PMI CAPM (Certified Associate in Project Management) Examination Content OutlineRisk Management and ComplianceHard
A project manager is developing a response plan for a risk where the probability of occurrence is 30% and the impact is estimated at $50,000. To mitigate this risk, the team proposes an action costing $10,000, which will reduce the probability to 10% and the impact to $20,000. What is the expected monetary value (EMV) of the risk AFTER mitigation?
- A$2,000
- B$0
- C$10,000
- D$15,000
Show answer & explanationAnswer & explanation
Correct answer: A. $2,000
EMV is calculated as Probability x Impact. After mitigation, the probability is 10% (0.10) and the impact is $20,000. So, EMV = 0.10 * $20,000 = $2,000. The cost of mitigation ($10,000) is a separate cost and not included in the EMV calculation for the remaining risk.
Why the other options are wrong
- B. This would imply the risk is completely eliminated, which is not the case.
- C. This is the cost of mitigation, not the EMV of the risk after mitigation.
- D. This is the EMV before mitigation (0.30 * $50,000 = $15,000).
Expected Monetary Value (EMV)
A quantitative risk analysis technique that calculates the average outcome when the future includes scenarios that may or may not happen. EMV = Probability of Risk x Impact of Risk.
- Used for quantitative risk analysis.
- Calculated as Probability x Impact.
- Helps in decision-making under uncertainty.
Memory trick: EMV is P.I.E. (Probability * Impact = EMV), but only after the pie is baked (mitigated).