Question
A pharmaceutical company is developing a new drug to treat a rare disease. The project is expected to take two years, and the estimated cost
A pharmaceutical company is developing a new drug to treat a rare disease. The project is expected to take two years, and the estimated cost is $50 million. The company has identified four potential risks associated with the project, which are:
- Regulatory approval may not be obtained, resulting in a complete loss of investment.
- Clinical trial results may not meet expectations, leading to additional trials and increased costs.
- A competitor may release a similar drug before the project is completed, reducing the market demand and revenue potential.
- The drug may have unexpected side effects that require additional development and increased costs.
The company's management team has assessed each risk and assigned probabilities and impacts as follows:
Risk | Probability | Impact |
---|---|---|
Regulatory approval not obtained | 0.20 | $50 million |
Clinical trial results not meeting expectations | 0.30 | $10 million |
Competitor releases similar drug | 0.25 | $30 million |
Unexpected side effects | 0.10 | $20 million |
Assuming that the risks are independent of each other, calculate the expected value of the total risk cost, the standard deviation of the total risk cost, and the probability of a cost overrun exceeding $10 million.
Step by Step Solution
3.41 Rating (160 Votes )
There are 3 Steps involved in it
Step: 1
The detailed answer for the above question is provided below To calculate the expected value of the total risk cost we need to multiply the probabilit...Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started