The Outcome of the Cost-Benefit Analysis - Develop a Risk Management Strategy - Management Assignment Help

Assignment Task:

Question 1 (70 marks) 
A single level warehouse building has a 5000 m2 floor area for storage and a two level  office attached to one end of the warehouse. The main areas and the activities carried out in  the building include: 
? Storage handling (storage) 
? Office works (office) 
For questions in this assignment you are required to consider the warehouse only. 
The capital value of the warehouse as a shell is $3,000,000. The fit out and equipment are  valued at $1,500,000. Loss due to warehouse shut down is $15,000 per day. The estimated  life span of the building is 30 years. A fire safety systems engineer has come up with the  following options for fire protection: 
System 1 - Sprinklers only 
Cost of installing sprinklers: $50,000. 
Maintenance cost: $4,000 per year 
Update in every 10 years for $20,000. 
System 2 - Smoke detectors only 
Cost of installing smoke detectors: $10,000. 
Maintenance cost: $1,000 per year 
Update in every 10 years for $6,000. 
It is assumed that a sprinkler controlled fire would limit the damage and the business could be  re-opened within 35 days. However, in the case of an uncontrolled fire (sprinkler failure or no  sprinkler at all) the damage would extend to the whole building and it would require 150 days  to restore the warehouse function. 
The discount rate is 10% per year.  
The frequency of fire starts in a warehouse building is assumed to be 1×10-6/sq-m/year. The  reliability of the sprinkler system is assumed to be 0.90. List any other assumptions (if  necessary) for data adopted in your calculation. 

Required: 
1. Analyse the costs and benefits of each of the two systems. Also, identify the more economically viable system. (35 marks) 
2. Repeat 1. when the life span of the building is 50 years instead of 30 years. Comment on the change. (15 marks)
3. Repeat 1. when the reliability of the sprinkler system is not 0.90 anymore but determined based on the following information: 
The sprinkler system fails if (i) there is no water behind sprinkler heads OR (ii) sprinkler heads are faulty. The probabilities of (i) and (ii) are equally 0.01, and they are statistically independent. 
The life span of the building is 30 years. Comment on the change. (15 marks) 
4. Comment on other factors which need to be considered in a complete cost/benefit assessment. (5 marks) 

Question 2 (30 marks) 
For the warehouse discussed in Question 1: 
1. Identify 5 main fire related risks in the building. Justify why you consider these to be the main issues (10 marks) 
2. Develop a Risk Management Strategy (as Lecture Notes Module 13). (10 marks) 3. Evaluate the outcome of the cost-benefit analysis conducted in Question 1 from a Risk Management perspective (i.e. the impact of the proposed solution on main risk factors). (10 marks)

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