Calculating Expected Monetary Value (EMV) of Risks

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Quick Summary
It's one thing to make a list of risks, and another to be quite clear about just how badly a particular risk could impact the project in financial terms. This template helps teams assess the financial impact of a given risk and determine how much time and money to spend avoiding it.

What this is

A template to explain the application of Expected Monetary Value to assess the financial impact of potential project risks, and provide guidance on how to use it at the macro and micro levels on a project.

Why it's useful

It's one thing to make a list of risks. It's another to be quite clear about just how badly a particular risk, or the set of risks you see for the project, could impact the project in financial terms. This template helps project managers and teams think through and communicate the true potential impact of their projects' risks, to help establish the appropriate risk budgets for both time and cost on those projects.

How to use it

This template should be used in management decision-making as the team identifies project risks and determines appropriate budgetary values and set-asides for risk management. The guideline and template on the following pages provide detailed guidance for executing these steps.

Early in the project, begin to record project risks as they arise. PMI calls this a "risk register."
As project alternatives are considered and detailed planning and budgeting get underway, continue to add to the risk list.
Decide what risks need to be examined further for their potential financial impact to inform the project budget. This is normally an effort reserved for the top 10-20% of risks in a project.
Fill out the Expected Monetary Value table for those selected risks to capture concrete values, and calculate their Expected Monetary Value (EMV) if the data is available.

(Instructions and guidelines for using this template are continued in the template file.)

About the Author

Carl Pritchard is the principal and founder of Pritchard Management Associates and a recognized lecturer, author, researcher, and instructor. He is considered a leading authority on risk management, and writes and presents on a variety of topics, ranging from project essentials to the complexities of network diagramming and team motivation. His work as an instructor has taken him around the world, training with some of the leading international training organizations as well as for private clients and the Project Management Institute®. He is also the U.S. Correspondent for the U.K. project management journal Project Manager Today. Carl regularly consults and coaches on project management, presentation skills, risk, distance learning, and course development. He holds a B.A. from the Ohio State University, and is a certified Project Management Professional™ as certified by the Project Management Institute. To learn more about Carl and his work, visit www.carlpritchard.com.

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Calculating Expected Monetary Value (EMV) of Risks