| *EMV Quick Reference | * Expected Monetary Value (EMV), also known as a Decision Tree | |
| Step 1: List the alternatives | Step 2: Assign Probabilities | Step 3: Draw the Tree |
| 
| 
|
| Step 4: Assign probable benefits and costs |
Step 1: List the alternatives
Step 2: Assign probabilities Step 3: Draw the tree Step 4: Assign probable benefits and costs Step 5: Calculate the expected value Net Revenue = (Benefit – Cost) Expected Value = (Net Revenue) * (Probability) Expected Value at a junction is the sum of the branches Work every branch and junction from right to left Step 6: Solve Either for the whole Or to identify the best branches |
|
| Step 5: Calculate the expected value | Step 6: Solve | |
|
|
| Risk Strategies | |
| Risk Acceptance | Risk Acceptance means choosing to take no other action. Most projects accept the risk that a meteor might extinguish life on earth and take no action to avoid or mitigate that risk. |
| Risk Avoidance | Risk Avoidance means taking a specific action that prevents this risk from materializing. For example, many companies have a policy against flying an entire team on the same airplane to avoid loosing the entire team in one accident. |
| Risk Mitigation | Risk Mitigation minimizes the impact. For example, passwords mitigate, but do not avoid the risk from a hacker. |
| Risk Transference | Risk Transference assigns the risk to someone else. Insurance is a common form of transference. |
| Residual Risks | Risks that are not accounted for specifically. Generally these risks are covered by the contingency fund. |
| Secondary Risks | Side-effects from following a risk mitigation strategy. |
| Project Terminations | |
| Addition | Addition into normal operations through evolution. |
| Starvation | Starved of resources or budget. |
| Integration | Integrated into other projects or operations at the expense of this project. |
| Extinction | Extinct because it finished; the project concluded. |
Sample Question
- You are the Project Manager for a facilities upgrade project. You need to budget communications services for the new building. You contacted two vendors, but both vendors told you they have major upgrade projects underway. Until they finish installing their new fiber optics they cannot give you the service you need.
- You believe there is a 40% chance that Spirit will have the service capability when you need it and a 60% chance that MCY will. Spirit says there is a 70% chance they can deliver the service for $50,000, otherwise it will cost $100,000 because of extra equipment.
- MCY has three ways they can try to get service to you. There is a 40% chance service will cost $50,000, a 30% chance it will cost $100,000. Otherwise it will cost $70,000.
- What is the expected value you should use in your preliminary budget?
| PMBOK page 258 | |
| Left to right calculate the revenue | Then right to left to get the Expected Value |
| 
|