Suppose you are leading a construction project. Weather, cost of construction ma

Question

Suppose you are leading a construction project. Weather, cost of construction material, and labor turmoil are key project risks found in most construction projects:

Project Risks 1 - Weather: There is a 25 percent chance of excessive snow fall that’ll delay the construction for two weeks which will, in turn, cost the project $80,000. Project Risks 2 - Cost of Construction Material: There is a 10 percent probability of the price of construction material dropping, which will save the project $100,000. Project Risks 3 - Labor Turmoil: There is a 5 percent probability of construction coming to a halt if the workers go on strike. The impact would lead to a loss of $150,000.


Calculate the Expected Monetary Value for this project, based on these three risks.

Explanation / Answer

In this question of Expected Monetary Value, we have a positive risks (Cost of Construction Material) and two negative risks (Weather and Labor Turmoil). The Expected Monetary Value for the project risks:

The project’s Expected Monetary Value based on these risks is:

-($20,000) + ($10,000) – ($7,500) = - $17,500

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