PMI-RMP · Question #417
The risk manager is prioritizing risks based on the potential impact to cost and schedule and identifies the following 4 risks: Risk 1 has a US$500,000 potential cost increase, and a 60 day…
The correct answer is A. Risk 1. Expected Monetary Value (EMV) = Impact × Probability. Calculating for each risk: • Risk 1: Cost EMV = $500,000 × 0.25 = $125,000 | Schedule EMV = 60 days × 0.25 = 15 days • Risk 2: Cost EMV = $200,000 × 0.60 = $120,000 | Schedule EMV = 20 days × 0.60 = 12 days • Risk 3: Cost…
Question
The risk manager is prioritizing risks based on the potential impact to cost and schedule and identifies the following 4 risks:
Risk 1 has a US$500,000 potential cost increase, and a 60 day potential schedule slippage, with a 25% probability of occurring Risk 2 has a US$200,000 potential cost increase, and a 20 day potential schedule slippage, with a 60% probability of occurring Risk 3 has a US$1,200,000 potential cost increase, and a 90 day potential schedule slippage, with a 10% probability of occurring Risk 4 has @ US$600,000 potential cost increase, and a 70 day potential schedule slippage, with a 20% probability of occurring Using expected monetary value calculation, which risk has the greatest potential impact to cost and schedule?
Options
- ARisk 1
- BRisk 2
- CRisk 3
- DRisk 4
How the community answered
(32 responses)- A72% (23)
- B3% (1)
- C9% (3)
- D16% (5)
Explanation
Expected Monetary Value (EMV) = Impact × Probability. Calculating for each risk:
• Risk 1: Cost EMV = $500,000 × 0.25 = $125,000 | Schedule EMV = 60 days × 0.25 = 15 days • Risk 2: Cost EMV = $200,000 × 0.60 = $120,000 | Schedule EMV = 20 days × 0.60 = 12 days • Risk 3: Cost EMV = $1,200,000 × 0.10 = $120,000 | Schedule EMV = 90 days × 0.10 = 9 days • Risk 4: Cost EMV = $600,000 × 0.20 = $120,000 | Schedule EMV = 70 days × 0.20 = 14 days
Risk 1 yields the highest EMV for both cost ($125,000) and schedule (15 days). The high raw impact of Risks 3 and 4 is offset by their lower probabilities (10% and 20%), making them less impactful on an expected-value basis. Risk 1 wins on both dimensions simultaneously.
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