A risk manager of a company has been trying to estimate the aggregated impact of many possible

events to the company. The manager has listed potential events that could happen in the coming

year, and has assigned a probability of occurrence to each event. The manager has also estimated

the financial impact of each event. The data is summarized in Table 1.

Table 1. List of Potential Events

Event Probability per year Impact if Occurs ($1,000,000) Expected Loss ($1,000,000) IT system, major failure 1.0% 5.0 0.05 Problem with manufacturing process 2.5% 1.0 0.025 Serious illness of a Board member 5.0% 0.1 0.005 Employee wins law suit 8.0% 2.5 0.2 Entry of new competitor 10.0% 10.0 1 Failure of new product launch 7.5% 6.0 0.45 Strengthening of $ Xrate 35.0% 1.0 0.35 Fire in head office 2.0% 2.5 0.05 Fraud 0.5% 5.0 0.025 Confidential data lost 1.0% 3.0 0.03 Large customer goes bankrupt owing money 2.0% 5.0 0.1 Total 2.285Event Probability per year Most Likely Loss if occured ($1M) Minimum Loss Maximum Loss IT system, major failure 1.0% 5.0 3 7 Problem with manufacturing process 2.5% 1.0 0.5 1.5 Serious illness of a Board member 5.0% 0.1 0.05 0.15 Employee wins law suit 8.0% 2.5 2 3 Entry of new competitor 10.0% 10.0 5 15 Failure of new product launch 7.5% 6.0 4 8 Strengthening of $ Xrate 35.0% 1.0 0.5 1.5 Fire in head office 2.0% 2.5 2 3 Fraud 0.5% 5.0 6 Confidential data lost 1.0% 3.0 2 4 Large customer goes bankrupt owing money 2.0% 5.0 5