PMI Risk Management Professional Practice Exam

In evaluating project options, what decision should be made based on the expected monetary value analysis?

1. Continue the project because it has the highest EMV option of -US$500,000.

2. Continue the project because it has the highest EMV option of US$60,000.

3. Continue the project because the -US$20,000 EMV is far less than the cancellation cost.

4. Cancel the project.

The correct answer is: Cancel the project.

In expected monetary value (EMV) analysis, the focus is on assessing the potential outcomes of various project options by considering their monetary value along with the probabilities of different scenarios occurring. The goal is to maximize positive outcomes or minimize negative financial impacts. Choosing to cancel the project suggests that the analysis has revealed that the potential losses associated with continuing the project outweigh any potential benefits. If the EMVs of the project options indicate negative values, particularly if the most favorable option still results in a loss, it indicates that the project is not financially viable. Furthermore, calculating the EMV involves taking into account not just the potential revenues or gains but also the probabilities of these outcomes and their associated risks. A negative EMV signifies that, statistically, continuing the project will likely lead to financial loss rather than gain, making cancellation the most prudent business decision. In this context, other options that suggest continuing with a specific EMV, even if higher than others, may still result in losses, and may not provide a sound basis for moving forward. Therefore, opting to cancel the project is a decision driven by the goal of minimizing losses and reallocating resources towards more viable opportunities.