Suppose That the Manager of a Company Has Estimated the Probability

question 31

Multiple Choice

Suppose that the manager of a company has estimated the probability of a super-event sometime during the next three years that will disrupt all suppliers as 2%.In addition,the firm currently uses four suppliers for its main component,and the manager estimates the probability of a unique-event that would disrupt one of them sometime during the next three years to be 20%.Supplier management costs during this period are $50,000 per supplier.The financial cost incurred if all four suppliers are disrupted at the same time is estimated to be $10,000,000.What is the expected monetary value (cost) of the current supplier diversification arrangement?

• A)$412,800
• B)$415,680
• C)$10,200,000
• D)$215,680
• E)$8,240,000

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Definitions:

Time Horizon

The length of time over which an investment, project, or strategic decision is expected to yield results or be evaluated.

Nominal Group Technique

A structured method for group brainstorming that encourages contributions from everyone and is used to generate and prioritize ideas.

Critical Incident Technique

A method used in organizational development and research to gather significant actions or events that have impacted a project or outcome, for the purpose of learning and improvement.

Delphi Technique

The Delphi Technique is a structured communication method used for systematic interactive forecasting by experts of the likelihood and outcome of future events.