Expected Monetary Value - EMV (Project Management Series)
•
3 likes•2,723 views
Project Management Course Expected Monetary Value EMV Universidade do Vale do Itajaí University of Vale do Itajaí Univali Incremental Tecnologia English version
Recommended
More Related Content
What's hot
What's hot (20)
More from Marcello Thiry
More from Marcello Thiry (13)
Recently uploaded
Recently uploaded (20)
Expected Monetary Value - EMV (Project Management Series)
- 1. marcello.thiry@gmail.comExpected Monetary Value (EMV) Project Management Series
- 2. Sandra is the Project Manager in a small software company Once her team is small, all members always work on a single project at a time
- 3. Today, Sandra has a problem to solve She has to choose one between two projects candidates: Customers Helpdesk
- 4. Which project will bring more return to the organization?
- 5. marcello.thiry@gmail.com We can estimate the expected return of each project!
- 8. But and if we consider risks?
- 9. marcello.thiry@gmail.com Decision needs to consider multiple paths
- 11. marcello.thiry@gmail.com Probability of occurrence of the risk x Estimated value of the risk Calculating the expected monetary value of each risk... Expected Monetary Value (EMV) of the risk =
- 12. marcello.thiry@gmail.com Monetary value of the impact of the risk Positive = opportunity Negative = threat Probability of occurrence of the risk x Estimated value of the risk Expected Monetary Value (EMV) of the risk =
- 13. marcello.thiry@gmail.com EMV of the riski To calculate the Project’s EMV... Project’s EMV = …
- 15. marcello.thiry@gmail.com Customers = $40.000,00 Helpdesk = $45.000,00 How to interpret? Is it what we will earn from each project? NO
- 16. marcello.thiry@gmail.com If each project were executed many times, in the very same conditions… Probable average return of each execution Customers = $40.000,00 Helpdesk = $45.000,00 How to interpret?
- 17. marcello.thiry@gmail.com It helps to estimate Contingency reserves Customers = $40.000,00 Helpdesk = $45.000,00 How to interpret? More used in larger projects (large number of risks)
- 18. marcello.thiry@gmail.com The difficulty is in appropriately quantify the value of the impact But there is no magic!
- 19. marcello.thiry@gmail.com Limitations… – Definition of the value of the impact can be subjective or biased – Decision should consider the variance – Large variation between earns and losses can affect decision makers
- 20. marcello.thiry@gmail.com Limitations… (DAVIES & LAM, 2001) – Will you accept a 50/50 bet for $5? Probably YES – Will you accept a 50/50 bet for $5m? Probably NO – BUT BOTH HAVE AN EMV = 0! – In some way you ‘care’ more about losing $5m than winning $5m
- 21. marcello.thiry@gmail.com Limitations… (DAVIES & LAM, 2001) – Your house is worth $200,000 – The probability of destruction by fire is 1/10,000 – EMV of the loss = $20 – So $20 is the most you will pay for insurance? – NO, YOU CARE MORE ABOUT THE CHANCE OF LOSING YOUR HOUSE
- 22. marcello.thiry@gmail.com Risk #1: The software designer will be transferred to other project. • Probability = 30% • Substitution cost = $12,000.00 (threat, negative impact) • EMV = 0.3 x 12,000.00 = $-3,600.00 Revisiting... Project XPTO Total cost: $300,000.00
- 23. marcello.thiry@gmail.com Risk #2: New approved legislation. • Probability = 50% • Modification cost = $20,000.00 (threat, negative impact) • EMV = 0.5 x 20,000.00 = $-10,000.00 Revisiting... Project XPTO Total cost: $300,000.00
- 24. marcello.thiry@gmail.com Revisiting... Risk #3: Current version of the framework already attends the project. • Probability = 60% • Work reduction = $5,000.00 (opportunity, positive impact) • EMV = 0.6 x 5,000.00 = $+3,000.00 Project XPTO Total cost: $300,000.00
- 25. marcello.thiry@gmail.com Take also a look at… (DAVIES & LAM, 2001). Managerial Economics: An Analysis of Business Issues. 3rd ed. FT Prentice- Hall. (HAIMES, 2015). Risk Modeling, Assessment, and Management. 4th ed. Wiley. (KENDRICK, 2015). Identifying and Managing Project Risk: Essential Tools for Failure-Proofing Your Project. 3rd ed. AMACOM. (PMBOK, 2013). A Guide to the Project Management Body of Knowledge (PMBOK® Guide). 5th ed. Project Management Institute (PMI). (TALEB, 2010). The Black Swan: The Impact of the Highly Improbable Fragility. 2nd ed. Random House.