Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Planet Motors manufactures general and special purpose industrial motors. A description of Planet's top risk, an inherent risk assessment, three risk response alternatives, and a
Planet Motors manufactures general and special purpose industrial motors. A description of Planet's top risk, an inherent risk assessment, three risk response alternatives, and a residual risk assessment for each response alternative is provided in the chart given below. | ||
Inherent Risk | ||
Risk | Likelihood | Impact |
(on lost revenues) | ||
A global industrial motor manufacturer has recently shown a keen interest in entering the same customer market served by Planet; it may significantly impact Planet's annual sales revenue. | 50% | $76,000,000 |
Risk Response | Residual Risk | |
Alternatives | Likelihood | Impact |
(on lost revenues) | ||
ASign long-term sales contracts with its three biggest customers before the competitor enters the market | 25% | $66,000,000 |
BInvest in a new quality program with the aim of significantly increasing the performance and quality of its motors so that the new entrant could not match with its quality | 40% | $15,000,000 |
CTake no action in response to this possible new threat | 50% | $76,000,000 |
It is estimated by Planet's management that the incremental cost of implementing risk response A is $15,000,000 and the incremental cost of implementing risk response B is $14,000,000. | ||
Required: | ||
A) Calculate the benefit for Planet Motors associated with each of the three risk response alternatives A, B, and C. | ||
B) Calculate the net benefit for Planet Motors associated with each of the three risk response alternatives A, B, and C. | ||
C) Using net benefit as the criterion, which risk response should Planet Motors choose to implement? |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
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