Analyzing Alternate Risk Response Options
Strategic Objective: Improve the fiscal competitiveness of B. Cooper Movie Studio Corp.
Operations Objective: Reduce operating costs by $200 million for the following fiscal year, while at least maintaining current revenue stream from movie sales
Unit of Measure: Total operating costs for Cooper's Movie Studio
Risk Tolerance: $190-$210 million reduction in total operating costs for Cooper's movie studio segment
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Risk
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Inherent Risk
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Residual Risk
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Likelihood
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Impact (on oper. costs)
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Risk Response Alternatives
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Likelihood
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Impact
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Poor behavior by others in the industry results in Congress passing costly new legislation that regulates the behavior of all movie studios *
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30%
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$80,000,000
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A - Share Cooper's effective marketing processes with competitors to help mitigate poor industry behavior
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20%
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$80,000,000
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B - Lobby Congress on behalf of the movie industry generally and Cooper in particular
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15%
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$50,000,000
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C - Take no action in response to possible new regulation
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30%
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$80,000,000
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* Two of Cooper's biggest competitors currently are being sued for allegedly marketing their R-rated movies (The Hangover and Wedding Crashers) to underage youths on a consistent and deliberate basis.
Requirements:
Calculate the effect on Cooper's operating costs that would be expected from choosing risk response A. Show your calculations.
Calculate the effect on Cooper's operating costs that would be expected from choosing risk response B. Show your calculations.
Calculate the effect on Cooper's operating costs that would be expected from choosing risk response C. Show your calculations.
Based on your responses to requirements 1-3, which risk response should Cooper choose? Explain your reasoning.
Finally, assume that the cost of implementing risk response A is $3,000,000 and the cost of implementing risk response B is $13,000,000. Which of these two responses, A or B, should Cooper choose? Explain your reasoning.