Alejandro’s Moab Grill features authentic Mexican dishes delivered in a relaxing Western motif. Given the short summer tourist season, Alejandro (the owner) decided to identify his top risk. Alejandro is most concerned that his restaurant will go relatively unnoticed by tourists as the number of other local competing restaurants continues to increase. As a result, he worries about the risk that the restaurant attracts fewer diners, thereby causing a decrease in sales revenue. The chart below contains a description of this top risk, an inherent risk assessment, three risk response alternatives (A through C), and a residual risk assessment for each response alternative.

Finally, Alejandro estimates that the cost of implementing risk response A is $100,000 and the cost of implementing risk response B is $1,000,000.

Required:
1. Calculate the inherent risk for Alejandro.
2. Calculate the residual risk for Alejandro associated with each of the three risk response alternatives A, B, and C.
3. Calculate the benefit for Alejandro associated with each of the three risk response alternatives A, B, and C.
4. Calculate the net benefit Alejandro associated with each of the three risk response alternatives A, B, and C.
5. Using net benefit as the criterion, which risk response should Alejandro choose to implement?

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Risk Fewer tourists choose to dine at Alejandro's, thereby causing the 60% restaurant to lose considerable sales revenue. Inherent Risk Impact (On Lost Likelihood Revenues) Risk Response Alternatives Likelihood A-Switch the advertising campaign to more directly 40% target tourists. B-Redesign the $3,000,000 restaurant's exterior appearance to increase its curb appeal to tourists. C-Take no action in response to possibility of insufficient tourist diners. 30% Residual Risk 60% Impact (On Lost Revenues) $2,000,000 $1,000,000 $3,000,000