Question 1

**Section A**

A company is choosing between three mutually exclusive projects (A, B, and C). The outcomes depend on the state of the economy. The payoff matrix (showing profit in $000s) is as follows:

| Project | Weak Economy | Stable Economy | Strong Economy |
|---|---|---|---|
| A | 40 | 70 | 100 |
| B | 20 | 80 | 130 |
| C | 50 | 60 | 80 |

If the management team is highly risk-averse and uses the maximin decision rule, which project will they choose?

Accepted Answer

1. Identify the worst possible outcome (minimum payoff) for each project. 
2. Choose the project that has the highest (maximum) value among those worst outcomes.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Using the maximax rule (choosing B because it has 130) or calculating expected values.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA PM — Performance Management Practice Exam 4

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