1. Planet Motors manufactures general and special purpose industrial motors. Planet's management is worried about increasing competition in its industry as a global industrial motor manufacturer has recently shown a keen interest in entering the same customer market as served by Planet. The management is most concerned about the fact that it may lose a significant amount of sales revenue should this competitor make an entry into Planet's market. 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 Response	Residual Risk
   Risk	Likelihood	Impact (on lost revenues)	Alternatives	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	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 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 inherent risk for Planet Motors.

   B.) Calculate the residual risk for Planet Motors associated with each of the three risk response alternatives A, B, and C.

Answer rating: 100% (QA)

A To calculate the inherent risk for Planet Motors we need to multiply the likelihood of the risk oc... View the full answer