The business manager of Kien Sneakers wishes to analyse three strategic options available to the company (Cost-cutting; Diversification; Expansion) under four possible UK macroeconomic conditions: Recession, Low Growth, Medium Growth and High Growth. He has summarised available information in the following pay-off matrix (with impact on company profits in the next year in 000s).

	Macroeconomic Conditions
	Recession	Low Growth	Medium Growth	High Growth
Cost-Cutting	100	130	170	200
Diversification	-120	50	240	300
Expansion	-250	30	300	500

Required:

1. Which option should Kien Sneakers choose based on of the following criteria? Indicate what attitude to risk each represents.

1. Maximax (2 marks)
2. Minimax (2 marks)

2. Construct a potential regret matrix and use it to determine the best option according to the minimax regret criterion.

(5 marks)

3. The business manager decides to access the latest macroeconomic predictions from the Bank of England. This provides him with the following probabilities: Recession (15%), Low Growth (30%), Medium Growth (35%), and High Growth (20%). Which option is preferred according to the expected monetary value (EMV) criterion? What attitude to risk does this represent?

(5 marks)

4. Write a brief note to the business manager of Kien advising him of the best option to choose, giving your reasons.

(4 marks)

(Total: 25 marks)