Suppose that the manager of a company has estimated the probability of a super-event sometime during the next three years that w
ill disrupt all suppliers as 2%. In addition, the firm currently uses four suppliers for its main component, and the manager estimates the probability of a unique-event that would disrupt one of them sometime during the next three years to be 20%. Supplier management costs during this period are $50,000 per supplier. The financial cost incurred if all four suppliers are disrupted at the same time is estimated to be $10,000,000. What is the expected monetary value (i.e., cost) of the current supplier diversification arrangement? Show the results by drawing the decision tree in POM-QM.
1 answer:
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Answer:
a. ROI Dollar Amount $4; ROI percentage = 8%.
b.ROI Dollar Amount $15; ROI percentage = 15%.
a. We have:
Initial investment $50
Amount at year end $54
ROI Dollar Amount
ROI Percentage
b.
Initial investment $100
Amount at year end $115
ROI Dollar Amount
ROI Percentage