Page 20 - OCS Workbook - Day 1 Task (May 2018)

CIMA MAY 2018 – OPERATIONAL CASE STUDY

4 RISK AND UNCERTAINTY

EXERCISE 4(A) – KEY RISKS

Question Your response

Identify four significant areas
of risk for Mansako.

EXERCISE 4(B) – USING EXPECTED VALUES

Melanie Zhang (Sales and Marketing Director) is considering the possibility of producing a luxury
perfume as an additional accessory to reinforce the Mansako brand. The plan would be to run the
idea as a pilot study, use an external supplier rather than develop the perfume in-house and sell
the new product in Mansako owned stores in Lowerland. This is a new venture for Mansako so
the Board are concerned about the risks.

A range of scenarios have been discussed and outcomes have been estimated as follows:

Scenario I probability = 0.6 profit of L$500,000

Scenario II probability = 0.3 profit of L$120,000

Scenario III probability = 0.1 loss of L$205,000

Calculate the expected value of the profit and comment on the acceptability of the project.

16 KAPLAN PUBLISHING