RISK AND UNCERTAINTY unneal will involve sending out 343000 letters to selectod
ID: 397193 • Letter: R
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RISK AND UNCERTAINTY unneal will involve sending out 343000 letters to selectod will include a free ballpoint pen displav Aw. donation in N-1st etter 2 peoples loco and people not replying after three weeks will receive a tbe fixed costs of the campaign and the cost of sending out each are known for certain, the charity's managers have had to donation these %reply in N ing the charity's and letter and reminder estimate To encourage Aw. donation in S-1st letter distributions for the following four factors: of people who will reply to the first letter in the North (N he anverage donation of those replying to the first letter in esch of thee The prcontage of people who will eply to theeminder in each of he thre d) The average donation of those replying to the reminder in each of the %reply is As. donation from reminder in N %reply to reminder is Central (C) and South (S) regions of the country, respectively Av. donation from reminder in S %reply in C Ay donation in C-1st ledter 12 distributions have been estimated for the different regions because theitr diferent economic conditions are likely to have a major effect on people' Figure 126 shows the cumulative probability distribution of net returns lie. hca robability that the net returns win ation the possible loses %reply to reminder in C Au. doration fram reminder in C to donate to the charity -20000 30000 80000 130000 180000 230000 10 Figure 12.6 shows the cumu the total value of donations less the cost of running the direct-mail appeal be seen that there is approximately a 20% p negative, causing the charity to lose money. In the simul extended to nearly $150000. 127-Tomado diagram for the AB Charity Surplus (s) thoaght to be the highest and lowest possible values for each factor. For eample, the possible average donation in the North is thought to range from 52 to $17 o dentify the areas where risk management is likely to be most effective. b) Create a set of possible risk management strategies that might reduce the nsk of the charity losing money and increase its expected return. 0 100000 200000 300000 Surplus (s) ndBodily, S.E. (2000) Structured Risk Management: Filling a Gap in Decision 0.0 f the Operational Research Society,51, 1420-1432 l96) Models as Aids to Thought, Interfaces, 26, 64-67 to2002) Managing Project Risk and Uncertaintyc A l Making, Wiley, Chichester. This book contains many other prac- Figare 126-Cumulative probability distribution for the AB Charity directed. Figure 12.7 shows a the ends of the bars show The managers of the charity are keen to ta are not sure where their actions should be di action to reduce this risk ring and managing uncertainty Thinking in the Decision and Mangemeont Scimces, South-Western, diagram for the appeal. The numbers at tExplanation / Answer
Answer: ( a )
The area where risk management is likely to be most effective is the below area
The south area is the region where the risk management will be most effective because in this region, the Charity has very low/nil probability of loss and is likely to get better returns against their investment of charity campaign.
The south area show the surplus as positive and does not show any negative surplus, hence it has very low risk and most effective area for risk management approach.
Central Area will be the second preferred area for the charity, where the risk management will be better than north region but lower than south region.
Answer: ( b )
A set of possible risk management strategies that might reduce the risk of charity losing money and increase its expected return is as below
The charity to analyze the key donators who can donate for the charity work, so that charity can expect some sure return against their investment.
Identify key people /parties who will be able to donate after reminders, though initially will not be willing to donate but later if they can donate based on influences or reminders.
Identify key area where there is high rate of donation, so that the charity will have god donations.
Avoid the efforts in the areas where the donation expectation is week.
Identify the high economy areas and explore investment in those areas so that there is high probability of donation receipt than low economy regions.
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