Warranty cost-risk analysis

An approach to quantify the risk associated with a warranty price is presented. This method, based on Monte Carlo simulation, can give management an analytical assessment of the risk involved, thus permitting a more informed decision. Managers can visually trade off warranty cost and risk to maintain a balance between competitive pressures and acceptable risk. Other methods for warranty pricing based on a point estimate or a percent of production cost will not provide a quantitative valuation of the uncertainty. It is felt the key to company acceptance of this approach is to inform the management of both the benefits and the limitations of the method