Risk manager Camila De Leon of Johnson Chemicals is considering two options for the firm's supplier portfolio. Option 1 uses two local suppliers. Each has a "unique-event" risk of 5.8%, and the probability of a "super-event" that would disable both at the same time is estimated to be 1.3%. Option 2 uses two suppliers located in different countries
Risk manager Camila De Leon of Johnson Chemicals is considering two options for the firm's supplier portfolio. Option 1 uses two local suppliers. Each has a "unique-event" risk of 5.8%, and the probability of a "super-event" that would disable both at the same time is estimated to be 1.3%. Option 2 uses two suppliers located in different countries. Each has a "unique-event" risk of 14%, and the probability of a "super-event" that would disable both at the same time is estimated to be .24%.
a) The probability that both suppliers will be disrupted using option 1 is
b)Similarly, determine the probability of a total disruption for option 2.
c) Which option would provide the lowest risk of a total shutdown?
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