Risk management question in Rita Fast Track 8

Submitted by Mr.Bond on Wed, 02/05/2014 - 09:43

 Hi All,

Coul you please explain following question?

Quesion ID: 992

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

A) No, since $1,250 > $1,000

B) Yes, since $1,000 > $950

C) Yes, since $1,000 > $700

D) No, since the deductible amount changes the expected monetary value of the risk event

 

The correct answer is B.

I don't know how does $950 calculate? Kindly explain. Many thanks.

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amyg

Thu, 02/06/2014 - 10:08

 10000x0.1 = 1000 is the cost if the risk does occur 

insurance cost is 700 

deductible = 250  

total cost for PM = 950. 

 

therefore 1000 > 950 and PM will save $50 but thats not the point, the option is Risk is greater than the money PM is paying to the insurance therefore yes PM should buy it. 

Mr.Bond

Fri, 02/07/2014 - 03:24

 Thanks amyg so much