A hospital has identified the following risks and associated probabilities:

• Risk 1: Equipment failure in the operating room. Probability of occurrence is 5% with an associated cost impact of $150,000.
• Risk 2: Malpractice lawsuits. Probability of occurrence is 10% with an associated cost impact of $500,000.
• Risk 3: Cybersecurity breach. Probability of occurrence is 15% with an associated cost impact of $250,000.

The hospital has a risk appetite of $500,000 per year for all risks. The hospital is considering implementing risk mitigation strategies to reduce the probabilities of the risks. The cost of implementing these strategies is as follows:

• Risk 1: $25,000
• Risk 2: $100,000
• Risk 3: $75,000

a) Calculate the expected value of the total cost impact of the risks without mitigation strategies.

b) Calculate the expected value of the total cost impact of the risks with the proposed mitigation strategies.

c) Determine the net expected value of implementing the mitigation strategies.

d) Should the hospital implement the proposed mitigation strategies?

(Show all calculations and round your answers to the nearest dollar)

Answer rating: 100% (QA)

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