CCM Portfolio Management & Strategy 2 — Questions and Answers
Question 1: Which portfolio balancing technique plots business units on a matrix using market growth rate and relative market share?
- GE-McKinsey Matrix
- BCG Growth-Share Matrix (Correct answer)
- Ansoff Matrix
- Porter's Five Forces
Correct answer: BCG Growth-Share Matrix
The BCG Growth-Share Matrix uses market growth rate and relative market share to categorize business units as Stars, Cash Cows, Question Marks, or Dogs.
Question 2: A portfolio manager notices that a product line generates high cash flow but operates in a low-growth market. In BCG terms, this is best described as a:
- Star
- Question Mark
- Cash Cow (Correct answer)
- Dog
Correct answer: Cash Cow
A Cash Cow has high relative market share in a low-growth market, generating more cash than it consumes.
Question 3: In portfolio strategy, 'strategic fit' refers to:
- Matching employee skills to job roles
- The degree to which business units share resources or capabilities that create synergies (Correct answer)
- Ensuring product pricing aligns with competitors
- Aligning headcount with revenue targets
Correct answer: The degree to which business units share resources or capabilities that create synergies
Strategic fit describes how well business units complement each other by sharing resources, capabilities, or market positions to create value.
Question 4: Which strategy involves a company expanding its portfolio by acquiring businesses in unrelated industries?
- Horizontal integration
- Vertical integration
- Conglomerate diversification (Correct answer)
- Market penetration
Correct answer: Conglomerate diversification
Conglomerate diversification involves entering entirely different industries, spreading risk but reducing strategic synergy.
Question 5: The primary purpose of portfolio-level risk management is to:
- Eliminate all project-level risks
- Optimize the aggregate risk-return profile across all business units (Correct answer)
- Assign risk owners to individual contracts
- Standardize insurance coverage across subsidiaries
Correct answer: Optimize the aggregate risk-return profile across all business units
Portfolio-level risk management seeks to balance and optimize the combined risk-return profile rather than manage risks in isolation.
Question 6: A 'harvesting' strategy within a portfolio typically involves:
- Investing heavily to grow market share
- Gradually extracting cash from a declining business while minimizing investment (Correct answer)
- Acquiring competitors to consolidate market position
- Launching new product lines to revitalize a unit
Correct answer: Gradually extracting cash from a declining business while minimizing investment
Harvesting maximizes short-term cash flows from a business unit that has limited long-term prospects, minimizing further investment.
Question 7: Which financial metric is most commonly used to compare the value created by different business units within a portfolio?
- Gross margin percentage
- Economic Value Added (EVA) (Correct answer)
- Accounts receivable turnover
- Debt-to-equity ratio
Correct answer: Economic Value Added (EVA)
EVA measures the profit earned above the cost of capital deployed, enabling comparison of true value creation across portfolio units.
CCM Portfolio Management & Strategy 2
Which portfolio balancing technique plots business units on a matrix using market growth rate and relative market share?