Skip to content
PMPEasy

PMP Practice: Develop and execute risk response strategies

Question 3 of 5 in Assess and Manage Risks

Pick an answer below — you'll get the explanation instantly, no signup.

Pepper Lindström-Ali is managing a manufacturing automation project for Bayou Intelligence Corp. During risk planning, the team identifies a supplier delivery risk. If the specialized robotic components arrive late, the project will incur additional labor costs. The team estimates there is a 35% probability the supplier will be late. If the delay occurs, the cost impact will be $28,000. If components arrive on time, there is no additional cost. Pepper needs to calculate the expected monetary value of this risk to include in the risk budget. What is the expected monetary value (EMV) of this risk event?
Show answer & explanation

Correct answer: $9,800

Explanation

Expected monetary value is calculated by multiplying the probability of the risk event by its financial impact. In this scenario, there is a 35% chance of a $28,000 cost impact. The calculation is: 0.35 × $28,000 = $9,800. This represents the weighted average cost of this risk, accounting for both the likelihood of occurrence and the potential financial consequence. This EMV helps the project manager determine how much contingency reserve to allocate for this specific risk.

**Why not A:** $28,000 represents the full cost impact if the delay occurs, not the expected monetary value. EMV accounts for the probability of occurrence, so using the full impact amount ignores the 35% likelihood factor. This would overstate the risk reserve needed.

**Why not C:** $18,200 appears to be the complement calculation (0.65 × $28,000), representing the "expected savings" if the risk does not occur. EMV focuses on the weighted cost of the risk event itself, not on the favorable outcome scenario.

**Why not D:** $14,000 results from incorrectly using a 50% probability (0.50 × $28,000) rather than the stated 35%. The probability given in the scenario must be used as-is rather than defaulting to an assumed even-odds calculation.

Key Concept

This question covers Develop and execute risk response strategies under Assess and Manage Risks (Process).

Share:

This is 1 of 100 free PMP questions

Unlock 6,300+ PMP practice questions with detailed explanations, progress tracking, and exam readiness prediction.

Unlock All Questions