question in risk management knowledge area

Submitted by vijayavadrevu on Sat, 03/16/2013 - 14:43

There is a probability of 0.1 that a given risk event will occur in a project. If it occurs it will result in a loss of $10,000. The insurance cost for this event is $700 plus a deductible amount of $250. Should a project manager buy this insurance?

The answer is given as "Yes, since $1000 > $950"

Can someone explain the reasoning please?

 

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kmkan28

Sat, 03/16/2013 - 14:58

The solution lies in the question

If the risk occurs the loss of cost will be 10000*0.1=1000

where as the insurance cost is 700 plus 250=950

The insurance cost  (950) is less than 1000.

vijayavadrevu

Sat, 03/16/2013 - 17:47

Thank You for the response

 

Regards

Vijaya