Risk, Resilience and Business Continuity

Introduction and Context

Supply chains create value by connecting suppliers, manufacturers, logistics providers, markets and customers. The same interdependence that improves efficiency can also transmit disruption. A material shortage at one supplier may stop production; a cyberattack may corrupt planning data; a port closure may delay inbound components; a sudden demand surge may exhaust inventory; and geopolitical conflict may restrict trade routes or access to critical materials.

Risk management in supply chains is therefore not limited to insurance or emergency response. It is a strategic discipline involving the identification, assessment, treatment and monitoring of uncertainty. Resilience is the capability of a supply chain to prepare for disruption, absorb its effects, recover in an acceptable time and adapt to new conditions. Business continuity is the organised capability of an enterprise to continue delivering important products and services at an acceptable level during and after a disruption.

A resilient supply chain is not necessarily the lowest-cost supply chain. Efficiency often favours concentration, low inventory and tightly synchronised flows, whereas resilience may require redundancy, flexibility, visibility and capacity reserves. The managerial challenge is to determine which vulnerabilities justify investment and how much protection is economically and operationally appropriate.

Learning Objectives

By the end of this chapter, the learner should be able to:

1. Distinguish risk, disruption, resilience, business continuity and crisis management.
2. Identify operational, supplier, demand, logistics, cyber and geopolitical risks.
3. Assess probability, impact, exposure and recovery requirements.
4. Design mitigation strategies based on avoidance, reduction, transfer, acceptance and exploitation of opportunities.
5. Explain how redundancy, flexibility, visibility, collaboration and inventory affect resilience.
6. Develop scenarios, business-impact analyses, continuity plans and disruption-response procedures.
7. Evaluate resilience investments using appropriate operational and financial measures.
8. Recognise ethical, regulatory, technological and governance requirements in supply-chain risk management.

1. Fundamental Concepts and Terminology

Risk and uncertainty

Risk is the effect of uncertainty on objectives. In supply-chain management, objectives may include cost, quality, delivery reliability, safety, compliance, revenue and customer service. Risk is commonly described through an event, its causes, its consequences and the controls intended to manage it.

Uncertainty exists when future conditions are not fully known. A risk may be measurable through historical data, while deeper uncertainty may require scenarios, expert judgement or stress testing. Managers should avoid treating an absence of historical incidents as evidence that a risk is insignificant.

Disruption, vulnerability and exposure

A disruption is an event that interrupts normal supply-chain flows or performance. Vulnerability is the susceptibility of a network, process or organisation to disruption. Exposure describes the extent to which an organisation is subject to a source of risk. For example, a firm that purchases 90% of a critical component from one overseas supplier has high concentration exposure, even if the supplier has an excellent historical delivery record.

Resilience and robustness

Robustness is the ability to perform acceptably despite variation or disturbance. Resilience includes robustness but extends further: it includes recovery and adaptation. A robust warehouse may continue operating during moderate demand variation. A resilient network may also reroute orders, qualify an alternative supplier and redesign the product after a major disruption.

Business continuity and crisis management

Business continuity focuses on maintaining priority products, services and processes. Crisis management addresses exceptional events that threaten people, assets, reputation, legal standing or organisational survival. Disaster recovery is usually concerned with restoring technology, facilities or data. These disciplines overlap but should not be confused:

2. The Supply-Chain Risk Landscape

Operational and process risk

Operational risk originates within processes, facilities and resources. Examples include equipment failure, poor maintenance, labour shortages, quality defects, unsafe work, inaccurate bills of material, inadequate capacity and ineffective standard operating procedures. Lean processes can increase sensitivity to small deviations when buffers have been removed without improving process capability.

Controls include preventive maintenance, process standardisation, statistical quality control, training, cross-skilling, spare-parts planning, safe-work systems and capacity analysis. Root-cause analysis should distinguish symptoms from underlying causes. A late shipment may be caused by a carrier problem, but it may also reflect inaccurate master data, unrealistic production schedules or poor supplier communication.

Supplier and sourcing risk

Supplier risk includes financial failure, capacity constraints, quality deterioration, dependence on a single source, weak labour practices, inadequate cybersecurity, regulatory non-compliance and loss of key sub-tier suppliers. A supplier may appear reliable while depending on an unmonitored second-tier source for a critical material.

Supplier segmentation is useful. Strategic suppliers require collaborative planning and executive oversight; bottleneck suppliers require continuity plans and alternatives; leverage suppliers may be managed through competition and commercial negotiation; routine suppliers can often be controlled through standard purchasing processes. Segmentation should consider criticality and substitutability, not only annual spend.

Important controls include supplier due diligence, financial monitoring, audits, dual sourcing, approved alternates, technical standardisation, supplier development, contract clauses and visibility beyond the immediate supplier.

Demand risk

Demand risk arises from forecasting error, product substitution, market shifts, promotions, seasonality, bullwhip effects and changes in customer behaviour. The bullwhip effect describes the amplification of demand variability as information moves upstream. Order batching, price promotions, rationing, long lead times and poor information sharing can cause this amplification.

Responses include collaborative forecasting, point-of-sale data, shorter replenishment cycles, postponement, modular product design, flexible production and clear allocation rules. Forecasts should be treated as uncertain estimates rather than commitments. A demand scenario should include both lower-than-expected and higher-than-expected outcomes.

Logistics and infrastructure risk

Transport and infrastructure risks include port closures, congestion, strikes, accidents, severe weather, fuel shortages, border delays, inadequate warehousing and carrier insolvency. Global networks may be efficient under normal conditions but vulnerable to chokepoints such as a single port, canal, bridge, rail corridor or border crossing.

Mitigation includes multi-modal transport, alternative routes, regional distribution centres, emergency carriers, route guides, appropriate safety stock, customs readiness and accurate shipment visibility. Decisions must consider the trade-off between extra freight cost and the consequence of service failure.

Cyber and information risk

Supply chains depend on enterprise-resource-planning systems, warehouse-management systems, transport platforms, electronic data interchange, cloud services, sensors and supplier portals. Cyber risks include ransomware, credential theft, malware, denial-of-service attacks, manipulation of master data, fraudulent payment instructions and unauthorised access through suppliers.

Core controls include multi-factor authentication, least-privilege access, network segmentation, patch management, secure backups, incident logging, supplier security requirements, phishing awareness and tested recovery procedures. Cybersecurity is a continuity issue because an organisation may lose the ability to plan, procure, produce, ship or invoice even when physical assets remain intact.

Geopolitical, regulatory and environmental risk

Geopolitical risks include sanctions, tariffs, export controls, conflict, political instability, nationalisation, diplomatic restrictions and changes in trade policy. Environmental risks include floods, earthquakes, drought, heat, storms, wildfire and water scarcity. Climate change can alter both the frequency of hazards and the suitability of existing infrastructure.

Organisations should map supplier and logistics locations, identify critical materials, monitor regulatory developments and assess transition risks as well as physical risks. Responsible sourcing must include human rights, forced labour, modern slavery, environmental pollution and community impacts. Resilience that depends on exploiting vulnerable workers or shifting harm to weaker communities is neither ethical nor sustainable.

3. Risk Identification and Assessment

A practical assessment begins with a structured risk register. Each entry should state the risk event, causes, affected objectives, existing controls, owner, indicators, response and review date. Techniques include process mapping, supplier mapping, interviews, historical loss analysis, audits, failure-mode analysis, scenario workshops and external intelligence.

A simple qualitative matrix classifies likelihood and consequence as low, medium or high. It is useful for initial prioritisation but can conceal differences within categories. For more disciplined analysis, expected loss can be estimated as:

Probability is dimensionless, usually expressed from 0 to 1, and consequence may be measured in monetary units, hours of downtime, units unavailable or another defined measure. The calculation assumes that the probability and consequence are sufficiently meaningful and that the selected consequence measure captures the decision objective. It does not fully represent catastrophic events, dependencies between risks or risk aversion.

For multiple mutually exclusive events, expected loss can be represented as:

where p_i is the probability of event i and c_i is its consequence. If events can occur together, simply adding separate expected losses may double-count consequences or ignore interaction effects; dependency analysis or scenario modelling is then required.

A risk-priority score is sometimes calculated as:

Here, S is severity, O occurrence and D detectability, each assigned an ordinal rating. This risk-priority number is a screening device, not a probability model. Multiplying ordinal scores does not prove that a risk rated 200 is twice as serious as one rated 100. It should therefore be supplemented by expert review and consequence analysis.

Worked example: expected disruption cost

A manufacturer estimates that a critical supplier failure has a 0.08 annual probability. If it occurs, the expected direct contribution-margin loss is $250,000. The expected annual loss is:

If a continuity arrangement costs $12,000 per year and reduces the probability to 0.02, the residual expected loss is:

The expected annual reduction is $15,000. Before implementation, management should also consider implementation costs, contractual effects, secondary losses, customer trust, safety and the possibility that the consequence estimate is incomplete. On the narrow expected-loss calculation, the arrangement is economically favourable if its annual cost is less than $15,000 and no important adverse effects arise.

4. Resilience Design Strategies

Redundancy

Redundancy provides alternative resources or paths: multiple suppliers, spare capacity, duplicate equipment, additional inventory, alternative facilities and multiple transport routes. It reduces dependence on a single point of failure but raises cost and may create complexity, unused capacity and quality variation. Dual sourcing is not effective if both suppliers depend on the same sub-tier source or geographic hazard.

Flexibility and postponement

Flexibility is the ability to change volume, mix, timing, route, supplier or product configuration. Flexible equipment, cross-trained labour, postponement and modular design allow decisions to be delayed until demand or supply conditions become clearer. Flexibility is valuable when uncertainty is high and product variants share common components.

Inventory and capacity buffers

Safety stock protects against uncertainty in demand and replenishment. In a simplified continuous-review setting with independent demand and lead-time variation, a common approximation is:

where z is the desired service-level standard-normal factor and σ_LT is the standard deviation of demand during lead time, measured in units. If only demand varies and lead time is constant L, then:

where σ_d is the standard deviation of daily demand and L is lead time in days. These formulas assume reasonably stable statistical behaviour, a suitable distributional approximation, independent daily demand and no major structural change. If both demand and lead time vary, a more general variance expression is required and should be based on the organisation’s demand and lead-time model.

Buffers should be positioned according to decoupling points and criticality, not added indiscriminately. Excess inventory can become obsolete, hide process problems and consume working capital. Capacity buffers may be more valuable than inventory where products are perishable or custom-made.

Visibility and information sharing

Visibility means knowing the status, location, condition and likely future of materials, orders, capacity and risks. It depends on data quality, common identifiers, event capture, supplier participation and governance. Visibility without decision rights is insufficient: an organisation may see a delay but lack authority or alternatives to respond.

Useful indicators include supplier confirmation accuracy, forecast bias, inventory at risk, order-cycle reliability, transport milestone exceptions, cyber alerts and time since last supplier-risk review. Dashboards should prioritise actionable exceptions rather than overwhelm users with data.

Collaboration and network design

Resilience is often a network property. Buyers, suppliers, carriers, logistics providers, regulators and customers may need to share information and coordinate scarce capacity. Contracts should clarify notification duties, allocation priorities, alternate specifications, force-majeure boundaries, recovery obligations, data protection and audit rights. Collaboration requires trust, but it should not eliminate independent verification.

5. Business-Continuity Planning and Disruption Response

A continuity programme normally follows a cycle: establish governance, conduct a business-impact analysis, assess risks, identify continuity strategies, write plans, train personnel, test arrangements and improve them after exercises or incidents.

Business-impact analysis

The business-impact analysis identifies processes and outputs that are time-critical. It should estimate the maximum tolerable period of disruption, minimum acceptable service level, dependencies, required people and equipment, legal obligations and recovery priorities. A useful distinction is between the recovery time objective (RTO), the targeted time to restore a process or service, and the recovery point objective (RPO), the maximum tolerable period of data loss measured in time.

For example, if an order-management system has an RTO of four hours and an RPO of fifteen minutes, the organisation aims to restore service within four hours and lose no more than fifteen minutes of transaction data. These are management objectives, not guarantees; their feasibility depends on technology, cost and tested capability.

Continuity plan contents

A practical plan should contain:

• scope, assumptions and activation criteria;
• roles, deputies, contact details and decision authority;
• critical suppliers, customers, carriers and regulators;
• manual workarounds and minimum operating procedures;
• alternate facilities, systems, materials and routes;
• inventory and capacity allocation rules;
• communication templates and escalation paths;
• safety, security, legal and data-protection requirements;
• recovery milestones, documentation and closure criteria.

Plans must be accessible during system outages and should be controlled so that obsolete contact details do not create additional risk.

Incident response sequence

During an incident, leaders should first protect life and safety, establish reliable facts, contain immediate harm, activate the appropriate plan, preserve decision records and communicate consistently. The response team should distinguish verified information from assumptions. A common operating picture should identify what is known, unknown, required, owned and time-critical.

Prioritisation may be based on safety, legal obligations, essential customers, critical infrastructure, contractual commitments and contribution to recovery. Allocation decisions should be transparent and defensible. After stabilisation, the organisation should restore normal operations gradually, investigate root causes and capture lessons without blaming individuals who acted within the approved system.

6. Scenario Planning, Stress Testing and Metrics

Scenario planning explores plausible combinations of conditions rather than attempting to predict one exact future. A useful workshop may examine a supplier bankruptcy, a cyber outage, a major demand surge, a regional flood or simultaneous transport and labour constraints. Participants should identify triggers, early indicators, decisions, dependencies and consequences.

Stress testing asks whether the network remains viable under severe but plausible assumptions. Examples include a 30-day loss of a critical supplier, a 50% reduction in transport capacity or the unavailability of a planning system. The purpose is to reveal thresholds and prepare decisions before pressure becomes extreme.

Resilience metrics should combine outcome, capability and economic measures:

Metrics should not encourage harmful behaviour. For example, rewarding high inventory alone may reduce stockouts while increasing obsolescence and cost. Balanced measures are necessary.

7. Technology, AI and Data Governance

Digital twins, control towers, Internet-of-Things sensors, satellite data and advanced analytics can improve early warning and scenario analysis. Machine-learning systems may identify unusual order patterns, predict equipment failure or estimate supplier delay. Generative AI can support document review, risk-register drafting and response communication.

However, technology does not remove risk. Poor master data produces misleading alerts; opaque models may encode bias; cyber connectivity increases attack surfaces; and automated recommendations may fail during unprecedented events. AI-supported decisions should have defined accountability, human review for high-consequence actions, data-quality controls, model monitoring and protection of confidential supplier and customer information.

Organisations should maintain data lineage, access controls, retention rules and audit trails. They should also plan for degraded operation when digital platforms are unavailable. A paper-based or offline fallback may be less efficient, but it can preserve essential operations during a prolonged outage.

8. Governance, Ethics and Regulation

Risk ownership belongs to operational managers, but effective governance requires board oversight, clear accountability and independent challenge. The three-lines model is useful: operational management owns and controls risk; risk, compliance or specialist functions provide advice and monitoring; internal audit provides independent assurance.

Ethical supply-chain risk management includes protection of workers, truthful communication, fair supplier treatment, responsible purchasing practices and avoidance of corruption. During shortages, organisations should not manipulate information or unfairly divert essential goods without considering social consequences. Supplier audits should be proportionate and should support improvement rather than merely transfer blame.

Regulatory duties may involve occupational safety, product safety, environmental permits, customs, sanctions, data protection, cybersecurity, financial reporting and modern-slavery disclosure. Legal compliance is a minimum requirement; a resilient organisation also considers stakeholder expectations and long-term legitimacy.

9. Illustrative Case: Continuity at Meridian Appliances

Background

Meridian Appliances, an illustrative medium-sized manufacturer, assembles commercial refrigeration units. Its electronic temperature controller is a single-sourced imported component. The supplier has performed well, but the component has a twelve-week replenishment lead time and no approved substitute. Meridian holds only two weeks of stock because purchasing policy emphasises low working capital.

Problem

A regional earthquake damages the supplier’s plant. The supplier estimates that shipments will stop for six weeks. Meridian has 4,800 controllers in stock and normally consumes 2,000 per week. Several major customers have contractual delivery commitments, and the controller is not interchangeable without software changes.

Analysis

The immediate stock coverage is:

The expected shortage before normal supply resumes is approximately 3.6 weeks, although actual results depend on allocation and recovery timing. The risk analysis identifies single sourcing, long lead time, low substitutability, geographic concentration and insufficient sub-tier visibility. The disruption also exposes a weakness in the assumption that the supplier’s good historical performance equals resilience.

Approach and solution

Meridian activates its continuity team and verifies safety stock, customer priorities and available finished-goods inventory. It contacts the supplier and seeks partial shipments from undamaged inventory. Engineering begins an accelerated qualification of a second supplier and evaluates a software-compatible alternative. Sales and operations planning reallocates controllers to contractual and safety-critical customers, while customer service communicates realistic dates rather than making unsupported promises.

Logistics investigates expedited air freight for partial supply and an alternative route. Finance assesses the cost of premium transport against lost contribution margin. Procurement negotiates information-sharing, recovery milestones and temporary capacity reservation. After stabilisation, Meridian redesigns the controller interface to permit approved alternatives, introduces sub-tier mapping, establishes a strategic buffer for the component and includes disruption exercises in supplier reviews.

Outcome

The organisation experiences reduced output but avoids a complete assembly shutdown. Premium freight and engineering qualification costs increase short-term expenditure. Over the following year, dual sourcing and modular redesign reduce concentration risk, although supplier-management complexity rises.

Learning points

The case demonstrates that resilience requires more than adding inventory. Product design, supplier qualification, customer prioritisation, accurate information, logistics alternatives, contractual coordination and executive decision rights must work together. It also illustrates that resilience investments may appear inefficient during normal operations but protect strategic service and revenue during disruption.

Challenges and Limitations

Risk assessment is limited by incomplete data, changing conditions, hidden sub-tier dependencies and human bias. Probability estimates may be unreliable for rare events. Risk matrices can create false precision, while excessive scenario analysis can delay action. Redundancy can increase cost and environmental impact; regionalisation may reduce geopolitical exposure while increasing dependence on a smaller labour or resource base.

Resilience is also difficult to optimise because benefits are uncertain and distributed across departments or supply-chain partners. A buyer may bear the cost of dual sourcing while sales receives the benefit of improved customer service. Governance must therefore align incentives and evaluate total-system performance rather than local efficiency alone.

Best-Practice Implementation Guide

1. Define critical products, services, customers and obligations.
2. Map the end-to-end network, including sub-tier suppliers and logistics chokepoints.
3. Maintain a living risk register with named owners and review dates.
4. Combine qualitative judgement with data, scenarios and stress tests.
5. Prioritise risks by consequence, vulnerability, detectability and strategic importance.
6. Use a balanced portfolio of redundancy, flexibility, inventory, visibility and collaboration.
7. Establish measurable RTOs, RPOs, service targets and escalation thresholds.
8. Test plans through simulations, supplier exercises and cyber recovery drills.
9. Integrate continuity into sourcing, product design, contracts and capital investment.
10. Learn after incidents and update controls, assumptions and responsibilities.

Chapter Summary

Supply-chain risk is the effect of uncertainty on objectives and may arise from operations, suppliers, demand, logistics, cyber systems, geopolitics and environmental conditions. Resilience is the ability to prepare, absorb, recover and adapt, while business continuity focuses on maintaining priority operations. Effective management begins with network mapping, risk registers, business-impact analysis and disciplined assessment of probability, consequence and vulnerability.

Resilience is created through a portfolio of measures: redundancy, flexibility, postponement, inventory and capacity buffers, visibility, collaboration, secure information systems and alternative logistics. Continuity plans require clear activation criteria, responsibilities, workarounds, communication arrangements, recovery objectives and regular testing. Scenario planning and stress testing reveal thresholds that normal forecasts may miss. Technology and AI can improve visibility and prediction but require sound data, cybersecurity, human accountability and fallback arrangements. Finally, ethical conduct, regulatory compliance and stakeholder trust are essential components of sustainable resilience.

Key Terms

Risk: The effect of uncertainty on objectives.

Disruption: An event that interrupts normal supply-chain performance.

Vulnerability: Susceptibility to harm or disruption.

Exposure: The extent to which an organisation is subject to a risk source.

Resilience: The capability to prepare, absorb, recover and adapt.

Robustness: The ability to perform acceptably despite disturbance.

Business continuity: The capability to continue priority products, services and processes during disruption.

Crisis management: Leadership and coordination during severe, high-consequence events.

Recovery time objective (RTO): Target time for restoring a process or service.

Recovery point objective (RPO): Maximum tolerable period of data loss.

Redundancy: Provision of alternative resources, suppliers, facilities or routes.

Flexibility: Ability to change volume, mix, timing, source or route.

Postponement: Delaying final configuration or commitment until uncertainty is reduced.

Bullwhip effect: Amplification of demand variability upstream in a supply chain.

Safety stock: Inventory held to protect against demand or supply uncertainty.

Risk register: A controlled record of identified risks, controls, owners and responses.

Business-impact analysis: Assessment of process criticality, consequences and recovery priorities.

Scenario planning: Exploration of plausible future conditions and response choices.

Stress testing: Evaluation of performance under severe but plausible assumptions.

Control tower: A technology-enabled capability for monitoring and coordinating supply-chain events.

Review Questions

Short Answer Questions

1. Distinguish resilience from robustness.
2. What is the purpose of a business-impact analysis?
3. Identify four categories of supply-chain risk.
4. Define RTO and RPO.
5. Why can dual sourcing fail to provide true resilience?

Long Answer Questions

1. Explain how redundancy, flexibility, visibility and inventory buffers contribute to supply-chain resilience. Discuss their principal trade-offs.
2. Describe a complete business-continuity planning cycle from risk identification through testing and improvement.
3. Analyse the bullwhip effect and explain how collaboration and information sharing can reduce demand risk.
4. Compare qualitative risk matrices, expected-loss analysis and scenario planning as decision-support methods.
5. Discuss the governance, ethical and cybersecurity requirements of a resilient digital supply chain.

Analytical / Application Questions

1. A firm consumes 1,500 units per week and has 5,250 units of a critical component. A disruption is expected to last seven weeks. Estimate the shortage before considering alternative supply, rationing or demand reduction. What continuity actions should management evaluate?
2. A supplier failure has a 0.06 probability and a consequence of $400,000. A mitigation costs $14,000 annually and reduces probability to 0.015. Calculate the expected annual loss before and after mitigation and recommend whether the investment is favourable on this narrow criterion.
3. Design a resilience strategy for a manufacturer dependent on one overseas supplier, one port and a cloud-based planning system. Justify actions involving sourcing, inventory, logistics, cybersecurity, scenario testing and governance.

Multiple Choice Questions with Answers

Question 1

Which statement best distinguishes resilience from robustness?

A. Resilience concerns only financial insurance, while robustness concerns production.

B. Robustness maintains performance under disturbance, while resilience also includes recovery and adaptation.

C. Robustness requires multiple suppliers, while resilience requires one supplier.

D. Resilience applies only to information systems, while robustness applies to physical systems.

Correct Answer: B. Robustness maintains performance under disturbance, while resilience also includes recovery and adaptation.

Question 2

A disruption has probability 0.10 and consequence $80,000. What is its expected loss?

A. $800

B. $8,000

C. $80,000

D. $800,000

Correct Answer: B. $8,000

Question 3

Which is an example of demand risk?

A. A ransomware attack disables the warehouse system.

B. A port crane fails during unloading.

C. A promotion causes demand to exceed the forecast.

D. A supplier loses its operating licence.

Correct Answer: C. A promotion causes demand to exceed the forecast.

Question 4

What does an RPO specify?

A. The maximum acceptable time to restore a process

B. The maximum acceptable period of data loss

C. The minimum inventory level for a product

D. The required number of alternative suppliers

Correct Answer: B. The maximum acceptable period of data loss

Question 5

Which action primarily increases flexibility?

A. Using modular products that can be configured late

B. Concentrating all purchases with the cheapest supplier

C. Removing all capacity buffers

D. Restricting employees to one specialised task

Correct Answer: A. Using modular products that can be configured late

Question 6

A company has 4,000 units in stock and consumes 1,600 units per week. Approximately how many weeks of coverage does it have?

A. 1.5 weeks

B. 2.0 weeks

C. 2.5 weeks

D. 4.0 weeks

Correct Answer: C. 2.5 weeks

Question 7

Why should sub-tier suppliers be included in risk mapping?

A. Immediate suppliers never create risk.

B. A direct supplier may depend on a hidden critical source.

C. Sub-tier suppliers determine customer prices directly.

D. Mapping eliminates the need for supplier contracts.

Correct Answer: B. A direct supplier may depend on a hidden critical source.

Question 8

Which control is most directly associated with reducing cyber access risk?

A. Multi-factor authentication and least-privilege access

B. Increasing finished-goods inventory

C. Adding a second transport route

D. Using longer payment terms

Correct Answer: A. Multi-factor authentication and least-privilege access

Question 9

What is the main purpose of stress testing?

A. To guarantee that disruptions will not occur

B. To evaluate performance under severe but plausible conditions

C. To replace all operational forecasting

D. To calculate annual depreciation

Correct Answer: B. To evaluate performance under severe but plausible conditions

Question 10

A mitigation reduces expected annual loss from $24,000 to $6,000 and costs $10,000 per year. What is the expected annual reduction in loss?

A. $6,000

B. $10,000

C. $18,000

D. $30,000

Correct Answer: C. $18,000