A risk has a 30% probability of occurring and would cause a $120,000 loss. A proposed response costs $10,000 and would reduce the probability to 10%. What is the expected monetary value (EMV) benefit of implementing the response, net of its cost?

Question

Accepted Answer

$14,000. EMV before = 0.30 × 120,000 = $36,000; EMV after = 0.10 × 120,000 = $12,000. Reduction in risk exposure = 36,000 - 12,000 = $24,000. Net benefit = 24,000 - 10,000 (response cost) = $14,000. The $24,000 distractor ignores the response cost.

A risk has a 30% probability of occurring and would cause a $120,000 loss. A proposed response costs $10,000 and would reduce the probability to 10%. What is the expected monetary value (EMV) benefit of implementing the response, net of its cost?

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