PGMP · Question #352
Your company is evaluating two projects for consideration. Project A has a 40% probability of $69,000 US and a 60% probability of -$10,000 US. Project B has a 60% probability of $56,000 US and a 40% p
The correct answer is B. Project B. Expected Monetary Value (EMV) is calculated by multiplying each outcome's probability by its monetary value and summing the results; Project B yields a higher EMV.
Question
Your company is evaluating two projects for consideration. Project A has a 40% probability of $69,000 US and a 60% probability of -$10,000 US. Project B has a 60% probability of $56,000 US and a 40% probability of -$15,000 US. Which of the projects would you select based on the greatest expected monetary value?
Options
- AProject A
- BProject B
- CProject A and B are of even value
- DThe expected monetary value is not high enough on either to make a selection
How the community answered
(38 responses)- A5% (2)
- B84% (32)
- C3% (1)
- D8% (3)
Why each option
Expected Monetary Value (EMV) is calculated by multiplying each outcome's probability by its monetary value and summing the results; Project B yields a higher EMV.
Project A yields an EMV of only $21,600, which is lower than Project B's $27,600.
Project B's EMV is (0.60 x $56,000) + (0.40 x -$15,000) = $33,600 - $6,000 = $27,600. Project A's EMV is (0.40 x $69,000) + (0.60 x -$10,000) = $27,600 - $6,000 = $21,600. Project B has the greater EMV at $27,600 versus $21,600, making it the preferred selection.
The two projects are not equal in EMV; Project B exceeds Project A by $6,000.
Both projects have positive EMV values, so a selection can and should be made based on the higher value.
Concept tested: Expected Monetary Value (EMV) calculation for project selection
Source: https://www.pmi.org/pmbok-guide-standards/foundational/pmbok
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