Expected Monetary Value (EMV) is a project management technique used to calculate the average outcome of a project when the outcome is uncertain and there are risks involved. EMV is calculated by multiplying the probability of each potential outcome by its corresponding monetary value, and then summing these products.
The formula for calculating EMV is:
EMV = Probability 1 x Monetary Value 1 + Probability 2 x Monetary Value 2 + Probability 3 x Monetary Value 3 + … Probability n x Monetary Value n
where n is the number of potential outcomes.
For example, let’s say a project has three potential outcomes: Outcome 1, with a probability of 0.3 and a monetary value of $10,000; Outcome 2, with a probability of 0.5 and a monetary value of $5,000; and Outcome 3, with a probability of 0.2 and a monetary value of -$2,000 (indicating a loss). The EMV for the project would be:
EMV = 0.3 x $10,000 + 0.5 x $5,000 + 0.2 x (-$2,000) = $6,000
This would indicate that the expected monetary value of the project is $6,000, taking into account the probabilities and potential monetary values of each outcome.
