Risk Inherent Risk

Likelihood Inherent Risk

Impact

$($on lost revenues$)$ Risk Response

Alternatives Residual Risk

Likelihood Residual Risk

Impact

$($on lost revenues$)$

A large international

competitor enters the same

market served by Rocket,

thereby significantly

decreasing Rocket's annual

sales revenue. $50\%$ $$60,000,000$ A$$Sign long$-$term sales

contracts with its five

biggest customers before

the competitor enters the

market $25\%$ $$50,000,000$

B$$Invest in a new quality

program to significantly

increase the performance

and quality of its engines

beyond the level achieved

by the new competitor $40\%$ $$15,000,000$

C$$Take no action in

response to possible new

regulation $50\%$ $$60,000,000$

Finally, Rocket's management accounting team estimates that Rocket would need to spend $$10,000,000$ in product giveaways on each of its five biggest customers in order to convince them to sign long$-$term sales contracts with Rocket. Also, the team believes that Rocket would incur $$8,500,000$ in additional sales staff travel to complete the long$-$term contracts. Further, the team estimates that the new quality program would cost $$15,000,000$ in order to attain the higher level of performance quality necessary to set Rocket apart from its potential new competitor. Finally, Rocket forecasts that it would need to spend an additional $$5,000,000$ on advertising to sufficiently spread the word to customers regarding its significantly improved performance quality.