PMP Question 205

[admin]

Project A has a 60% chance of $100,000 profit and a 40% chance of $100,000 loss. Project B has a 50% chance of $200,000 profit and a 50% chance of $200,000 loss. Project C has a 40% chance of $150,000 profit and a 60% chance of $100,000 loss. Project D has a 70% chance of $100,000 profit and a 30% chance of $150,000 loss. If the company can execute only 1 project then based upon EMV, which project should be selected ?

a. Project A
b. Project B
c. Project C
d. Project D

[admin]

Correct answer is D.

Expected Monitory Value (EMV) = Probability × Impact
Calculate both positive and negative values and then add them.
Project A EMV : 0.6 × $100,000 – 0.4 × $100,000 = $60,000 – $40,000 = $20,000 profit
Project B EMV : 0.5 × $200,000 – 0.5 × $200,000 = $100,000 – $100,000 = $0 profit
Project C EMV : 0.4 × $150,000 – 0.6 × $100,000 = $60,000 – $60,000 = $0 profit
Project D EMV : 0.7 × $100,000 – 0.3 × $150,000 = $70,000 – $45,000 = $25,000 profit

Since EMV of Project D is the highest, therefore, the company should do Project D.

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