Dollar Bus Company has set an objective to fully comply with published bus schedules to ensure consistent on-time service. The company knows that shorter routes per bus minimize delays caused by unforeseen issues. Shorter routes require a greater investment in the fleet. The company currently achieves an 83% compliance rate with the schedule and does not expect a significant increase or decrease in ridership or revenue as compliance improves to 100% but does see revenues fall off significantly when buses are late more that 20% of time. The company's objective setting would logically develop as follows:
Compliance rates of 80% would become the objective and additional investments in buses would be required to reduce risk.
Additional busses would be acquired to achieve the objective and incentives would be provided to drivers who consistently meet requirements.
Tolerable levels of variation from compliance with stated bus schedules are established as a means of establishing realistic compliance objectives.
Compliance with the bus schedule would be reviewed in relation to the risk of lost ridership within tolerable compliance percentages above 80%.
Choice "d" is correct. Objectives are aligned with risk appetite, which drives risk tolerance levels.
Choice "b" is incorrect. Acquisition of additional busses is a response to risks and would not be part of objective setting. Objective setting precedes risk assessments which precede risk responses.
Choice "c" is incorrect. Tolerable limits would not be used to back into objectives.
Choice "a" is incorrect. Risk responses (purchase of buses) would not be derived from objectives.
Can anybody explain this to me? Thanks in advance!