risk management hw

P a g e 1 | 2

RMI 2101

Fall 2016

Homework Assignment 6

16 Points

Due on Monday, October 17, 2016 AT THE BEGINNING OF CLASS

For this assignment, NO LATE HOMEWORK will be accepted beyond 5:30 PM on

Monday, October 17, 2016.

Be careful to follow the Guidelines for Homework Document located in the Course Documents

Section of Blackboard. You will lose points for not following proper format.

1. Refer to the article in Topic 5 “Collision avoidance systems can decrease accidents 40

percent, suggests preliminary research findings”.

a. Indicate one example of a risk control option illustrated in this article.

[2 points]

b. For your answer to part [a], indicate what specific risk control option is being

illustrated by the example. In other words, is your answer an example of

avoidance, loss prevention, etc.? [1 point]

c. For your answer to part [b], explain why your answer is an example of risk

control. In other words, explain how it fits into the goals of risk control options

as discussed in class. [1 point]

2. Refer to the Case Studies article in Topic 5 “Four years after quake: Japan Inc. better

prepared to function in disasters”.

a. Indicate an example of a risk control option implemented by Japanese

companies in this article. [2 points]

b. For your answer to part [a], indicate what specific risk control option is being

illustrated by the example. In other words, is your answer an example of

avoidance, loss prevention, etc.? [1 point]

c. For your answer to part [b], explain why your answer is an example of risk

control. In other words, explain how it fits into the goals of risk control options

if the specific risk control option is properly implemented as discussed in class

capture. [1 point]

P a g e 2 | 2

3. Consider the following two scenarios [Option A and Option B]:

Manaka Inc. has the total inventory of $3,000. Currently, Manaka has this entire

inventory stored in one warehouse. There is a 15% chance that a fire could occur. If this

fire occurs, then Manaka will lose their entire inventory. [Option A]

As an alternative to keeping their entire inventory in one warehouse, Manaka is

considering separating their inventory evenly into two different warehouses. Once

again, there is a 15% chance that a fire could occur in each warehouse. If this fire occurs,

then Manaka would once again lose their entire inventory in that particular warehouse.

[Option B]

Read about this concept in Chapter 5 of your text under the heading ‘Separation’ on

pages 5.9 – 5.12 in order to answer this question properly.

a. First, consider Option A.

What is the probability of having $0 in losses?

What is the probability of having $3,000 in losses?

Derive the probability distribution for total dollar losses under Option A. Note

that this question asks for total dollar losses, not number of losses. Hint: Think

about the definition of a probability distribution and apply it in this case. [2

points]

b. Now consider Option B.

Derive the probability distribution for total losses under Option B. Hint: In the

case of Option B, you need to consider all the possible outcomes in terms of

dollar amount of losses, recognizing that Manaka now has two warehouses.

Further hint: consider the rules of probability as discussed in class when you

derive your probability distribution. [2 points]

c. Compare the amount of risk Manaka faces under Option A vs. Option B. Which

option has more risk? Justify and demonstrate your answer. Recall our

discussion in Topic 4 about how we measure risk. [4 points]