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seekers seek to maximise possible returns and hence will follow the maximax method -securing
the highest profit of US$ 163.6 million (Design 1 –10 million tonnes). Risk-averse companies will

seek to maximise the minimum returns and will follow the maximin method -choosing profit level
US$44.3 million (once again Design 1 – 5 million tonnes). Pessimistic companies will focus on
the lost profit (regret) compared to the best choice under that demand scenario –the minimax

regret method -choosing a maximum regret of 0 (once again Design 1 – 5 million tonnes). Risk-
neutral companies will determine the expected profits given their associated probabilities –this
shows maximum expected profit of US$76 million (Design 2).

We are listed company with a profit maximization drive but some of our values include: care and

respect, integrity and collaboration and we have fully subscribed to the principles of integrated
reporting and corporate governance -these require we balance our economic drive to maximize

returns with social and environmental considerations. We are already operating at the limit of
our ‘political and regulatory risk’ appetite –so we need to tread carefully as the Canadian
government may enact regulations to respond to the plea of ‘Idle no more’ which could add to

our fixed or variable costs. It is likely therefore, that Design 1 is our best choice given our low
appetite for risk. On the other hand, Cephas is a US-based private international mining law
practice who may only have one obligation -to maximize profit (high risk appetite) and hence will

prefer Design 3.

4.5.2 Management of the JV relationship
Our different risk appetites and design preferences is likely going to provoke some serious
disagreements between our companies. This is especially made worse by the power structure which
reflects the shareholding percentages of 50/50. Cephas has presumably brought in its expertise to

secure the mining rights and license to operate and we are bringing in or deep experience in the
actual mining –so it is sensible to presume they should let us direct the construction design. In
practice however, they may not –leading to a deadlock. We need to ensure we structure a proper JV

agreement before we proceed –setting out our respective accountabilities, roles and responsibilities
as well as suitable means for addressing conflicts. We also need to ensure at all times a relationship
of trust is entrenched between the two sets of managers running the JV (Quinta). In any event, our
rivals are entering JVs with local companies and actually including locals or members of ‘Idle No

more’ into their structures –it is not clear why we are doing ours with a firm that is also foreign to
Canada?

4.5.3 Environment reporting
Traditional management accounting systems such as absorption and marginal costing indeed do not
adequately deal with environmental costs. For example: (1) Conventional costs like energy costs are

often hidden within overhead so could be misrepresenting our energy consumed improvement
Developed by The CharterQuest Institute for 'The CFO Business Case Study Competition 2017'
www.charterquest.co.za | Email: thecfo@charterquest.co.za