Question

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)
A—Sign long-term sales contracts with its three biggest customers before the competitor enters the market	25%	$66,000,000
B—Invest 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
C—Take 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?

Answer 1