Kalani’s Fish Taco Hut is a small start-up restaurant in Hanalei. Kalani recently completed an online risk management course and has identified food safety as his restaurant’s top risk. Specifically, he is concerned that the potential of spoiled food resulting from inadequate refrigeration and food preparation techniques could drastically increase restaurant costs. The chart below contains a description of this top risk, an inherent risk assessment, three risk response alternatives, and a residual risk assessment for each response alternative.

Finally, Kalani estimates that the cost of implementing risk response A is $600,000, and the cost of implementing risk response B is $150,000.

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

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Risk Inadequate refrigeration and food preparation techniques result in costly food spoilage problems for Kalani. Inherent Risk Likelihood 60% Impact (on operating costs) $2,000,000 Risk Response Alternatives A-Invest in new and larger refrigeration units B-Design and implement new and improved food preparation training techniques for all employees C-Take no action in response to possible new regulation Likelihood 40% 50% Residual Risk 60% Impact (on operating costs) 500,000 $800,000 $2,000,000