Using Net Benefit to Evaluate Risk Response Alternatives

Cooper Movie Studio Corp. makes movies and is interested in lowering its operating costs for the following year, while maintaining the high quality and appeal of its movies. Coopers management is concerned about the additional costs the company would have to incur if new industry regulation is passed by Congress. The chart at the top of the next page contains a description of this top risk, an inherent risk assessment, three risk response alternatives, and a residual risk assessment for each response alternative.

		Inherent Risk				Risk Response		Residual Risk
Risk		Likelihood		Impact (on operating costs)		Alternatives		Likelihood		Impact (on operating costs)
Poor behavior by others in the industry results in Congress passing costly new legislation that regulates the behavior of all movie studios.		30%		$80,000,000		AShare Coopers effective marketing processes with competitors to help mitigate poor industry behavior		20%		$80,000,000
						BLobby Congress on behalf of the movie industry generally and Cooper in particular		15%		$50,000,000
						CTake no action in response to possible new regulation		30%		$80,000,000

Finally, Coopers management accountants estimate that the incremental cost of implementing risk response A is $3,000,000 and the incremental cost of implementing risk response B is $13,000,000.