Help - Expected Monetary Value

Submitted by alfiegoh on Fri, 08/01/2014 - 07:29

You are conducting a quantitative risk analysis on your project in relation to potential profits earned from a new product. The estimate profit is $350,000. There is a 20% chance that it will exceed expectations at a value of $180,000, there is a 50% chance it will meet expectations at a value of $40,000, and a 30% chance it will not meet expectations at a value of($140,000). What is the expected monetary value of the risk ?

A. $364,000

B. ($364,000)

C. (14,000)

D. 14,000

Answer is D. Why ?

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inder_gwl

Fri, 08/01/2014 - 11:48

Expected monetary value (EMV) =probability * impact
1.Meeting Expectations = $180,000 *20 /100 = 36,000
2.Meeting Expectations = $40,000 *50/100 = 20,000
3.Not Meeting Expectations = $140,000 *30/100 =42,000
36,000+20,000-42,000=14,000

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acurtpmp

Fri, 08/01/2014 - 23:47

The first reply is correct. At the end of the question it asks risk. THe estimated profit $350,000 is the typical PMP excess information you don't need. So you only add the three probability expectations togethre and you get $14,000. If the question end asked what is the EMV of the total profit, then the answer would be A.