Justify as to how the management of the positive risk will influence the achievement of project objectives c) Explain why it is important for a risk management process to cover both threat and opportunity. Make sure that you justify your reasons. Question twelve A firm has developed a new product X. They can either test the market or abandon the project. The details are set out below; Testing the market cost 50,000FCFA, while the likely outcomes are favourable with a probability of 0.7 or unfavourable (failure) with a probability of 0.3. If favourable they could either abandon or produce it. The demand, probability and loss/profit for the product when produced are anticipated and presented in the table below; Demand Probability Profit/loss Low 0.25 - 100,000 Medium 0.6 150,000 High 0.15 450,000 If the test market indicates failure, the project would be abandoned. Abandonment at any stage results in a gain of 30,000FCFA for the special machinery used. a) Draw the decision tree showing the nodes and probability b) Evaluate the decision tree Question thirteen You are given the following payoff table; State of Nature Weak Stable Strong Decision Alternatives NW production 6 8 13 SW production 12 11 10 a) Where will production take place based on (i) Laplace (ii) maximin (iii) maximax (iv) minimax (v) Hurwitz rule with =0.4 b) If the probabilities of the various states of nature are 0.2, 0.5 and 0.3 respectively for weak, stable and strong; illustrate the decisions, states of nature, probabilities and payoffs using a decision tree and hence use the expected monetary value criterion to make a decision on the region of production. Question fourteen a) Explain how 5 different project risk identification techniques can support the achievement of a project’s objectives. b) Explain the inputs, tools and output of plan risk management c) Identify any six inputs in identifying risk d) Name and describe the risk factors e) What is a tornado diagram Question fifteen Identify and describe the major risk management processes .
Justify as to how the management of the positive risk will influence the
achievement of project objectives
c) Explain why it is important for a risk management process to cover both threat and
opportunity. Make sure that you justify your reasons.
Question twelve
A firm has developed a new product X. They can either test the market or abandon the project.
The details are set out below;
Testing the market cost 50,000FCFA, while the likely outcomes are favourable with a
probability of 0.7 or unfavourable (failure) with a probability of 0.3. If favourable they could
either abandon or produce it. The demand, probability and loss/profit for the product when
produced are anticipated and presented in the table below;
Demand
Probability
Profit/loss
Low
0.25
- 100,000
Medium
0.6
150,000
High
0.15
450,000
If the test market indicates failure, the project would be abandoned. Abandonment at any stage
results in a gain of 30,000FCFA for the special machinery used.
a) Draw the decision tree showing the nodes and probability
b) Evaluate the decision tree
Question thirteen
You are given the following payoff table;
State of Nature
Weak Stable Strong
Decision
Alternatives
NW production
6
8
13
SW production
12
11
10
a) Where will production take place based on (i) Laplace (ii) maximin (iii) maximax (iv)
minimax (v) Hurwitz rule with
=0.4
b) If the probabilities of the various states of nature are 0.2, 0.5 and 0.3 respectively for
weak, stable and strong; illustrate the decisions, states of nature, probabilities and
payoffs using a decision tree and hence use the expected monetary value criterion to
make a decision on the region of production.
Question fourteen
a) Explain how 5 different project risk identification techniques can support the
achievement of a project’s objectives.
b) Explain the inputs, tools and output of plan risk management
c) Identify any six inputs in identifying risk
d) Name and describe the risk factors
e) What is a tornado diagram
Question fifteen
Identify and describe the major risk management processes .
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