STR N421 - Lecture 5 - 2011

# Drmagedezzatgeorgy expected value example 1 consider

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Unformatted text preview: “multiplied” together to obtain the expected value (EV). Dr. Maged Ezzat Georgy Expected Value Example 1 Consider the risks below and their impacts (I) & probabilities probabilities (P): Risk P I EV = P*I Productivity Drop 30% \$40,000 \$12,000 Design errors 20% \$100,000 \$20,000 \$35,000 \$24,500 Material Shortage 70% Dr. Maged Ezzat Georgy Benefits Benefits of Expected Value First, the expected values can be used in ranking project project risks with respect to each other. Back to the previous example: Risk EV = P*I Rank Productivity Drop \$12,000 3 Design errors \$20,000 2 Material Shortage \$24,500 1 Dr. Maged Ezzat Georgy Benefits of Expected Value Also, the expected values give indication of the extent to which money could be spent on the risks to get rid of (or avoid) them. Dr. Maged Ezzat Georgy Benefits Benefits of Expected Value If the cost of getting rid of (avoiding) a certain project risk is less than its expected value, we...
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## This document was uploaded on 01/22/2014.

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