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Evaluating disaster risk

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Johnson Chemicals is considering two options for its supplier portfolio. Option 1 uses two local suppliers. Each has a "unique-event" risk of 5%, and the probability of a "super-event" that would disable both at the same time is estimated to be 1.5%. Option 2 uses two suppliers located in different countries. Each has a "unique-event" risk of 13%, and the probability of a "super-event" that would disable both at the same time is estimated to be 0.2%.

a) What is the probability that both suppliers will be disrupted using option 1?
b) What is the probability that both suppliers will be disrupted using option 2?
c) Which option would provide the lowest risk of a total shutdown?

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This solution depicts the steps to estimate the desired probability values.

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a) What is the probability that both suppliers will be disrupted using option 1?
The probability of a "super-event"=S=1.5%
The probability of a "unique-event"=U=5%
Number of ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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