CIMA BA1 Informational context of business: practice questions with answers

Question 1

Hartwell Stores collects a large volume of material about its business each day. Which of the following is information rather than data?

1. A A file containing the details of 40,000 individual till transactions recorded today
2. B Temperature readings logged every minute by sensors in the store freezers
3. C A report showing that this month's sales in the North region are 12% below budget, with the main causes identified
4. D A list of the postcodes of every customer who joined the loyalty scheme this week

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Answer: C. Data are raw, unprocessed facts and figures. Information is data that has been processed (organised, summarised, analysed or compared) so that it has meaning and is useful to a particular user for decision making. The same items can be information for one user and data for another, but a variance report with explanations is clearly processed for management use.

Question 2

Bramley Garden Centres analyses five years of daily sales together with weather records and local event calendars to estimate how many barbecues each store is likely to sell next week. Which type of data analytics is this?

1. A Predictive analytics
2. B Descriptive analytics
3. C Diagnostic analytics
4. D Prescriptive analytics

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Answer: A. Data analytics is often classified as:

- Descriptive: what happened?
- Diagnostic: why did it happen?
- Predictive: what is likely to happen?
- Prescriptive: what should we do about it?

Estimating next week's demand from historical patterns is predictive analytics.

Question 3

The board of Glenmoor Leisure must decide whether to close its Eastfield gym. It receives, on time and in a clear format, a report that correctly sets out Eastfield's membership numbers and revenue for each of the last three years. The report contains no information about Eastfield's costs. Which quality of good information does the report most clearly lack?

1. A Completeness
2. B Accuracy
3. C Timeliness
4. D Understandability

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Answer: A. Information should be complete: it should include everything the user needs to make the decision. Revenue and membership figures alone cannot show whether Eastfield is profitable, or how much would be saved by closing it, so the board cannot make a sound decision without information about the costs.

Good information can be remembered with the mnemonic ACCURATE: Accurate, Complete, Cost-beneficial, User-targeted, Relevant, Authoritative, Timely and Easy to use.

Question 4

Ostrava Foods plans to analyse millions of online product reviews and social media posts to measure customer satisfaction. Its analysts have found that many of the reviews are duplicated, some have been written by automated accounts or paid reviewers, and others give star ratings that contradict the written comments. Which characteristic of big data is the main concern here?

1. A Volume
2. B Variety
3. C Velocity
4. D Veracity

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Answer: D. Big data is often described by its characteristics: volume (the amount of data), velocity (the speed at which it arrives and must be processed), variety (the range of structured and unstructured formats) and veracity (how accurate and trustworthy it is). Data from social media and review sites is often of doubtful veracity, so it must be cleaned and checked before conclusions are drawn from it; otherwise the analysis may be misleading.

Question 5

Quarterly sales of Veltro Ltd have roughly doubled over the past five years. Over the same period, the difference between sales in the peak quarter and sales in the weakest quarter of each year has also roughly doubled. Which approach to time series analysis is most appropriate?

1. A An additive model, because seasonal variations should always be expressed in units
2. B A multiplicative model, because the seasonal variation is a roughly constant proportion of the trend
3. C An additive model, because the trend is rising steadily over time
4. D Neither model, because seasonal variations cannot be estimated when the trend is rising

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Answer: B. - Additive model: Y = T + S + R. Seasonal variations are a constant amount (e.g. +40 units) whatever the level of the trend.
- Multiplicative model: Y = T x S x R. Seasonal variations are a constant proportion of the trend (e.g. 1.15, or 15% above trend).

At Veltro the seasonal swings have doubled as the trend has doubled, so they are a roughly constant proportion of the trend and the multiplicative model is more appropriate. An additive model would understate the seasonal swings at high levels of trend and overstate them at low levels.

Question 6

Dorrit's Café, a single small café, has been offered a detailed daily analysis of passing footfall and competitor prices for $8,000 a year. The analysis would be accurate, complete, delivered every morning and easy to read. The owner estimates that it would improve her decisions about staffing and pricing by about $1,500 a year. Which quality of good information would the analysis fail to meet?

1. A Its value would not exceed the cost of obtaining it
2. B Timeliness
3. C Accuracy
4. D Understandability

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Answer: A. Good information is often summarised by the mnemonic ACCURATE: Accurate, Complete, Cost-beneficial, User-targeted, Relevant, Authoritative, Timely, Easy to use.

However accurate, timely and clear information is, it should only be produced or bought if the benefit of better decisions exceeds its cost. Here the expected benefit ($1,500) is far below the cost ($8,000), so the information is not cost-effective for a single small café.