CompTIA Project+ (PK0-005)Project Management ConceptsHard
A project manager is developing a risk management plan for a new product launch. One identified risk is 'Component X supply chain disruption', with a probability of 30% and a potential impact of $100,000. Another risk is 'Major competitor launching similar product', with a probability of 10% and a potential impact of $500,000. What is the Expected Monetary Value (EMV) for these two risks combined?
- A$30,000
- B$80,000
- C$50,000
- D$130,000
Show answer & explanationAnswer & explanation
Correct answer: B. $80,000
The Expected Monetary Value (EMV) for each risk is calculated by multiplying its probability by its impact. For Risk 1: 0.30 * $100,000 = $30,000. For Risk 2: 0.10 * $500,000 = $50,000. The combined EMV is the sum of these values: $30,000 + $50,000 = $80,000.
Why the other options are wrong
- A. This is only the EMV for Risk 1.
- C. This is only the EMV for Risk 2.
- D. Incorrect calculation.
Expected Monetary Value (EMV)
A quantitative risk analysis technique that calculates the average outcome of a future event by multiplying its probability of occurrence by its monetary impact.
- EMV = Probability x Impact.
- Used for decision-making under uncertainty.
- Typically calculated for negative risks (threats) as a negative value, or positive risks (opportunities) as a positive value.
Memory trick: EMV: Expect Money Value by multiplying P by I.