Expected Monetary Value (EMV)
Expected Monetary Value, or EMV, puts a dollar figure on an uncertain future event. A "risk" is something that might happen on your project — it could be bad (a threat, like a delay) or good (an opportunity, like an early discount). "Probability" is how likely that event is, written as a percentage or a decimal (for example, 30% is 0.30). "Impact" is how much money you'd gain or lose if it actually happened.
To calculate EMV for a single risk, you multiply its probability by its impact. Threats are usually shown as negative numbers (money lost) and opportunities as positive numbers (money gained). When you have several risks, you add all their EMVs together to get one overall figure. This total is often used to set a "contingency reserve" — a pot of money set aside to cover risks if they occur.
Reading the result: a large negative EMV means you should expect to lose money on that risk and may want to prevent it or budget for it; a positive EMV points to a worthwhile opportunity. Project managers use EMV in "decision trees" (diagrams that compare different choices) to pick the option that makes the most financial sense on average.
Think of it like deciding whether to buy a raffle ticket. You weigh how likely you are to win against how big the prize is. EMV does the same thing for project risks — it blends "how likely" with "how much" into a single number you can plan around.
Suppose there's a 30% chance a supplier is late, which would cost you $10,000. Its EMV = 0.30 × (−$10,000) = −$3,000. Separately, there's a 20% chance you finish early and earn a $5,000 bonus. Its EMV = 0.20 × (+$5,000) = +$1,000. Add them together: −$3,000 + $1,000 = −$2,000. This tells you that, on average, these risks are expected to cost you about $2,000, so you'd set aside roughly that amount as a contingency reserve.
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