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STR N421 - Lecture 5 - 2011

# If the cost of the corrective action to get rid of

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Unformatted text preview: should probably spend the money to avoid it. If the cost of the corrective action to get rid of (avoid) a certain project risk is greater than the expected value, the action should not be taken. Dr. Maged Ezzat Georgy Benefits of Expected Value Back to the example one more time... Ri Risk EV = P*I P*I Rec. Action (in \$) (i \$) Productivity Drop \$12,000 \$5,000 Design errors \$20,000 \$40,000 Material Shortage \$24,500 \$17,500 . Action for risk 2 should be rejected, while actions for risks 1 and 3 can be adopted. Dr. Maged Ezzat Georgy More More about Probability & Impact Last week, we discussed that different impacts could exist exist think of different levels of productivity drop. Each impact is coupled with certain probability value. In this case, take EV = ΣP*I Dr. Maged Ezzat Georgy More about Probability & Impact 60% EV = - 6,000*0.1 + 0*0.6 + 6,000*0.2 + 12,000*0.1 = \$ 1,800 The expected additional cost...
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