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IAI Actuarial Core Principles · Business Management · Decision-making process, attitude to risk and competition

A Chennai insurer's management compares three expansion options using a weighted scoring matrix covering expected profit, regulatory risk, and implementation effort. The CFO notes that the weights were set after seeing which option the CEO preferred. What is the main weakness in the decision process?

The weakness is bias in the evaluation stage. Criteria and weights should be set from the objectives before looking at options; choosing them after the CEO's preference is known turns the scoring into a justification of a predetermined choice rather than an objective comparison.

  1. AScoring matrices cannot be used for strategic decisions
  2. BThe weights introduce bias, undermining the objectivity of the evaluation stageCorrect
  3. CThree options are too many for any evaluation
  4. DRegulatory risk should never be included as a criterion
  5. The matrix should have been prepared after implementation

Explanation

Evaluation criteria and weights should be fixed before options are assessed, linked to the objectives. Setting them after a preferred option is known builds in confirmation bias and makes the ranking a justification rather than analysis. The other statements are incorrect.

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