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ACCA Strategic Professional · Strategic Business Leader · Financial analysis and decision-making techniques

Quillon plc uses a minimax regret approach to choose between projects A, B and C under three scenarios (boom, normal, slump). Payoffs in $000 are: A: 300, 150, -50; B: 200, 180, 40; C: 100, 100, 100. Which project should Quillon choose, and what is the maximum regret of that choice?

Quillon should choose Project B, whose maximum regret is 100. The best payoffs by scenario are 300, 180 and 100, so regrets for B are 100, 0 and 60. Project A has a maximum regret of 150 and C has 200, so B minimises the greatest regret.

  1. AProject B, with maximum regret of 100Correct
  2. BProject A, with maximum regret of 150
  3. CProject C, with maximum regret of 200
  4. DProject B, with maximum regret of 60

Explanation

Best payoffs per scenario are 300, 180, 100. Regret for A: 0, 30, 150, max 150. Regret for B: 100, 0, 60, max 100. Regret for C: 200, 80, 0, max 200. The smallest maximum regret is B at 100. Option D uses B's slump regret only, ignoring its larger boom regret.

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