Lets say you are going on a geological survey up on a mountain in the rural areas.
( Page 576, Head First PMP 3rd Edition, Jennifer Greene, PMP & Andrew Stellman, PMP ) Expected Monetary Value (EMV)
Risk: High Winds Probability: 35% Impact: cost $48 to replace equipment
Risk: Mudslide Probability: 5% Impact: lose $750 in damage costs
Risk: Wind generator is usable Probability: 15% Impact: save $800 in battery costs
Risk: Truck rental Unavailable Probability: 10% Impact: cost $350 last-minute rental
Calculating EMV for each Risk High Winds: 35% x -$48 = -$16.80 Mudslide: 5% x -$750 = -$37.50 Wind Generator: 15% x $800 = $120 Truck Rental: 10% x -$350 = -$35
EMV = -$16.80 + (-$37.50) + $120 + (-$35) = -$30.70
I am confused about the business significance of multiplying the percentage probability by the cost impact.
To elaborate, what does the probability of the risk event occurring have to do with the cost of the impact, and vice versa?
what is the business purpose of product value calculated by multiplying the probability of an risk event by the cost of the impact? ( Page 576, Head First PMP 3rd Edition, Jennifer Greene, PMP & Andrew Stellman, PMP )