ABC Construction is considering two options for its supplier portfolio. Option 1

Question

ABC Construction is considering two options for its supplier portfolio. Option 1 uses two local suppliers. Each has a "unique-event" risk of 8%, and the probability of a "super-even" that would disable both at the same time is estimated to be 2.5%. Option 2 uses two suppliers located in different countries. Each has a "unique-event" risk of 18%, and the probability of a "super-event" that would disable both at the same time is estimated to be 1.2%. Find the option that would provide the lowest risk of a total shutdown. Give that value of the probability of total disruption as your answer. (Note: Round your final answer only. Round your final answer to 5 decimal places). Your Answer: Answer

Explanation / Answer

Reliability = 1- Risk

So, the best option is:

Reliability of Option 1 Unique event 0.92 R 1 Super event 0.975 R2 2 Unique event 0.92 R Step 1 Reliability of Unique event R'= 1-(1-R)*(1-R) R' 0.9936 Step 2 Reliability of Unique event with Super Rnet = R'*R2 0.96876 Probability of total disruption is 1-Rnet 0.03124 Reliability of Option 1 Unique event 0.82 R 1 Super event 0.988 R2 2 Unique event 0.82 R Step 1 Reliability of Unique event 1-(1-R)*(1-R) R' 0.9676 Step 2 Reliability of Unique event with Super R'*R2 0.9559888 Probability of total disruption is 1-Rnet 0.04401

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