What is the expected monetary value (EMV) under risk?
Case 6.1
T.S. Amer's Ski Shop in Nevada has a 100-day season. T.S. has established the probability of various store traffic, based on historical records of skiing conditions, as indicated in the table (next slide). T.S. has four merchandising plans, each focusing on a popular name brand. Each plan yields a daily net profit as noted in the table. He also has a meteorologist friend who, for a small fee, will accurately tell tomorrow's weather so T.S. can implement one of his four merchandising plans.
• What is the expected monetary value (EMV) under risk?
• What is the expected value with perfect information (EVWPI)?
• What is the expected value of perfect information (EVPI)?
Hint
Management " Expected monetary value (EMV) helps quantify and compare risks in various aspects of a project, and it can be calculated by following these steps:a. Assigning a probability of occurrence for a riskb. Assigning a monetary value of the risk impact - when it occursc. Multiply Step (a) and Step (b)EVPI is the price that an individual is willing to pay to gain access to perfect inform...
" Expected monetary value (EMV) helps quantify and compare risks in various aspects of a project, and it can be calculated by following these steps:
a.Assigning a probability of occurrence for a risk
b.Assigning a monetary value of the risk impact - when it occurs
c.Multiply Step (a) and Step (b)
EVPI is the price that an individual is willing to pay to gain access to perfect information, and it is equal to;
(Best outcome for the first state) x (Probability of the first state) + (Best outcome for the second state) x (Probability of the second state)…+ (Best outcome for the last state) x (Probability of the last state)"
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