Brief Exercise 13-27 Using Net Benefit to Evaluate Risk Response Alternatives Palakikos Fish Taco Hut is a small start-up restaurant in Hanalei. Palakiko recently completed an online risk management course and has identified food safety as his restaurants top risk. Specifically, he is concerned that the potential of spoiled food resulting from inadequate refrigeration and food preparation techniques could drastically increase restaurant costs. The chart below contains a description of this top risk, an inherent risk assessment, three risk response alternatives, and a residual risk assessment for each response alternative.

Finally, Palakiko estimates that the cost of implementing risk response A is $201,250, and the cost of implementing risk response B is $195,000. Required: 1. Calculate the inherent risk for Palakiko.

2. Calculate the residual risk for Palakiko associated with each of the three risk response alternatives A, B, and C.

3. Calculate the benefit for Palakiko associated with each of the three risk response alternatives A, B, and C.

4. Calculate the net benefit for Palakiko associated with each of the three risk response alternatives A, B, and C.

5. Using net benefit as the criterion,which risk response should Palakiko choose to implement?

Inherent Risk Risk Response Residual Risk Impact Impact on operating costs $325,000 (on operating costs Likelihood 15% Risk Inadequate refrigeration and food preparation techniques result in costly food spoilage problems for Palakiko. Likelihood 40% Alternatives A-Invest in new and larger refrigeration units B-Design and implement new and improved food preparation training techniques for all employees C-Take no action in response to possible new regulation $1,000,000 35% $300,000 40% $1,000,000 Inherent Risk Risk Response Residual Risk Impact Impact on operating costs $325,000 (on operating costs Likelihood 15% Risk Inadequate refrigeration and food preparation techniques result in costly food spoilage problems for Palakiko. Likelihood 40% Alternatives A-Invest in new and larger refrigeration units B-Design and implement new and improved food preparation training techniques for all employees C-Take no action in response to possible new regulation $1,000,000 35% $300,000 40% $1,000,000