Risk management problems:
1. What is the Expect Monetary Value (EMV) for a project with 70 percent chance of a $200,000
profit, and 30 percent a chance of $200,000 loss?
a. $140,000 profit
b. $120,000 loss
c. $80,000 profit
d. $20,000 loss
Answer is C:
Explanation: The formula for Expected Monetary Value is EMV = IxP, compute the Expected
monetary value for the profit which is 70% x $200,000 or $140,000. Compute the EMV for the loss,
which is 30% x $200,000 or $60,000. Since we now have the negative value and the positive value,
add them together to get the EMV, which is in this case $80,000.
2. According to similar project historical information, the probability of certain risks happens was
20% for risk A, 10% for risk B, and 30% for risk C. Those risks may cost the project, $100000,
80000, and $120,000. What is the expected monetary value of those risks?
a. $60,000
b. $64,000
c. $68,000
d. $72,000
Answer is B.
Explanation: Expected monetary value formula is EMV = P x I. add EMV of those risks together.
EMV = 20% x $100,000 + 10% x 80,000 + 30% x $120,000 or $68,000.
3. During risk identifying process, you discovered that there is a couple of risks that may negatively
impact the project. Risk (A) has 30 % probability to occur and will cause a cost overrun of
$100,000. Risk (B) has 10% probability to occur costing the project $200,000. What is the total
Expected Monetary Value for those two risks?
a. $50,000
b. $60,000
c. $70,000
d. $100,000
Answer is A
Explanation: Expected monetary value formula is EMV = Probability x Impact. The total EMV is the
summation of EMV of each risk.
EMV = 30% x $100,000 +10% x 200,000 or $50,000.
1. What is the Expect Monetary Value (EMV) for a project with 70 percent chance of a $200,000
profit, and 30 percent a chance of $200,000 loss?
a. $140,000 profit
b. $120,000 loss
c. $80,000 profit
d. $20,000 loss
Answer is C:
Explanation: The formula for Expected Monetary Value is EMV = IxP, compute the Expected
monetary value for the profit which is 70% x $200,000 or $140,000. Compute the EMV for the loss,
which is 30% x $200,000 or $60,000. Since we now have the negative value and the positive value,
add them together to get the EMV, which is in this case $80,000.
2. According to similar project historical information, the probability of certain risks happens was
20% for risk A, 10% for risk B, and 30% for risk C. Those risks may cost the project, $100000,
80000, and $120,000. What is the expected monetary value of those risks?
a. $60,000
b. $64,000
c. $68,000
d. $72,000
Answer is B.
Explanation: Expected monetary value formula is EMV = P x I. add EMV of those risks together.
EMV = 20% x $100,000 + 10% x 80,000 + 30% x $120,000 or $68,000.
3. During risk identifying process, you discovered that there is a couple of risks that may negatively
impact the project. Risk (A) has 30 % probability to occur and will cause a cost overrun of
$100,000. Risk (B) has 10% probability to occur costing the project $200,000. What is the total
Expected Monetary Value for those two risks?
a. $50,000
b. $60,000
c. $70,000
d. $100,000
Answer is A
Explanation: Expected monetary value formula is EMV = Probability x Impact. The total EMV is the
summation of EMV of each risk.
EMV = 30% x $100,000 +10% x 200,000 or $50,000.