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Analyzing Negative and Positive Risks [WLO: 3] [CLOs: 1, 2]
When choosing between multiple projects, a project sponsor must analyze each project to determine which one is most likely to yield the greatest benefit to the company. One way of doing this is through calculating the expected monetary value (EMV), which is a form of quantitative risk analysis.
Review the section in your textbook on calculating EMV. Then, consider the following scenario:
Carrie’s IT firm has been invited to bid on WiFi projects at two universities identified as university 1 and university 2. Carrie has some experience working with each university and prepared the following:
- University 1 – Our firm has an established relationship with university 1. Based upon that relationship, I feel that we have a 75% chance of winning the contract and realizing a profit of $20,000. If we do not win the contract, we will spend approximately $40,000 for engineering a wireless solution and preparing the bid proposal.
- University 2 – We have done some work at university 2, but they have also used several other vendors. Being a much larger project, we could realize a $600,000 profit but I estimate our chances of winning the bid at 50%. University 2 is considering requiring a wireless survey as part of the bid. I figure there is a 20% chance this will be required and it will cost the firm $120,000 to complete the survey and prepare the bid. There is a 30% chance that we won’t have to do the wireless survey and that we won’t get the project. Should this happen, we would lose about $50,000.
With the diagram attached, please do the following:
- Calculate the EMV for each project
- Identify which project is best, based on EMV alone
- Explain why you might choose the other project, despite the lower EMV
- State which project you would ultimately recommend, and why
Please provide a post addressing all of the items above. Must be a minimum of 200 words, and be supported by at least one professional or academic source.