International Project Management Association (IPMA) Practice Exam

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If the project has a 60% chance for a $50,000 profit, and a 40% chance for a $20,000 loss, what is the expected monetary value of the project?

$8,000
$22,000
$30,000
$38,000

The correct answer is: $22,000

To calculate the expected monetary value (EMV) of the project, we consider both the potential profits and losses, along with their respective probabilities. The EMV provides a measure of the average outcome of the project, accounting for the likelihood of each scenario. In this case, there is a 60% chance of earning a $50,000 profit. To find the contribution to the EMV from this outcome, you multiply the profit by its probability: 0.60 * $50,000 = $30,000. Conversely, there is a 40% chance of incurring a $20,000 loss. To calculate the contribution from this loss, you again multiply the loss amount by its probability. However, since this is a loss, it will be a negative contribution: 0.40 * -$20,000 = -$8,000. Now, integrating these two calculations together provides the overall EMV: $30,000 (from the profit) - $8,000 (from the loss) = $22,000. Thus, the expected monetary value of the project is $22,000. This is why the answer is correct; the calculation reflects the potential outcomes weighted by their probabilities, giving a clearer picture