A pharmaceutical company is developing a new drug to treat a rare disease. The project is expected to take two years, and the estimated cost is $50 million. The company has identified four potential risks associated with the project, which are:

1. Regulatory approval may not be obtained, resulting in a complete loss of investment.
2. Clinical trial results may not meet expectations, leading to additional trials and increased costs.
3. A competitor may release a similar drug before the project is completed, reducing the market demand and revenue potential.
4. The drug may have unexpected side effects that require additional development and increased costs.

The company's management team has assessed each risk and assigned probabilities and impacts as follows:

Risk	Probability	Impact
Regulatory approval not obtained	0.20	$50 million
Clinical trial results not meeting expectations	0.30	$10 million
Competitor releases similar drug	0.25	$30 million
Unexpected side effects	0.10	$20 million

Assuming that the risks are independent of each other, calculate the expected value of the total risk cost, the standard deviation of the total risk cost, and the probability of a cost overrun exceeding $10 million.

Answer rating: 100% (QA)

The detailed answer for the above question is provided below To calculate the expected value of the total risk cost we need to multiply the probabilit... View the full answer