Schaum's Outline Series

CHAPTER 6 Risk Analysis and Management 97
Normal risks—Misunderstanding user desires, miscommunication with user, user
hardware problems, cost overrun, project delays, and so on
Unique risks—Interfacing with patient record system
2. Consider a project that has 0.5 percent probability of an undetected fault that would
cost the company $100,000 in fines. Calculate the risk exposure.
The risk exposure is the sum of the risk exposure for each possibility.
0:005 100,000 þ 0:995 0 ¼ $500
3. Consider the use of an additional review for Problem 2 that would cost $100 but
eliminate such a fault 50 percent of the time. Calculate this new risk exposure with
using the additional review. Is the additional review approach better?
0:0025 100,100 þ 0:9975 100 ¼ 250:25 þ 99:75 ¼ $350:00
The additional review approach is better.
4. What would change in Problem 3 if the additional review was only effective 10 percent
of the time?
The risk exposure would increase.
0:0045 100; 100 þ 0:9955 100 ¼ 450:45 þ 99:55 ¼ 550:00
and be marginally worse than the nonadditional review approach.
5. Build a decision tree for the problem in Example 6.3 if in Game A, the payoff was
$5.00 and if the cost of playing in Game B was $4.00. Should you play either game?
The risk decision tree is shown in Fig. 6-2. In both games you would expect to lose
money. In game A you would lose an average of $0.75, and in Game B you would lose
an average of $1.50.
Game A
Game B
2 heads _ 0.25
1 heads _ 0.5
0 heads _ 0.25
2 heads _ 0.25
1 heads _ 0.5
0 heads _ 0.25
Fig. 6-2
0.25 * $5 = $1.25
0.5 * _ $2 = _ $1.00
0.25 * _ $4 = _ $1.00
0.25 * $10 _ $4 = $1.50
0.5 * _ $4 = _ $2.00
0.25 * _ $4 = $1.00