Questions and Answers
What is the probability of the manufacturing plant being catastrophically destroyed without loss of life or injury through a process malfunction each year?
0.000001%
What is the severity of the risk to the plant due to the process malfunction?
$2,000,000,000
What is the formula used to calculate the risk in this scenario?
Risk = probability x severity
What is the unit of measurement for the cost of the risk to the plant due to the process malfunction?
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What is the correct calculation for the annual cost of the risk to the plant due to the process malfunction?
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What is the purpose of calculating the annual cost of the risk to the plant due to the process malfunction?
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What is the relationship between the probability and severity of a risk?
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What is the primary factor that determines the cost of the risk to the plant due to the process malfunction?
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What is the consequence of underestimating the annual cost of the risk to the plant due to the process malfunction?
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What is the benefit of quantifying the annual cost of the risk to the plant due to the process malfunction?
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What is the primary consideration in determining the annual cost of the risk to the plant due to the process malfunction?
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What would be the annual cost of the risk to the plant if the severity of the risk was $1 billion?
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What is the effect of increasing the probability of the process malfunction on the annual cost of the risk to the plant?
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What is the purpose of calculating the annual cost of the risk to the plant due to the process malfunction in the context of risk management?
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What is a potential consequence of overestimating the annual cost of the risk to the plant due to the process malfunction?
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Study Notes
Risk Management
- A manufacturing plant costs $2 billion to build and has a 1 in a million chance each year of being catastrophically destroyed without loss of life or injury through a process malfunction.
- The annual cost of the risk to the plant due to the process malfunction can be calculated using the risk formula: Risk = Probability x Severity.
- The probability of the plant being destroyed is 0.000001 (1 in a million).
- The severity of the risk is the cost of the plant, which is $2,000,000,000.
- The annual cost of the risk is calculated by multiplying the probability and severity: 0.000001 x 2,000,000,000=2,000,000,000 = 2,000,000,000=2,000.
- The correct answer is D. $2,000.
Risk Management
- A manufacturing plant costs $2 billion to build and has a 1 in a million chance each year of being catastrophically destroyed without loss of life or injury through a process malfunction.
- The annual cost of the risk to the plant due to the process malfunction can be calculated using the risk formula: Risk = Probability x Severity.
- The probability of the plant being destroyed is 0.000001 (1 in a million).
- The severity of the risk is the cost of the plant, which is $2,000,000,000.
- The annual cost of the risk is calculated by multiplying the probability and severity: 0.000001 x 2,000,000,000=2,000,000,000 = 2,000,000,000=2,000.
- The correct answer is D. $2,000.
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Description
A question about calculating the annual cost of risk to a manufacturing plant due to process malfunction. The plant cost $2 billion to build and has a one in a million chance each year of being catastrophically destroyed.
