EMV allows you to quantify risk in financial terms, making it easier to prioritize risk responses. Here's how I use it:
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List potential risks and outcomes - Identify important risks and their financial consequences.
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Assign probabilities - Determine the chance of each danger occurring.
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Calculate EMV for each risk using the following formula:
EMV=(Probability of Risk)×(Financial Impact)
Example: If a project delay has a 30% chance of occurring and will cost $50,000, the EMV is:
0.30 × 50,000= 15,000
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Prioritize Risks - Higher EMV risks receive more attention in mitigation plans.
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Use for Contingency Budgeting - The total EMV of all hazards aids in the determination of an appropriate contingency reserve.
EMV offers a straightforward approach to balancing risks against potential returns, resulting in better decision-making.