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Project Manager’s Guide to Expected Monetary Valu (EMV).

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What is EMV?
How does EMV work?
What is the EMV formula?
What is the expected Monetary Value of a Risk?
Example of EMV analysisOption 1: Weddings
Option 2: Children’s barn

Why is EMV important?
EMV analysis: Advantages and disadvantages

Let’s sum it up…

What is EMV?
EMV is a risk analysis tool that helps you establish contingency reserves for your project activities. It is a statistical technical tool for quantifying risk. It ends with a decision tree which summarizes the financial consequences of following a course.
The expected monetary value can be used to calculate the profit or loss of an activity. This can be done regardless of whether it’s a whole or part of a larger project. The EMV is the P&L of the result.
In decision theory, the expected monetary value is often used to decide between two options. It could be used to make decisions between more options, but I find that decision trees can become more complicated and more time-consuming. Try to narrow down the options to two before you start the calculations.
How does EMV work?
EMV averages the worst and best case scenarios to provide a financial impact. It allows you to consider probability when calculating the potential cost of options. This allows you to compare options and decide the best course of action.
It could be used to:
Determine which solution or product option is best
To offset project risk, establish the contingency reserve.

What is the EMV formula?
The EMV formula is:
EMV = Probability + Impact
Probability can be described as a percentage or fraction of a number, and Impact (of the risk), a positive or negligible monetary amount.
The average outcome of what could happen in the future is the result. It is a simple formula that is sure to be a benefit in your risk assessments.
What is the expected Monetary Value of a Risk?
To calculate the financial consequences of risk management activities, you can use the EMV calculation. It is a quantitative risk analysis technique that uses the probability of an occurrence. It is also known as risk management language.
Positive values for EMV represent opportunities.
EMV’s negative values are considered threats.

Here’s an example. Let’s say that you are the farm’s project manager. Your farm is looking for additional income sources and one of your tasks is to create a cheese-making class for local farmers and interested hobbyists. As you can see, there are four potential risks. You have already identified the appropriate risk responses.
RiskProbabilityImpact $EMV (Probability x Impact)There is a risk that the cheese-making class will be cancelled due to staff shortage25%-5000-1250There is a risk that the cheese-making class will be over-subscribed10%5000500There is a risk that the marketing materials will be late50%-600-300There is a risk that the barn will not be fit for purpose and we have to relocate the class to a more expensive marquee25%-10000-2500The risk event that the class is cancelled has an EMV of $1,250. This is a risky situation, a threat. There is a small possibility that the class will be oversubscribed. The risk is that you will need to postpone another date in order to manage the demand. This risk has an EMV of $500. This is a positive risk and an opportunity.
Add the EMV for each risk in the impact matrix. This will give you the amount of contingency money you should be saving for the project. The 4 risks in this example give a total of $-$3,550, so that’s the amount you should allocate to your risk budget.
In the real world, there won’t be any of these unpredicted events. If a risk does occur, it will cost the full amount to fix, not an arbitrary percentage. If you claim that you have only saved $2,500, your marquee vendor will not be happy. That’s only 25% of the cost to hire one.
The EMV is however a sensible option.