During design phase, Option A has a 25% risk of failing a performance requirement and costs $45,000; Option B offers an alternative with 5% risk and costs $50,000. If the owner wants to minimize risk exposure, which option should be recommended based on risk value?

During design phase, Option A has a 25% risk of failing a performance requirement and costs $45,000; Option B offers an alternative with 5% risk and costs $50,000. If the owner wants to minimize risk exposure, which option should be recommended based on risk value?

• A. Option A because of the lower lifecycle cost.
• B. Option A because of the risk's higher monetary value.
• C. Option B because of the lower lifecycle cost.
• D. Option B because of the risk's lower monetary value.

Answer: (D)

The main idea is comparing risk value as the expected monetary impact of a risk, which is the probability of the risk occurring times the potential loss if it happens. If the potential loss (cost of failure) is assumed the same for both design options, the option with the lower probability has the lower risk value. Here, one option has a 25% chance of failing a performance requirement, and the other has a 5% chance. Since the potential cost of failure is the same in both cases, the expected risk is 25% versus 5%. The 5% option yields a smaller expected loss, so it minimizes risk exposure even though its upfront cost is higher. Therefore, the option with the lower risk value is the better choice.

The main idea is comparing risk value as the expected monetary impact of a risk, which is the probability of the risk occurring times the potential loss if it happens. If the potential loss (cost of failure) is assumed the same for both design options, the option with the lower probability has the lower risk value.

Here, one option has a 25% chance of failing a performance requirement, and the other has a 5% chance. Since the potential cost of failure is the same in both cases, the expected risk is 25% versus 5%. The 5% option yields a smaller expected loss, so it minimizes risk exposure even though its upfront cost is higher. Therefore, the option with the lower risk value is the better choice.