ACCA · Question 32 · Decision-making techniques

Section C

CyberShield is a SaaS company developing a new AI threat detection module.

Part A (12 marks)
The launch of the new module faces uncertainty regarding market demand. The management accountant has prepared a payoff table showing the Net Present Value (NPV) of the project under three pricing strategies and three market demand scenarios.

Pricing Strategy	Low Demand (Prob: 0.3)	Medium Demand (Prob: 0.5)	High Demand (Prob: 0.2)
High Price	-$2m	$4m	$10m
Medium Price	$1m	$5m	$7m
Low Price	$3m	$4m	$5m

1. Calculate the Expected Value (EV) for each pricing strategy and recommend the best strategy based on EV.
2. Determine the optimal strategy if the management team adopts a 'Maximin' approach.
3. Determine the optimal strategy if the management team adopts a 'Minimax Regret' approach (show your regret table).
4. Briefly discuss the limitations of using Expected Values for this decision.

Part B (8 marks)
CyberShield currently uses incremental budgeting for its R&D department. The CFO is proposing a switch to Zero-Based Budgeting (ZBB) to better control costs and allocate resources to the most promising AI projects.

Evaluate the suitability of Zero-Based Budgeting for CyberShield's R&D department. Include both advantages and disadvantages in your evaluation.