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Business Management in Practice February 2013
Suggested answers and examiners comments Important notice When reading these suggested answers, please note that the answers are intended as an indication of what is required rather than a definitive right answer. In many cases, there are several possible answers/approaches to a question. Please be aware also that the length of the suggested answers given here may be somewhat exaggerated compared with what might be achieved in the reality of an unseen, time-constrained examination. Examiners general comments Many candidates excelled in this paper. However, it was clear from some answers that some candidates had an understanding of many topics but did not have the depth of knowledge required to get higher grades. Candidates roughly fell into three groups. One group provided superficial or incomplete answers to many questions and there appeared to be a basic lack of understanding of the question and the material. Another group provided some excellent answers to some questions, while producing very weak answers to others. This may be the result of selective revision. The final group clearly revised broadly and extensively and were able to provide some excellent answers. Advice for future candidates:
Read each question carefully, and answer the whole question and not just part of it. Make sure your answer is related to the question specifically.
Attempt the required number of questions (otherwise you are restricting your chances of success) and attempt all parts of questions.
Manage your time effectively so that you do not rush questions that carry a large proportion of the marks.
Make sure you do your revision, and know the concepts and principles explained in the core text. Do not focus your revision too narrowly.
Use the examiners comments and suggested answers as key parts of the examination preparation process.
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Section A Answer all parts of Question 1. Select only one of the options A, B, C or D for each part. 1. (i) The VRIO framework was originally developed with four key criteria to assess
organisational capabilities. These are:
A. Variety, Rarity, Innovation, and Optimisation. B. Value, Rarity, Inimitability, and Organisation. C. Viability, Rationality, Inimitability, and Organisation. D. Value, Rarity, Innovation, and Organisation.
(ii) Many organisations develop an innovation stance that is appropriate for them given
their place in the marketplace. The different innovation stances are called:
A. Primary, Secondary, Tertiary and Support.
B. Principal, Follower, Subordinate and Defender.
C. Leader, Follower, Imitator and Demonstrator.
D. Pioneer, Follower, Imitator and Defender.
(iii) The author Robert House (House, 1971) identified four leadership styles. They are:
A. Directive Leadership, Supportive Leadership, Participative Leadership and Achievement-orientated Leadership.
B. Forceful Leadership, Considerate Leadership, Participative Leadership and
C. Principled Leadership, Supportive Leadership, Sustainable Leadership and Forced Leadership.
D. Directive Leadership, Adaptive Leadership, Principled Leadership and
(iv) Which of the following can be defined as: individuals and groups outside and inside the organisation who have an interest in the organisation and, therefore may wish to influence aspects of its mission, objectives and strategies?
A. Trade associations. B. Shareholders.
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(v) Identify the approach to management that was championed by F.W. Taylor, who
sought to analyse work processes in order to identify the most efficient outcome.
A. Total quality management.
B. Systematic management.
C. Quantitative management.
D. Scientific management. (vi) In recent years organisations have looked to avoid undertaking non-core activities,
contracting these out to other firms. What is this process called?
A. A joint venture.
B. The flexible firm.
D. Internationalisation. (vii) During a change or restructuring phase, the removal of vertical levels of
responsibility in the organisational hierarchy is known as which of the following:
D. Flexibility. (viii) According to Yipps globalisation framework (Yipp, 2003), there are four main
drivers of the process of internationalisation. What are they?
A. Environmental Drivers, Financial Drivers, Competitive Drivers, Sustainability Drivers.
B. Market Drivers, Cost Drivers, Environmental Drivers, Resource Drivers.
C. Competence Drivers, Innovation Drivers, Competitive Drivers, Government Drivers.
D. Market Drivers, Cost Drivers, Competitive Drivers, Government Drivers.
(ix) Which aspect of an organisations marketing activity helps the organisation
establish what the wants and needs of customers are?
A. Market research. B. Customer relationship marketing.
C. Market segmentation.
D. Public relations.
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(x) The aspect of human behaviour which is associated with the way an individual
thinks, stores, processes and utilises knowledge is called:
A. Cognitive style. B. Instrumentalism.
(Total: 10 marks)
(i) B Value, Rarity, Inimitability, and Organisation. (ii) D Pioneer, Follower, Imitator and Defender. (iii) A Directive Leadership, Supportive Leadership, Participative Leadership and
Achievement-orientated Leadership. (iv) C Stakeholders. (v) D Scientific management. (vi) C Outsourcing. (vii) B Delayering. (viii) D Market Drivers, Cost Drivers, Competitive Drivers, Government Drivers. (ix) A Market research. (x) A Cognitive style.
Generally, a very well answered section. A number of candidates scored full marks in this section.
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Section B Answer all ten questions. 2. One way to classify the different types of manager is by the functional roles they
undertake in the organisation. Identify and describe the different types of manager. (4 marks)
Functional managers are responsible for a defined area of work, as opposed to general managers who lead a plant, division or site. Examples of functional managers would be Marketing, Finance or HR.
Line Managers are responsible for functions that directly interface with customers and add value to the exchange. The role impacts on the customer, the performance and image of the organisation. Staff Managers run functions that do not come into direct contact with customers. They run activities that support line managers. Project Managers provide a short-term functional role and are responsible for a team that is brought together to perform a specific task.
Examiners comments This is a good example of the need for candidates to read the whole question and answer the whole question. One of the errors made by a number of candidates was to only read the second part of the question and therefore to provide an inaccurate answer.
3. In operations management, the choice of facility location is considered important. Explain
the different location strategies that an organisation can apply. (4 marks) Suggested answer
Product-based location strategy: organisations specialise production in certain sites to maximise the use of equipment, skills and knowledge. Market-based strategy: where organisations locate close to their customers either to make it easier for customers to visit, or to make distribution easier. Vertically differentiated locations: a strategy based on the assembly of finished component parts into a final product. It has the efficiency of the product-based strategy. The final assembly site may be a compromise based on a range of locational factors. For example, with Airbus, specialist parts from manufacturers all over Europe are all assembled in France. Examiners comments
This question was generally well answered with many candidates explaining at least two of the of the location strategies. Even where the names of the strategies were not mentioned, candidates gained marks for accurate description and evidence of understanding.
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4. Identify and outline four out of the possible five forces of competition identified in
Porters Five Forces model. (4 marks)
Threat of Entry How easy is it for new entrants to enter an industry. Threat of Substitutes These are other products or services that satisfy similar wants or needs. Bargaining power of buyers The relative power of buyers to control or negotiate on price. Power of buyers increases when there are multiple sources of suppliers. Power reduces when there are few sources of supply. Bargaining power of suppliers A similar principle to the above but related to supply. Competitive Rivalry The intensity of the competition in the market place.
Examiners comments Most candidates appeared to have understood the terms used in the Five Forces model. Candidates who gained full marks additionally displayed an understanding of what the various elements mean and how they interact.
5. Describe Herzbergs two-factor motivation-hygiene theory (Herzberg, 1959). (4 marks)
For Herzberg, motivation is about two factors. Hygiene factors whose absence demotivates, but whose presence is expected and does not motivate. Satisfying hygiene factors prevents dissatisfaction they do not provide satisfaction. The second set of factors motivates an individual to greater output or effort. These are the satisfiers that lead to satisfaction. Herzberg argues that the factors that lead to job satisfaction are separate and distinct from those that lead to dissatisfaction, however, combining together to create satisfaction.
Examiners comments A generally well answered question. Many candidates correctly identified the separate and distinct nature of the different factors but were unable to identify that the two factors work together to create satisfied and motivated employees.
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6. Name and outline four types of innovation process that can be pursued within
organisations. (4 marks)
Any four of the following:
Product Innovation the development of a new or improved product or service.
Process Innovation the development of a new process either manufacturing or administrative.
Organisational Innovation innovation on the structure or configuration of an organisation to provide greater efficiency, learning, improved communication or customer intimacy.
Management Innovation introduction of management initiatives within the organisation that reduce cost or add value. Often difficult to sustain.
Production Innovation innovations related to plant layout, working practices or waste elimination.
Commercial/Marketing Innovation finding new ways to address the market and satisfy customers.
Service Innovation innovation in the provision of service to customers.
Some candidates failed to notice that the important word in the question was processes and gave a more strategic answer or referred to the innovation stances.
7. Define what is meant by the extended organisation. (4 marks)
The extended organisation is network based. It is established for the long-term. The network is strong and trust based. The extended organisation uses the resources and competences of the other organisations in the network to operate. Members of the network have supportive and mutually-beneficial competences and resources which allows the organisation to produce goods and services. The extended organisation is capable of research and development of products and markets it is also capable of innovation. The central core of the extended organisation retains copyrights and intellectual property.
Examiners comments Some candidates confused the concept with outsourcing, which may form a part of an answer, but the extended organisation is much more.
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8. According to Balogun and Hope Hailey (2007), there are four types of strategic change.
Name and comment on each. (4 marks)
Adaption small changes over time. Reconstruction faster change but the essence of the organisation remains unaltered. Evolution a fundamental change in the nature or culture of the organisation that takes place over a period of time. Revolution a fundamental change in the nature or culture of an organisation that takes place rapidly. Examiners comments
Candidates must note that they have to use the right model to get any significant marks. Candidates who did not relate change to the Balogun and Hope Hailey model performed poorly in this question.
9. The push to internationalisation has increased dramatically over the past 20 years.
Identify and explain any two possible models of internationalisation which organisations could pursue. (4 marks)
Any two of the following: Simple export and import this is the oldest and simplest form of international trade and involves the physical movement of goods across an international border. Manufacturing is concentrated in one country. The goods are then distributed overseas by agents in different countries who have the contacts and market knowledge not enjoyed by the manufacturing company. Marketing and branding tend to be conducted locally. Complex export - in this model there are advantages to be gained from coordinating branding and marketing. Manufacture is still located in at a single source so that economies of scale and expertise can remain intact but pricing, positioning and branding are professionally managed. In taking into account variations in packaging and variations for local tastes this export strategy requires greater coordination. Direct Foreign Investment instead of manufacturing in one place and exporting overseas an organisation may decide to build manufacturing capacity in other countries. Direct foreign investment can form part of a truly global and integrated global strategy. In which highly coordinated international activities take full advantage of international value linkages to create a global player. A less ambitious alternative is a multi-domestic policy where investment leads to manufacturing being located in each of the geographical markets. Licensing an organisation that owns a product and a brand that has value in the marketplace can choose to license one or both. The licence allows the licensee to be able to manufacture and market a branded product for a specific time. The licensing firm gets revenue for very little risk. The licensee gets to manufacture a product that has a track record of sales and already benefits from marketing and market exposure.
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Joint Venture - in a joint venture two or more companies come together in order to share the risks and resources needed to do business internationally. Many joint ventures involve a domestic partner and an overseas partner. The home partner brings its knowledge of markets, competitors, politics and customs, whereas the overseas partner often brings strategic capabilities such as expertise, finance, products or brand names. In emerging markets joint ventures between home and overseas companies have been a successful way of opening up new markets.
Examiners comments Some candidates answered the question well, while others were unable to provide the explanation required.
10. Name and outline the psychological and sociological aspects of managerial work. (4 marks)
Suggested answer Psychological psychological elements of management relate to issues surrounding motivation, job satisfaction, job design, employee commitment and loyalty as well as work conditions and work-related stress.
Sociological the division of work into classifications such as professional, managerial, clerical, skilled and unskilled and the way this mirrors the divisions in society. Gender, race and age issues are also the sociological elements of management. Examiners comments This question was generally poorly answered. Many candidates appeared confused between the terms sociological and social. However, the psychological elements were generally understood.
11. Define what is meant by the learning organisation. (4 marks)
Traditional ideas of management were constructed within a stable, slow-moving environment where above all managers sought efficiency. In contemporary organisations which are much more fast-paced, managers are required not only to be efficient but also to champion change and innovation. Increasing competitiveness and technological developments mean that an organisation has to respond quickly to changes in their business environment. To do this, the organisation must be able to learn quickly and effectively. The learning organisation recognises its part in the continual upgrading of skills and knowledge. To do this, it creates a culture of learning, where learning is valued. All people within the learning organisation are encouraged to develop their knowledge but also learn from what they currently do. An important element of the process is to be able to capture and share the learning gained team-working, worker participation and empowerment are an important part of this.
This question was generally well answered. However, some candidates did not mention the culture of learning and skill enhancement that typifies the true learning organisation.
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Section C Answer two questions only. 12. You are the assistant to the Human Resources Manager of a medium-sized insurance
brokerage. In recent years your organisation has faced stiff competition in many of its traditional markets. In order to meet the challenges of the business environment, the senior management has decided upon a strategy which includes the introduction of new technology and changes in the structure of the company. This means that job roles and tasks will need to change. Your manager is concerned about the likely impact of the changes and how they will affect the attitudes and behaviours of staff. You offer to put together a briefing document in the following areas.
(a) With reference to the Luthans and Kreitner (1985) models, explain how behaviour
modification could be achieved in an employee. (10 marks)
(b) Explain what attitudes are and describe the cognitive, affective and behavioural
elements of an attitude. (5 marks)
(c) Explain why organisations seek to understand the attitudes held about their jobs in terms of job satisfaction, job involvement and organisational commitment.
(Total: 25 marks) Suggested answer (a) Luthans and Kreitner (1985) argued that behaviour modification in an employee could be
achieved by the application of a five-stage model; namely, identify critical behaviours; develop baseline data; identify behavioural consequences; develop and implement intervention policy; and evaluate performance improvement.
The first action is to identify those aspects of a persons job that are critical to the completion of the task. The behaviour modification process will need to identify and alter only the critical functions rather than every aspect of the employees role. The manager then identifies how many times these critical tasks are being undertaken, or not, in a given period. The manager then needs to identify the stimuli that cause the employee to behave in a particular way and to identify the consequences for the firm of those behaviours. Once the analysis is completed, the manager needs to devise a performance-reward linked intervention that weakens the attraction of the undesirable action and strengthens the higher-performance action. The final action is to evaluate the impact of the intervention, to find out whether it has worked.
(b) Attitudes are mental judgements made in the evaluation of people, objects or events. They
can be either positive or negative and reflect how we feel about something. They are learned throughout life and stem from our socialisation process they are complex and unique. There are three elements to an attitude cognitive, affective and behavioural. The cognitive element of attitudes relates to the evaluation of a situation. The affective element is the emotional element of attitude. Finally, we have the behavioural element that will build from the emotions generated at the affective stage.
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Attitudes can be core or peripheral. An attitude such as a religious belief which developed over many years as a result of culture and socialisation producing affirmation and conviction is likely to be core and seldom or never change. Other attitudes are more peripheral and may change as a result of new knowledge, greater understanding or increased maturity. Attitude change will therefore depend upon how embedded the attitude is.
(c) Job satisfaction employers want to know how employees feel towards their job.
Positive job satisfaction leads to positive feelings towards the job. This in turn tends to lead to improved performance in the workplace and more positive customer satisfaction.
Job involvement while associated with job satisfaction, job involvement is the degree to which an employee identifies themselves with their role. Employees with high job involvement relate strongly to their job and care about the work they do and their performance is important to their feeling of self-worth. Employees that are involved in their job tend remain with an organisation, be absent less often, and perform highly.
Organisational commitment this attitude is in some ways similar to job involvement but related to the whole organisation rather than just the job. There is a positive relationship between organisational commitment and productivity and again with greater loyalty and reduced absenteeism.
[Credit was given for discussing how these factors coordinate and integrate to create a more effective firm. Some answers related these ideas to contemporary HRM and the management of commitment for organisational success].
In part (a), some candidates answered the question well and related their answers to the model. Some candidates drew the model in their answers [which was acceptable especially for part (c)]. Part (b) was generally answered well. Many candidates gave the correct three elements of an attitude and provided an example of how an attitude builds through the cognitive, affective and behavioural stages. In part (c), some candidates confused job satisfaction and job involvement.
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13. The contemporary manager faces a number of challenges, of which the management of
people is perhaps the most difficult. Managers now need a range of softer skills which reflect the social aspects of the workplace. Two important social elements of leadership involve the management of conflict and the conduct of negotiations.
(a) What is conflict and how might the leader manage the conflict process?
(b) Describe the bargaining strategies which are open to the negotiator. (10 marks)
(Total: 25 marks)
Suggested answer (a) Conflict can arise in groups, between groups, and within organisations as a result of
unequal power and political influence within an organisation which results in behaviours likely to give rise to opposition or conflict as a result of goal incompatibility. Conflict arises as a result of the perception of these behaviours as having or potentially having a negative impact on something a group or individual cares about. The traditional view of conflict in the workplace is that it is bad. The connotations associated with conflict are violence and dysfunction. Conflict within the workplace is seen as a management failure, stress and frustration arising from poor managerial communications or style. As a result, traditionally managers have seen their role as reducing conflict, and building team consensus. But there is a second view of conflict that suggests that conflict is inevitable, and that it arises as a result of the structuring of organisations. Within contemporary organisations, the view that conflict can have positive as well as negative consequences has led to some leaders deliberately creating conflict between different work teams. A small degree of conflict based on the nature of the task or the process used to achieve a task can increase creativity. Research shows that interpersonal conflict is always negative, but managed tension on task or process can lead to creativity, flexibility, change orientation and positive intergroup rivalry. If we take the more contemporary view that conflict is inevitable and indeed may even be constructive, the need for conflict management will be necessary. Conflict management will involve conflict-resolution and, where conflict is absent, conflict-stimulation. Organisational super goals setting goals that all parties are aware of and need to work towards can form the basis of a goal-sharing resolution to problems involving the clarification of goals and objectives. Resource expansion conflicts arising from the scarcity of resources can be achieved by an expansion of the available resources. This may not always be possible but, if it is, it will resolve the conflict. Talking it through face-to-face discussions take place between the conflicting parties with the purpose of identifying and resolving the problem. Management Intervention management intervenes and makes its wishes known. Compromise can resolve conflicts but both parties will need to give up something of value. Skills development negotiation and communication training as well as training in behaviour and empathy can help the conflict resolution process.
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Conflict stimulation can take a number of forms; the roles and responsibilities of work teams can be varied to reduce clarity and create role ambiguity. Sometimes a change in the composition of the team, bringing in people with different ideas and views, can help to create mild conflict.
(b) There are two bargaining strategies open to the negotiator. They have different start points and different end points. One is suitable for short-term negotiations when a win-lose is possible or desirable. The other approach encourages long-term relationships in which a win-win is the most desirable outcome. In distributive bargaining the parties in the process negotiate over a fixed transaction. A buyer tries to pay the minimum price, while the seller tries to get the highest price. Each party in the negotiations has its target point that it would like to achieve, each also has a resistance point which marks as low as it is prepared to go. In distributive bargaining, it is possible to win or lose. If you are negotiating some tactics in distributive bargaining, get your offer in first to create a benchmark and gain a psychological advantage. Revealing deadlines can also be a powerful negotiation tactic. This puts pressure on the opposition, and forces the rival negotiator into your timescale creating the sense that you are in control increasing the pressure on your opponent to make concessions. The alternative approach is integrative bargaining. This approach assumes that there may be number of possible outcomes to the negotiation that may serve the interests of both parties. As such there is likely to be high information sharing between the parties as they try to satisfy each others interests. Where relationships need to be maintained, where advantage is gained through cooperation (rather than conflict), integrative bargaining can lead to a win-win scenario for both parties. Research shows that, even when integrative bargaining fails, the process of cooperation means that any subsequent bargaining remains cooperative. There are tactics for integrative bargaining; team bargaining is a more favourable environment as more creative ideas are generated. Negotiating on a number of issues (for example, price, quantity and delivery times) can lead to a greater chance of a win-win outcome.
Part (a), which carried most number of marks, was generally poorly answered. The explanation of what conflict is was generally poor. However, some candidates provided explanations of conflict resolution. Part (b) of the question was generally well answered. Many candidates explained the two principles of bargaining very well and generally provided suitable examples.
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14. The Finance and Accounting function is generally considered to be a very powerful element within any organisation. It controls the money which comes in and the money that is paid out and is a powerful voice in the allocation of resources. The Finance and Accounting function of any organisation, whether in the private or public sector, will be designed to reflect the particular needs of that organisation, and will conduct three principal functions: financial management, management accounting and financial reporting.
In a typical organisation, describe the function of:
(a) Financial management. (9 marks)
(b) Management accounting.
(9 marks) (c) Financial reporting.
(Total: 25 marks)
(a) Financial management is partly about raising capital. Money is needed to provide start-up capital for new businesses; it is needed for expansion projects or simply to pay for the materials needed to provide a product or service until payment is made by the customer. Financial management is the function of finance that raises the capital needed to finance the business. The first place an organisation looks to for finance is itself. Some organisations have retained profits which can be used as a source of finance. Using retained profits has the benefit of speed and low costs. If unable to finance a project internally, the financial management team will need to look externally. Banks offer loans and overdrafts to businesses with interest payable. A project financed by a bank loan will need to include the cost of interest payable in the costing calculations. Loans are typically taken out over a fixed period and have a repayment schedule that may vary as the interest rate changes. In contrast, overdrafts are on-going short-term loans which act to smooth out the peaks and troughs of income from sales and ensure that the organisation has enough working capital. Perhaps the most complicated way of arranging finance is through the sale of ordinary shares. This type of financing would be reserved for large-scale expansions. The purchasing of shares within a company conveys rights of ownership. In a limited company, it is the shareholders (stockholders in the US) who own the business in proportion to the number of shares they own.
(b) Management accounting generates information for management that they will need for
long and short-term decision-making. Perhaps the most obvious management accounting practice is budgeting. Budgets are set by finance often in consultation with other departments. They are quantitative assessments of expectations. Budgets can refer to expectations of money received or the expenditure of money on a particular project. Budgets set standards, targets that the organisation expects to meet and for which individuals or departments can be responsible. They are a mechanism to measure and control performance.
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Costing is another management accounting technique. Costing deals with the analysis and allocation of the costs of the business so that they might be included in any pricing decisions. Costs have to be analysed to ensure that income matches or, better still, exceeds expenditure, that the business is (more than) covering costs. Break-even analysis and the production of profit-and-loss statements are also part of the costing process.
Investment appraisal is used to assess the viability of large and long-term projects. The management accounting function is responsible for the assessment of cashflows into and out of the organisation to make sure there is enough money to cover current expenditure. Here there is a crossover between financial management and management accounting as the most obvious solution to short-term cashflow problems is an overdraft.
(c) The final function of finance is financial reporting. The detail and extent of the reporting will
depend upon the type and size of the company but even at its most basic level all trading businesses must report their trading profit or loss to the tax authorities.
There are two types of tax paid in most countries although the amounts vary. Company or corporation tax is paid on profits and Value Added Tax (or, in some jurisdictions, Sales Tax) on sales. All these types of tax must be reported to, and can potentially be audited by, the tax authorities. Large companies and companies that are owned by shareholders tend to have rigorous reporting of their accounts. Shareholders have the legal right to information about the companies they own. Directors are required to disclose the trading accounts, the cashflow accounts and summarise the assets of the business. Very often the accounts are presented to shareholders as a report which summarises the previous year and seeks to inform shareholders of future plans. Financial reports are independently audited to ensure they are correct. In the UK, company reports must be made public and are lodged with the Companies House, where they can be accessed by anyone.
This question was generally well answered. Some candidates were clearly very comfortable with the question. In such instances, candidates are advised to keep focussed on the question and not stray from it. Largely, the three parts of the question were equally well answered although some candidates failed to distinguish properly between financial management and management accounting.
The scenarios included here, except where expressly identified, are entirely fictional. Any resemblance of the information in the scenarios to real persons or organisations, actual or perceived, is purely coincidental.