How to Calculate the Maximax

by Jackson Lewis ; Updated September 26, 2017

Maximax refers to the business strategy of trying to "maximize your maximums." Namely, the maximax theory maintains the primary focus on choosing a course of action that will result in the maximum payoff after conducting an evaluation. In the maximax analysis, only favorable outcomes and high potential outcomes are the areas of concern, and require an environment where risk is acceptable. As a result, the maximax strategy can result in the greatest loss when not considering all potential outcomes.

List all potential positive outcomes for a business decision. For example, consider the investment decision of having $10,000 to invest. Your choices are as follows: 1) Invest the entire amount with Chevron/Texaco, which paid a 10 percent yield over the past year; 2) Invest the entire amount in a certificate of deposit with a guaranteed yield of 5 percent; or 3) Invest the entire amount with a research and development company that may have a 20 percent yield if their current project testing does not fail in two months.

Select the choice that has the highest potential positive outcome. In the above example, the investment in the research and development company has the highest potential outcome, so it is the choice made using an maximax analysis.

Repeat the maximax analysis if conditions change prior to making your decision. In the above example, if the early reports of the research and development company's project testing indicate that it will not be successful, then choose the next highest return on your investment, which would be the Chevron/Texaco investment.

About the Author

Based in Memphis, Jackson Lewis has been writing on technology-related material for 10 years with a recent emphasis on golf and other sports. He has been freelance writing for Demand Media since 2008. Lewis holds a Master of Science in computer science from the United States Naval Postgraduate School.

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