Question

as a consultant with the risk analysis consulting co., you have completed a quantitative risk assessment regarding the risks associated with using non-company-owned computer to conduct company business. your customer, TRC Chemical, is pleased with the results of the qualitative risk assessment and wants to see hard numbers to see whether it can justify the capital and expense burden of equipping the sales force with company- owned computers, based upon risk mitigation alone. In your risk assessment, make best estimates on the values of information and cost associated with purchasing and supporting company-owned computers.

Answer 1

Computers come under technical risk assesment.A quamtitative risk assesment regarding computers which are not owned by company. Company doesn't want their own computers because the risk regarding burden of expenses and capital. TRC Chemical, pleased with qualitative risk assesment wants to see in numbers related expenses and capital. Expenses can be covered by sales, so there should be increase in sales force. if company wants to purchase own computers, figures related with capital and expenses should be previously analysed.Company's figures related with expenses and sales are not represented. I will take an example, which is related with production units, production costs, selling prices to cover up loss risk.

A production company's predetermined analysis is, it is going to produce 200 units of finished products. Cost/ unit will be $50.cost of producing 200 units will be

200*50 = $10000

Selling Price is $100/unit to coverup production cost/unit and some other cost related to business. Company's target to sell all units. Revenue generated is determined

200*100 = $20000

Profit is analysed $10000 = $20000 - $10000 (revenue - expenses)

Suppose company worked on 20 computers which are not its own. If company going to purchase own computers, analysis will be

Say price of one computer is $1000

no. of computers will have to purchase is 20

Total amount required to purcahse computers is 20*1000 = $20000

Profit is $10000, expenses related with computers will more than profit. So, loss is estimated. For coverup risk of loss in company i am going to increase in production units firstly.Now company going to produce 500 units of finished goods. Production cost per/unit and selling price will remain same. Figures will be

Cost = 500*50 = $25000

Revenue = 500*100 = $50000

Profit = $50000- $25000 =$25000

Profit will be $25000 and computers price is $20000. so, there is $5000 is remaining positive balance to coverup loss. In above analysis Only Production costs are examined.

Now there is $5000 positive balance, but only production cost is cosidered. Suppose there will be $10000 other costs related office and payments. So there will be $5000-$10000 = $(-5000).For coverup risk of loss company going to produce 1000 units. now there is change in decision regarding selling price/unit which is $110/unit. cost/unit will remain same $50/unit.

cost =1000*50= $50000

revenue = 500* 110 =55000 (selling only 500 units from 1000 units)

$55000-$50000= 5000(coverup -5000 amount from extra expenses discussed previously)

Now chances of rise in production costs is determined, these can rise by $20. So, assuming production costs will be $70/unit, company decision regarding selling price will remains same as $110/unit. now predictions are

cost = 1000*70 =$70000

revenue = 500*110 =$55000 (selling only 500 units from 1000)

$50000-$70000 = -15000

increase in sales units upto 100 units

revenue = 600*110 =$66000(selling 600 units)

$66000-$70000 = -4000

increase in sales units by 36

revenue = 636* 110= $69960(selling 636 units out of 1000)

$69960- $70000 =-40

need to increse one more unit of selling product to coverup loss

revenue =637*110 =$70070(selling 637 units out of 1000)

$70070-$70000=$70(minimum selling units to coverup risk of loss)

increse in sales force from units 500 to 637 is requirement to coverup loss. now some extra expense of $10000 would also be covered by increasing no. of units for sell.

minimum 728 units is required to sell coverup $10000 extra expenses.

$728*110 =$80080-$70000 =$10080

No. of units of finished products can be further increased for generate more profits.