CompTIA Project+ (PK0-005)Project Management ConceptsMedium
A project manager is overseeing a new product development project. During the planning phase, an expert estimates that there is a 30% chance of a critical component failing, which would cost the project $100,000. There is also a 20% chance of a regulatory approval delay, costing $50,000. What is the Expected Monetary Value (EMV) for these two risks?
- A$40,000
- B$45,000
- C$50,000
- D$30,000
Show answer & explanationAnswer & explanation
Correct answer: A. $40,000
EMV is calculated by multiplying the probability of each risk by its impact and summing the results. For the component failure: 0.30 * $100,000 = $30,000. For the regulatory delay: 0.20 * $50,000 = $10,000. Total EMV = $30,000 + $10,000 = $40,000.
Why the other options are wrong
- B. This value is incorrect and does not result from the given probabilities and impacts.
- C. This value is incorrect and does not result from the given probabilities and impacts.
- D. This only accounts for the component failure risk.
Expected Monetary Value (EMV)
A quantitative risk analysis technique that calculates the average outcome of a future scenario that may or may not happen. It is used to quantify the financial impact of risk.
- Calculated as Probability (P) x Impact (I).
- Used for decision-making under uncertainty.
- Positive for opportunities, negative for threats.
Memory trick: Quantify Risks with EMV: Expected Monetary Value helps see the Money.