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Risk and Uncertainty – Minimax regret, Expected values – ACCA Performance Management (PM)

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  1. Hi sir. I was just wondering, when calculating the expected values, shouldn’t we only apply the probabilities to the expected demand, multiply by $5 (profit) then add the expected profit of the contract. If the contract states fixed number of units purchased each month, why do you apply the probabilities to those too? Thank you for your response.

  3. Dear John,
    Thank you so much actually I do appreciate you lecture lessons which is very useful open-tuition is very useful site it gave me motivation to start studying on my own as I can’t afford physical classes and also i don’t have that much spare time instructors like you was the reason to introduce to ACCA and trying to groom my capabilities as much as i can i think the best thing in life is free thank you my dear

  4. Thank you very for the lecture.
    I think I have an understanding of the minimax regret now. i have been struggling with it for the most part of my exam preparation. So the main point to keep in mind is that we want to minimize our maximum regret. And we do that by calculating regrets at each possible decision we make. So what we basically saying is that if we make our best choice we have no regret, but any other choice then that, then there will be an opportunity to maximise our returns forgone and hence the regret. I am just trying to check if I grasp the concept.

  5. Hi,

    Does the expected value look at the probability of our uncertain demand in relation to different contract amounts? Also why do we multiply the sum of the contract value and uncertainty by the probability when the contract would mean 100% demand of the set contract units. Does the probabilities not only affect the uncertain demand profits?

    Thanks

    • The probabilities only relate to the uncertain demand (in this question the normal demand). The contracted amount is our choice and is not uncertain, but whatever amount we decide to sign the contract for the eventual outcome will depend on the level of normal demand that occurs.

  6. Hi sir John,
    why are we using normal demand in calculating the regret rule but used contract sizes for maximax and maximin. if we used the contract sizes then the regret value for contract size 800 should have been zero all through. Please explain

  7. Sir! Regarding your lecture in solving for the minimax in Demand of 900 in our regret table, the difference of 5000 and 4600 is 400. Did I miss a point of how it got an 800 difference?

    • Hi ellesouth16,
      in the case of the demand of 900 units, instead of deducting 4,600 from 5,000, we should use 5,600 instead. And that is how we got the difference of 800.

  8. Hi John,
    On Expected values with probabilities (referring to the example question in your lecture video), shouldn’t we be applying the probability to the normal demand customers alone, instead of total demand?
    Thank You.

  9. Respected sir,
    There鈥檚 a lot question of expected values in BPP.
    A manager has to choose between exclusive option c and d
    But the way they answered Is not shown in the book except the final answer which is option c m,
    But I really don鈥檛 know how they have calculated it kindly help me regarding this question

    • I assume you are referring to the preparation of the regret table. If so, then for each uncertain item (the level of normal demand) we calculate the regret for each of the possible choices.

      I do suggest you watch the lecture again because I do spend time explaining.

  11. Hi dear john
    I watched your lecture and that was really helpful for me except the last point you coverd was about expected value
    I couldnt get what is the correct definition of probability
    at first My thought was about it is a rate that shows there is a risk that our normal demand might be 0.X possible of the total
    And so we should just multiply it by our normal expected profit and Because the contract is not
    probable and it is guaranteed, its profit should be fixed and unchanged
    But here as a consequence you considered the probability rate is multiplied by both normal and contracted demand.
    I think i got somethinge wrongly
    So would you please show me the right logic

    Thanks for your lectures…

  12. Question 9 in the BPP question and practice kit has it with negative numbers. It was profit margin as the exam, so had to add it. For example, option 2 was -8 and best for that demand was 4. Therefore, answer was -12. In order to get the best it was out by -12.

    I hope I am making sense, sorry.

    • Question 9 in the current edition of the BPP Kit is nothing to do with uncertainty – tell me the name of the question and I will see if it is the current edition.

      However, the regret table – by definition – is showing ‘losses’, so we never show them as negatives (you cannot have negative regret 馃檪 )

  13. Hi John, thank you for this lecture/ for minimax regret,how do we work it out if we have negative values please? instead of subtracting the max regret, do we add?

  14. Thanks John. Well understood. The minimax regret approach looks at the minimum of the maximum regret and is used by someone who is a risk avoider.

    Expected value looks at the average return of the outcomes (contract is sign for the outcome with the highest return) and is an approach used by someone who is risk neutral. Such an individual make decision based on the most likely or average outcome that may occur.

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