production or outsource subassembly. We have identified two regional partners with experience in sustainable component manufacturing. However, we are concerned about quality assurance if we lose full process control.

Resource 6 – Excerpt from a local newspaper article “Access to solar power has transformed daily life in remote villages. Children now study at night, families charge phones to access mobile banking, and kerosene usage has dropped. However, NGOs report that replacement parts for some GSS kits have been slow to arrive, creating frustrations in isolated regions.”

With reference to business management motivation theory, describe one need that GSS satisfies for rural households requiring solar lighting.

[2]

Explain one human resource challenge and one operations challenge GSS may face if it accepts the DRD expansion contract.

[6]

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.

[17]

Question 3

HLPaper 2

VisionWare Ltd.

VisionWare Ltd. specializes in AI-powered smart home devices. The company is planning to launch a new product and must choose between two investment projects: Project Alpha and Project Beta.

Investment Data for VisionWare Ltd.
Initial investment (both projects)
Project Alpha: total net cash inflows (4 years)
Project Beta: total net cash inflows (3 years)
Project Alpha: Yearly inflows: Y1 $120,000, Y2$ 180,000, Y3 $200,000, Y4$ 180,000
Project Beta: Yearly inflows: Y1 $300,000, Y2$ 200,000, Y3 $100,000
Discount rate for NPV

VisionWare Ltd. is also reorganizing internal reporting, assigning responsibility for controlling spending in different departments.

In addition, management is focused on protecting their proprietary AI algorithms from competitors and using customer data to identify emerging needs before competitors do.

Calculate the payback period for Project Beta.

[2]

Calculate the average rate of return (ARR) for Project Alpha.

[2]

Calculate the Net Present Value (NPV) for Project Beta, assuming a 10% discount rate and using approximate NPV factors:

Year 1: 0.91
Year 2: 0.83
Year 3: 0.75

[2]

Identify the difference between cost centres and profit centres within an organization like VisionWare Ltd.

[2]

Suggest one reason why protecting intellectual property is important for VisionWare Ltd.

[2]

Question 4

HLPaper 3

Alpha Robotics – Optimizing HR and Operations for Growth

Resource 1 – News Article Alpha Robotics Struggles with HR and Operational Efficiency Alpha Robotics, a technology firm specializing in AI-powered industrial robots, is experiencing rapid expansion as demand for automation increases globally. The company was founded in 2015 and has since grown to 2,500 employees across four locations: the United States, Germany, Japan, and India. Key Challenges: (1) HR management issues – Employees complain about unclear leadership, poor communication, and lack of motivation due to a highly hierarchical structure. (2) Production inefficiencies – The company’s batch production method is increasing lead times and reducing product quality. (3) Location challenges – With rising costs in the US and Germany, Alpha Robotics must decide whether to expand in India (lower labor costs) or develop a new R&D facility in Singapore. CEO Daniel Carter is considering the following strategic changes: (1) Restructuring the organization to improve communication and motivation. (2) Shifting to lean production and just-in-time (JIT) inventory management. (3) Relocating part of production to India or Singapore while maintaining efficiency.

Resource 2 – Internal HR Survey Results

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%

Key Insights: (1) Employees feel disconnected from leadership, affecting productivity. (2) A lack of career growth opportunities is reducing motivation and increasing turnover. (3) Middle management struggles with effective communication due to a rigid hierarchical structure.

Resource 3 – Cost-Benefit Analysis for Production Relocation Alpha Robotics – Cost Analysis for Facility Expansion

Location	Labor Costs per Hour ($)	Setup Costs ($M)	Expected Efficiency Gains
India	12	30	10% increase
Singapore	22	50	18% increase

Key Considerations: (1) India offers lower costs, but efficiency gains are lower compared to Singapore. (2) Singapore provides greater efficiency but has significantly higher setup costs.

Using an appropriate business management theory, describe an HR challenge that Alpha Robotics is facing.

[2]

Explain two operational challenges Alpha Robotics faces in improving production efficiency.

[6]

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.

[17]

Question 5

HLPaper 2

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.

[2]

Explain two benefits of effective crisis management and contingency planning for PA.

[4]

Explain two advantages of using internal sources of finance for PA’s product relaunch.

[4]

Explain two ways financial rewards could improve employee motivation at PA.

[4]

Evaluate whether PA should shift from an autocratic to a democratic leadership style to address employee dissatisfaction and manage future crises effectively.

[10]

Question 6

HLPaper 2

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’.

[2]

Explain the relationship between investment, profit, and cash flow at FB.

[4]

Explain two opportunities that international marketing presents for FB.

[4]

Explain two factors that could influence the effectiveness of FB’s crisis management.

[4]

Recommend two ways FB could improve its marketing planning using break-even analysis to support international expansion.

[10]

Question 7

HLPaper 2

SwiftTech Ltd (ST)

SwiftTech Ltd (ST) is a UK-based technology manufacturer specializing in smart home devices. The company recently experienced a product defect crisis, where a software bug in its flagship security system led to customer complaints and negative media coverage. As a result, ST had to issue refunds and recalls, leading to financial strain and reputational damage.

To improve efficiency and reduce future risks, ST is considering adopting lean production methods, such as Just-in-Time (JIT) and Kaizen, to minimize waste and improve product quality. However, some managers worry that JIT may leave the company vulnerable to supply chain disruptions.

ST is also evaluating the implementation of a management information system (MIS) to enhance decision-making and financial planning. Currently, ST’s finance department struggles with budgeting inconsistencies and poor forecasting, affecting investment decisions.

To recover from the crisis and regain financial stability, ST's senior management is reviewing its budgeting process, ensuring tighter cost control and improved financial planning.

Define the term ‘budget’.

[2]

Explain two reasons why crisis management is important for ST following the product defect crisis.

[4]

Explain two benefits for ST of using lean production methods.

[4]

Explain two advantages for ST of implementing a management information system (MIS).

[4]

Examine how ST should improve its budgeting process to strengthen financial planning.

[10]

Question 8

HLPaper 2

EcoHome Ltd (EH)

EcoHome Ltd (EH) manufactures environmentally friendly household cleaning products in Canada. Due to increasing competition, EH heavily invested in research and development (R&D) to create innovative products. The R&D expenditure significantly increased costs, negatively affecting profitability in the company's recent final accounts.

EH has recently faced a significant product recall crisis due to contamination discovered in one of its cleaning products. This crisis damaged EH's reputation, caused a substantial drop in sales, and negatively impacted liquidity.

Management is considering adopting lean production techniques to reduce production costs and enhance efficiency. Some stakeholders argue this could prevent future crises and restore consumer confidence. However, employees are concerned that lean production may lead to job losses and lower job security.

EH's marketing strategy historically emphasized its environmental values. Given the recent crisis, the management team is debating whether to continue highlighting environmental benefits or shift toward emphasizing product safety and quality.

Define the term ‘lean production’.

[2]

Explain two reasons why EH invests heavily in research and development (R&D).

[4]

Explain two impacts the product recall crisis may have on EH’s final accounts.

[4]

Explain two ways lean production methods could help EH manage or avoid future crises.

[4]

Recommend whether EH should continue emphasizing environmental benefits in its marketing strategy or shift its focus to product safety and quality following the crisis.

[10]

Question 9

HLPaper 3

Resource 1 – News Article EcoCharge Solutions (ECS) revolutionizes sustainable energy storage! EcoCharge Solutions (ECS), a privately owned social enterprise, specializes in affordable, sustainable power banks made from recycled materials. The company’s mission is “to provide sustainable energy solutions to reduce electronic waste and bridge the energy gap in rural areas.” ECS has developed an innovative buy-one-give-one model: for every solar-powered power bank purchased, a second one is donated to a rural community where access to electricity is unreliable. ECS started as a student-run initiative at a university in 2019. In four years, it has grown into a medium-sized business with manufacturing facilities in Vietnam and Kenya. Table 1: ECS’s Key Operational Challenges

Challenge	Details
Production Bottlenecks	Increasing delays in assembly and quality checks
Supply Chain Issues	Limited access to sustainable materials due to rising costs
Logistics Constraints	High shipping costs and customs delays affecting donations

Resource 2 – Social Media Post from an Employee 💬 Anonymous Employee on LinkedIn: "I love ECS’s mission, but our production process is falling apart! We’re constantly running out of recycled materials, causing delays. Some donated power banks are reaching communities late or not at all. Management needs to fix this before we lose our credibility!"

Resource 3 – Internal Email from ECS CEO 📩 Subject: Scaling ECS Operations Dear Team, We are growing rapidly, but our supply chain and production inefficiencies are threatening our ability to meet demand. I propose two options: (1) Automating part of our assembly line to reduce bottlenecks. (2) Forming a joint venture with a large electronics manufacturer. Both options have risks. Automation is expensive, and a joint venture might compromise our social enterprise values. We need a decision soon. Best, CEO, EcoCharge Solutions

Using an appropriate business management theory, describe a human need that ECS meets through its business model.

[2]

Explain two possible challenges ECS faces in balancing its ethical objectives with its operational growth.

[6]

Using all the resources provided and your knowledge of business management, recommend a possible plan of action to ensure the sustainability of ECS for the next five years.

[17]

Question 10

HLPaper 3

AeroTech Drones – Scaling Production While Maintaining Financial Stability

Resource 1 – News Article AeroTech Drones Faces Challenges Scaling Its Production Line AeroTech Drones, a technology start-up specializing in high-performance drones for commercial use, has seen rapid demand growth in the last two years. The company was founded in 2018 as a private limited company, but it is now considering an IPO (initial public offering) to raise additional capital for expansion. Despite strong revenue growth, AeroTech is facing operational bottlenecks and financial pressures. Key Challenges: (1) High production costs due to inefficiencies in manufacturing and inconsistent supplier lead times. (2) Limited cash flow despite strong revenues, causing delays in R&D investments for next-generation drones. (3) Difficulty in deciding whether to expand the current factory or relocate to a larger facility to accommodate increasing orders. The CEO, Jake Mitchell, is considering three key strategies: (1) Raising capital through an IPO or alternative external funding sources. (2) Optimizing production efficiency through lean production techniques to reduce costs. (3) Expanding into a new location with greater production capacity while balancing cost and operational feasibility.

Resource 2 – Financial Report Summary AeroTech Drones – Financial Data (Last Fiscal Year)

Financial Indicator	Value
Revenue	$200 million
Gross Profit Margin	40%
Net Profit Margin	8%
Current Ratio	0.9
Gearing Ratio	62%

Key Insights: (1) The low current ratio (0.9) suggests short-term liquidity risks, meaning the company may struggle to meet immediate obligations. (2) The high gearing ratio (62%) indicates heavy reliance on debt financing, increasing financial risk if interest rates rise. (3) Profit margins remain solid, but production inefficiencies are increasing costs, reducing overall profitability.

Resource 3 – Break-even Analysis for Factory Expansion

Option	Fixed Costs ($M)	Variable Cost per Unit ($)	Selling Price per Unit ($)	Break-even Output (Units)
Expand Current Facility	20M	200	400	100,000
Relocate to New Facility	35M	180	400	116,667

Key Takeaways: (1) Expanding the current factory has lower fixed costs, but it may not support long-term growth. (2) A new facility reduces variable costs, but has higher fixed costs and a higher break-even point.

Using an appropriate business management theory, describe a financial challenge AeroTech Drones is facing.

[2]

Explain two operational challenges AeroTech Drones faces in scaling its production efficiently.

[6]

Using all the resources provided and your knowledge of business management, recommend a possible plan of action to ensure AeroTech Drones achieves both financial stability and operational efficiency.

[17]

Global Solar Solutions (GSS)