EMV (Expected Monetary Value) Expected Monetary Value: It is a balance of probability and the impact of various possible scenarios. Usually there will be at least two or more options for comparison to help decision makers choose the option that will provide greater potential benefits.

In PMP, which appears in Chapter 11 Project Risk Management, EMV and decision tree analysis can help make complex decisions. Decision-making is the cognitive process of choosing a course of action from multiple options. Each decision-making process will produce a final choice.

Best Case BC

Worst Case WC

Most likely Case MLC< /p>

Total EMV=BC+WC+MLC

Decision Tree Analysis

Encyclopedia explanation: It is a tree that uses probability and graph theory A risk-based decision-making method that compares different options in decision-making to obtain the optimal option. A tree in graph theory is a directed graph that is connected and has no loops. The point with an in-degree of 0 is called the root, the point with an out-degree of 0 is called a leaf, and the points outside the leaves are called interior points.

A decision tree consists of the root (decision node), other interior points (scheme nodes, status nodes), leaves (terminal points), branches (scheme branches, probability branches), probability values, and profit and loss values.

In risk management, a decision tree consists of a decision diagram and possible outcomes (including resource costs and risks), used to create a plan to achieve the goal. A decision tree is established and used to assist decision-making. It is a special tree structure.

Question 1

The company has submitted a proposal for new product development. The development cost of the project is 500,000 yuan, and the probability of success is estimated to be 70%. If development is unsuccessful, the project will be terminated. If successful, the manufacturer must decide whether to manufacture the product on a new production line or a modified production line. If the product demand is high, the new production line will increase revenue by 1.2 million yuan, while the modified production line will increase revenue by 850,000 yuan. If the demand for the product is low, the new production line will increase revenue by 700,000 yuan, while the modified production line will increase revenue by 720,000 yuan. All these revenue increases are without deducting development costs of 500,000 yuan, new production lines of 300,000 yuan, and revamped production lines of 100,000 yuan. The probability of high demand is estimated at 40%, and the probability of low demand is estimated at 60%.

The question stem looks very complicated. You need to sort out each branch and calculate the expected monetary value of each branch, that is, EMV. EMV = Probability ) = -29,600 yuan

Unopened EMV=0

When doing decision tree analysis, any decision with an amount greater than zero marks a positive decision. When multiple scenarios need to be compared, the one with the highest return should be chosen.

Question 2

After using Monte Carlo analysis, if you make it yourself and spend 1 million, the probability of project success is 60% and you will earn 3 million, and the probability of failure is 40% and you will lose 1 million. .

If the project is outsourced and costs 1.5 million, the project success probability is 80% to earn 3 million, and the 20% probability to lose 1 million. Should I choose to make it myself or outsource it?