Question

Using Net Benefit to Evaluate Risk Response Alternatives Rocket Motors manufactures sterndrive engines for pleasure craft boats. Rocket's management is concerned about increasing competition in its industry, resulting from a very large international boat motor manufacturer that appears to be seriously considering entering the same customer market served by Rocket. Specifically, management is most worried about the sales revenue it might lose should this international competitor enter Rocket's market. The chart below contains a description of Rocket's 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 Impact (on lost revenues) Impact (on lost revenues) Risk Likelihood Alternatives Likelihood 50% $60,000,000 25% $50,000,000 A large international Yompetitor enters the same market served by Rocket, thereby significantly decreasing Rocket's annual sales revenue. A-Sign long-term sales contracts with its five biggest customers before the competitor enters the market 40% $15,000,000 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