Expected Monetary Value (EMV) is probably the most used method for calculating the risk reserve. As the name says, it is an Expected value, meaning it is the most likely value, but it is by far not the value that will ensure that you have adequate funds to cover risks. Actually, depending on the values, in almost 50% of the cases the eventual cost of risks is going to be more than the EMV.
As a risk manager I am not willing to undertake a project with a 50% chance of failure. So why is EMV so popular?
Etienne Cornu
www.linkedin.com/in/etiennecornu Saving Changes...
Seem we have a different experience.
The risk reserve should be base on the quantitative value of your risk, Monte-Carlo.
Each risk is evaluated potential cost (time) and probability. Time should be convert in amount. For there you can make a simulation. From the resulting S-Curve an amount will be agree on my experience is that we select the amount that cover about 80%.
That mean your project is cover for 80% of risk, or you can read it has having 80% chance of success.
It all depend on you risk appetite! Saving Changes...
Sergio Luis ConteHelping to create solutions for everyone| Worldwide based OrganizationsBuenos Aires, Argentina
Sorry Etiene because perhaps I did not understand your point. EVM is not about the 50% or probability. I fully agree with you that 50% of probability is the worst position to be. @Rami and @Vincent has put practice on the field. And what @Anupam has stated is the basement of the theory. In my work practice as risk manager if somebody goes to me with 50% of probability of something I fully agree with you and I say she/he: we can review your calculations but please say me if you can need help because 50% of probability is unacceptable. Saving Changes...
Yes, if you accept 50% probability of success in your project then you are very courageous. In the case of the risk reserve, knowing that there is about a 50% chance that your reserve will not cover risks is very bad, since the rest of the project team counts on you to be ready in case risks materialize. But still, people use EMV. It may be because the impact values are usually highly overstated and so the resulting EMV calculations produce something that makes sense. Saving Changes...
I am sorry that I may not be in full understanding on the question and discussion above.
First, EVM is one of very powerful tools to be used for contingency planning and decision making but in my humble opinion, it might be used or not be used based on the nature of project and project situation.
Second, in my opinion, there is less relationship between probability of project success and EVM application.
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1 reply by Kevin Tukei
Aug 23, 2018 6:03 PM
Kevin Tukei
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Hi Sungjoon,
I think EMV is correlated to the success of the project. Deliverables with high probabilities of negative risk could definitely derail the success of a project.
Saving Changes...
Kevin TukeiProject Manager, PMP, CSMBurtonsville, Md, United States
Dec 07, 2016 2:44 PM
Replying to Sungjoon Park
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I am sorry that I may not be in full understanding on the question and discussion above.
First, EVM is one of very powerful tools to be used for contingency planning and decision making but in my humble opinion, it might be used or not be used based on the nature of project and project situation.
Second, in my opinion, there is less relationship between probability of project success and EVM application.
Hi Sungjoon,
I think EMV is correlated to the success of the project. Deliverables with high probabilities of negative risk could definitely derail the success of a project. Saving Changes...
Anonymous
in a vaccine generation project, how much percentage do you think would be corresponding to Contingency Reserve Saving Changes...
Thomas WalentaGlobal Project Economy ExpertHackenheim, Germany
Etienne
EMV works like insurance, the more risks you include, the better it probably covers risks once they occur. Like with catastrophies, if too many of the risks materialize, it does not cover all damage. As extreme alternative, you could calculate contingency by adding up all risk impact amounts, and maybe you should do that if more than money, e.g. human lifes, are at risk.
So, EMV is a tool and wise people know how and when to use it.
The success probability of a project depends not only on the EMV of its risks, but also e.g. how well the humans on he project collaborate and how lucky project manager and sponsor are (the human side of PM).
And also take into account the overall risk level, which is in addition and beyond summing up of individual risks (introduced to PMBoK Guide in ed6).
I hope if dogs ever take over the world, and they choose a king, they don't just go by size, because I bet there are some Chihuahuas with some good ideas.
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