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[Record my PMP growth path] EMV and decision tree analysis
EMV (expected monetary value) is the balance between probability and the influence of various possible situations. Generally speaking, at least two or more schemes can be compared to help decision makers choose the scheme that will provide greater potential benefits.

In PMP, it appears in chapter 1 1 Project Risk Management. EMV and decision tree analysis can help to make complex decisions. The cognitive process of choosing an action plan from a variety of plans in decision-making, each decision-making process will produce a final choice.

Best case) BC

Worst case) WC

Most likely) MLC

EMV total =BC+WC+MLC

Decision tree analysis (decision tree analysis)

Encyclopedia explanation: it is a risk-based decision-making method, which compares different schemes in decision-making by using probability and tree in graph theory, so as to obtain the best scheme. The tree in graph theory is a connected acyclic directed graph. Points with an inward degree of 0 are called roots, points with an outward degree of 0 are called leaves, and points outside the leaves are called inner points.

A decision tree consists of tree roots (decision nodes), other interior points (scheme nodes and state nodes), leaves (endpoints), branches (scheme branches and probability branches), probability values and profit and loss values.

In risk management, decision tree is composed of decision diagram and possible results (including resource cost and risk) to create a plan to achieve the goal. Decision tree is a special tree structure established to assist decision-making.

Subject 1

The company has submitted suggestions for new product development. The development cost of this project is 500,000, and the probability of successful development is estimated to be 70%. If the development is unsuccessful, the project will be terminated. If successful, the manufacturer must decide whether to produce the product on the new production line or the modified production line. If the product demand is high, the new production line will increase the income by 6.5438+0.2 million yuan, and the reformed production line will increase the income by 850,000 yuan. If the product demand is low, the new production line will increase the income by 700,000 yuan, and the reformed production line will increase the income by 720,000 yuan. The increase in these incomes has not deducted the development cost of 500,000 yuan, the new production line of 300,000 yuan and the transformation production line of 654.38 million yuan. The probability of high demand is estimated to be 40%, and the probability of low demand is estimated to be 60%.

The topic looks very complicated, so we need to sort out each branch and calculate the expected monetary value of each branch, that is, EMV. EMV= probability x income

This leads to the second question.

EMV development = 70% success rate +30% failure rate of the total EMVx of the transformed production line X (fixed cost-500,000 yuan) =-29,600 yuan.

Closed EMV=0

In decision tree analysis, any decision with a number greater than zero represents a positive decision. When you need to compare multiple scenarios, you should choose the one with the highest benefit.

Topic 2

After Monte Carlo analysis, if the project is self-made, the cost is 654.38+0 million, the probability of success is 60%, and the probability of failure is 40%. If the project is outsourced, it will cost 6.5438+0.5 million yuan, 80% of the success probability of the project will earn 3 million yuan, and 20% of the probability will lose 6.5438+0.5 million yuan. Do you choose to do it yourself or outsource it?