Need answer for the below question which I saw in one of the mobile apps.
You are managing a software engineering project,when two team members come to you with a conflict. The lead developer has identified an important project risk: you have a subcontractor that may not deliver on time. The team estimates that there is a 40% chance that the subcontractor will fail to deliver, if that happens, it will cost an additional $15,250 to pay your work engineers to rewrite the work and the delay will cost the company $20,000 in lost business. Another team member points out an opportunity to save money an another area to offset the risk:if an existing component can be adapted,it will save the project $ 4500 in engineering costs. There is a 65% probability that that team can take advantage of that opportunity. What is the EMV of these two things?
Could you please let me know the answer with an explanation?
Can you quote the name of the mobile app where you got this question?
To calculate the expected monetary value (EMV) of a set of risks and opportunities, multiply each probability by its total cost and add them together. In this question, the cost of the risk is –$15,250 + –$20,000 = –$35,250, so its EMV is 40% x –$35,250 = -$14,100. The value of the opportunity is $4,500 and its probability is 65%, so its EMV is 65% x $4,500 = $2,925. So the total EMV for the two is –$14,100 + $2,925 = –$11,175.
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