IB DP Business Management: Crisis management and contingency planning (HL only) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – the IB holds copyright in its own papers. Use these alongside the official past papers available through your school or the IB store.

These questions cover section 5.7, Crisis management and contingency planning (HL only), in Unit 5 of the IB Business management guide, first assessment 2024. All of them are HL only. Businesses and figures are invented. Expected loss is calculated in the standard form: chance of the event multiplied by the loss if it happens.

• Revisit the revision notes and the study guide.
• See the IB DP Business Management hub and the syllabus checklist.

Questions

1. Distinguish between crisis management and contingency planning. [3]

2. Identify two factors that affect effective crisis management. [2]

3. Ambrelle Bakeries discovers that a batch of loaves may contain an ingredient that is not on the label. The managers wait three days, to be sure, before telling retailers or customers. Explain two ways in which this delay could harm the business. [4]

4. Tavernel Ferries is considering a backup booking system. Installation costs 48,000 US dollars and upkeep is 4,000 US dollars a year for 4 years. The managers estimate a 20% chance each year of a major booking-system failure. A failure costs 110,000 US dollars without the backup and 25,000 US dollars with it. Calculate the total cost over 4 years with the backup, the expected loss over 4 years without it, and the saving from the backup. [5]

5. Explain one way in which transparency can help, and one way in which it can harm, a business managing a crisis. [4]

6. Analyse the importance of control in the way a business manages a crisis. [6]

7. Skellmoor Labs loses its main computer system in a flood. Daily sales revenue is 18,500 US dollars and none can be made while the system is down. Without a contingency plan the system would be down for 9 days. With a plan, which costs 40,000 US dollars to prepare, it would be down for 3 days. (a) Calculate the sales revenue lost in each case. [2] (b) Calculate the net benefit of the plan, using revenue lost and the cost of the plan only. [2]

8. Tavernel Ferries carries passengers on a cross-channel route. Explain why safety is an important impact of its contingency planning. [3]

9. Ambrelle Bakeries supplies shops across a region from one factory. Evaluate the impact of contingency planning on its cost and time. [8]

10. A Tavernel ferry runs aground at 14:10. The captain follows the written grounding procedure and informs the harbour authority at 14:25. A single phone line for passengers’ families is opened at 15:00 but is engaged for hours. The first public statement, at 18:00, calls the event “a minor delay”. At 21:00 the company confirms that three passengers have been hurt. The operations director leads the response and decides who may speak to the press. Evaluate how well Tavernel Ferries managed the crisis, using transparency, communication, speed and control. [8]

Answers

1. Contingency planning is preparing in advance for possible adverse events, setting out actions, roles and resources [1]. Crisis management is the response once an event is happening or has happened [1]. A business plans before the event and manages during and after it, and experience of the event can improve the plan [1]. [3] Examiner insight: A “distinguish” answer gains credit by making the difference clear, so state both sides; describing only one term leaves the contrast unmade.

2. Two distinct factors from transparency, communication, speed and control: first factor [1], second factor [1]. [2] Examiner insight: An identify question asks for items only; adding explanation earns nothing extra, and a spare minute is better spent on later questions.

3. First way: customers who have eaten the loaves, or sold them on, are unaware of the risk, so harm may spread [1]. This could damage health and trust and bring compensation costs [1]. Second way: retailers and customers learn of the problem from another source, so the business looks as if it hid the facts [1]. Its reputation falls and sales may drop even after the problem is solved [1]. [4] Examiner insight: Each of the two ways needs a cause and a consequence for a stakeholder; naming speed and communication alone does not show the harm.

4. Plan cost = 48,000 + (4,000 × 4) = 64,000 [1]. Expected loss without = 0.2 × 110,000 × 4 = 88,000 [1]. Expected loss with = 0.2 × 25,000 × 4 = 20,000 [1]. Total cost with the backup = 64,000 + 20,000 = 84,000 US dollars [1]. Saving = 88,000 − 84,000 = 4,000 US dollars [1]. [5] Examiner insight: Show each stage of working. A reader can credit your method if a slip occurs, but cannot credit a bare number. The saving is small, which would matter in any follow-up evaluation.

5. Help: being open about what is known and what is being done builds trust with customers and employees [1], and prevents a later claim that facts were hidden, which can do more harm than the event [1]. Harm: releasing facts before they are confirmed may prove wrong or alarm customers needlessly [1]. Sensitive details may also help competitors or create legal difficulty [1]. [4] Examiner insight: A one-sided answer can gain at most the marks for one side. Give a reason for each side, not only a label.

6. Control means a clear chain of command, a named crisis team and defined roles [1]. This stops several managers giving orders that conflict or duplicating work [1]. It lets decisions be made quickly because one person is authorized to decide [1], which supports speed [1]. Control also covers who may speak to the media, so that stakeholders hear one consistent message [1]. Too rigid a structure may slow decisions if the situation changes, so control must leave room for judgement [1]. [6] Examiner insight: “Analyse” asks you to break the idea into parts and show how they connect. Linking control to speed and communication shows analysis more than a list does.

7. (a) Without plan: 9 × 18,500 = 166,500 [1]. With plan: 3 × 18,500 = 55,500 [1]. (b) Revenue saved = 166,500 − 55,500 = 111,000 [1]. Net benefit = 111,000 − 40,000 = 71,000 US dollars [1]. [4] Examiner insight: Here the question limits the working to revenue lost and plan cost, so do not bring in other costs. State units, since a currency figure without units may lose clarity.

8. A grounding, fire or collision could injure passengers and crew [1]. A plan sets out evacuation, first aid and drills, so staff know what to do and passengers can be protected [1]. Safety is hard to price in money, and an injury would also bring reputation and compensation costs, so it is a strong argument for planning [1]. [3] Examiner insight: Tie safety to the ferry context. A general sentence about “keeping people safe” gains less than reference to passengers, crew and drills.

9. Cost, benefit: a plan, such as a backup oven line or a standby transport contract, can reduce losses and compensation if production stops [1]. Cost, drawback: equipment, insurance, training and staff time cost money even if nothing happens [1]. Time, benefit: staff know their roles, so decisions are quicker and the factory restarts sooner, protecting supply to shops [1]. Time, drawback: writing, rehearsing and updating the plan takes management time [1]. Balance: the value depends on how likely the event is and how much one factory stoppage costs [1]. Bakeries with a single factory and perishable goods lose sales fast, so cost and time are likely to be worth it [1]. Limits: plans can be out of date and cannot cover every event [1]. Judgement: planning is likely to be worth the cost and time for a one-factory supplier, provided the plan is tested and kept up to date [1]. [8] Examiner insight: An evaluate answer tends to gain more when both sides are weighed for this business and the judgement says what it depends on, rather than a general list of pros and cons.

10. Control: the captain followed a written procedure and informed the authority within 15 minutes, and the operations director leads and manages press contact, so authority was clear [1]. Speed: the first action was quick, but the first public statement came nearly four hours later, which looks slow when families are waiting [1]. Communication: one phone line, engaged for hours, left families without information, so the channel did not reach the stakeholders who needed it [1]. Mixed messages: “a minor delay” followed by news of injuries shows inconsistent communication [1]. Transparency: calling the event minor when people were hurt seems to understate the facts, and the later correction is likely to damage trust [1]. Strengths: the procedure and chain of command look like planning that worked [1]. Weaknesses: the public side of the response was weak, and this is where reputation is decided [1]. Judgement: the operational response was effective but the handling of communication and transparency was poor, so the crisis was managed only partly well [1]. [8] Examiner insight: Use the timings in the stem as evidence. Linking each factor to a time or action, and giving an overall judgement, tends to earn more than describing the four factors in general.

Where marks are usually lost

• Describing contingency planning as something that happens after the event.
• Naming a factor (speed, transparency) without a result for a stakeholder.
• Giving only the positive side of transparency or speed in a question that asks for balance.
• Forgetting that expected loss uses the chance of the event as well as the size of the loss.
• Writing numbers with no units or with the working missing.
• Treating contingency planning as always worth the cost, with no reference to how likely or serious the event is.
• Ignoring safety when the case involves passengers, staff or the public.
• Making generic points that fit any firm, not the details in the case.
• Closing an evaluation with no judgement.

Next steps

• Re-read the study guide for any factor you found hard to apply.
• Use the revision notes for the self-test.
• Tick off the section on the syllabus checklist and visit the course hub.
• Try all free 10-minute diagnostics at /diagnostics/.
• Book a free trial class at /trial/.

Frequently asked questions

Is crisis management and contingency planning HL only in IB Business Management? Yes. Section 5.7, Crisis management and contingency planning, is labelled HL only in Unit 5 of the IB Business management guide, first assessment 2024.

How do you calculate expected loss in a contingency planning question? Expected loss is the chance of the event multiplied by the loss if it happens, which is a standard form rather than a formula given in the guide. A common mistake is to use only the size of the loss and forget the chance of the event.

What are common mistakes on crisis management practice questions? Students often describe contingency planning as something done after the event, name a factor such as speed or transparency without a result for a stakeholder, and treat a plan as always worth its cost. Ignoring safety when people are involved and ending an evaluation without a judgement also lose marks.

How should you answer an evaluate question on the impact of contingency planning? Weigh benefits and costs using the details of the case, refer to how likely and how serious the event is, and include safety where passengers, staff or the public are involved. Close with a clear judgement rather than a summary.

Official syllabus

IB Diploma Programme Business management guide, first assessment 2024, published by the International Baccalaureate Organization. This page covers section 5.7, Crisis management and contingency planning (HL only), in Unit 5: Operations management.