Use Expected Monetary Value (EMV) to Determine Risk Impact

Risk management is very important no matter what you do or what business you are in, without the ability to manage risky circumstances you are losing out on a golden opportunity to make rapid progress in a company.

Here's the TenStep guest blog post "Use Expected Monetary Value (EMV) to Determine Risk Impact":

Expected monetary value (EMV) is a risk management technique to help quantify and compare risks in many aspects of the project. EMV is a quantitative risk analysis technique since it relies on specific numbers and quantities to perform the calculations, rather than high-level approximations like high, medium and low.

EMV relies on two basic numbers.

P – the probability that the risk will occur

I – the impact to project if the risk occurs. This can be broken down further into "Ic" for the cost impact, "Is" for the schedule impact and "Ie" for the effort impact.

The risk contingency is calculated by multiplying the probability by the impact.

Risk Contingency Budget

If you use this technique for all of your risks, you can ask for a risk contingency budget to cover the impact to your project if one or more of the risks occur. For example, let’s say that you have identified six risks to your project, as follows.

Risk

P (Risk Probability)

I (Cost Impact)

Risk Contingency

P * Ic

A

.8

$10,000

$8,000

 

 

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