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.