Harry works as a project manager for the NHQ Project. He is performing quantitative risk analysis for his project. One of the project risks has a 40 percent probability of happening, and it will…

The correct answer is A. Negative $26,000. Expected Monetary Value (EMV) is calculated as: EMV = Probability × Impact. Here: EMV = 0.40 × $65,000 = $26,000. Because this is a negative risk (a threat that will cost money), the EMV is expressed as negative $26,000. EMV represents the weighted average outcome, accounting…

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Question

Harry works as a project manager for the NHQ Project. He is performing quantitative risk analysis for his project. One of the project risks has a 40 percent probability of happening, and it will cost the project $65,000 if the risk happens. What is the expected monetary value of this risk event?

Options

ANegative $26,000
BNegative $67,000
CZero - the risk event has not yet occurred
D$27,000

How the community answered

(23 responses)

A
74% (17)
B
13% (3)
C
9% (2)
D
4% (1)

Explanation

Expected Monetary Value (EMV) is calculated as: EMV = Probability × Impact. Here: EMV = 0.40 × $65,000 = $26,000. Because this is a negative risk (a threat that will cost money), the EMV is expressed as negative $26,000. EMV represents the weighted average outcome, accounting for the likelihood the event may not occur at all. Option B ($67,000) is incorrect arithmetic. Option C (zero) is wrong - EMV is a probabilistic forecast, not an actual occurrence tracking metric. Option D ($27,000) uses incorrect rounding. EMV is used in decision trees and quantitative risk analysis to compare response options and build contingency reserves.

Topics

#Expected Monetary Value (EMV)#Quantitative Risk Analysis#Risk Impact#Risk Probability

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