Question

Jackson Systems is considering becoming certified to the ISO 9000 series of quality standards. Becoming certified is expensive, but the company could lose a substantial amount of business if its major customers suddenly demand ISO certification and the company does not have it. At a management retreat, the senior executives of the firm developed the following payoff table, indicating the net present value of profits over the next 5 years.

	Profits (in $000)
	Standards Req	Standards Not Req
Become Certified	$575.00	$500.00
Stay Uncertified	$450.00	$600.00

What decision should the company make using the minimax regret strategy?

Select one:

a. Become certified

b. Do not become certified

c. Not enough information to decide

Answer 1

The minimax regret strategy is the one that minimises the maximum regret. It is useful for a risk-neutral decision maker.

Step 1 first find highest profit in each standard so 575$ and 600$

Now we will think how much we will lose if we choose other option than the maximum profit option

Now regret table here you subtract maximum to other options and then in the end add all regrets

	req	Not req	Total Regret
Become	0	100	100
Dont become	125	0	125

Total regret is less for becoming certified so answer is A

A) Become certified

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