Expected Monetary Value Calculator

How to Use the Calculator – Step-by-Step

1. Enter Probability of Occurrence
   Input the likelihood of the risk occurring as a decimal (e.g., for 20%, input 0.20).

2. Enter Impact of Occurrence
   Input the potential financial impact or cost of the risk occurring.

3. Click ‘Calculate’
   View the Expected Monetary Value (EMV), which helps you understand the financial impact of the risk.

 

Tip: Regularly calculate the EMV for different risks to prioritize your risk management strategies and allocate resources effectively. As you evaluate risk, consider using our Cost of Doing Business Calculator for a more comprehensive view of your business’s potential risks.

 

Understanding Expected Monetary Value (EMV)

 

The Expected Monetary Value (EMV) is a decision-making tool used in risk management to evaluate the average outcome when the future involves uncertainty. It combines the probability of an event occurring with its potential impact, providing a weighted financial outcome. The higher the EMV, the more significant the potential financial impact, helping businesses decide how to manage risks effectively.

 

Industry Benchmarks for Risk Management

 

Industry	Typical Risk Management Approach
E-commerce	Prioritize supply chain and data security risks
Technology	Focus on cybersecurity and market fluctuations
Healthcare	Focus on compliance, regulatory risks, and operational risks
Manufacturing	Prioritize production delays, supply chain, and equipment failure risks

 

Note: Risk management strategies vary significantly by industry, but calculating the EMV is a common method across sectors.

 

Practical Example

 

Scenario:

 

A business is evaluating the risk of a potential supplier disruption. The probability of this event occurring is 25% (0.25), and the impact of the disruption would be ₹200,000 in lost revenue.

 

Calculation:


EMV = 0.25×200,000=₹50,000

 

Interpretation:


In this case, the EMV is ₹50,000, meaning the expected financial impact of this risk, factoring in both the probability and impact, is ₹50,000.

 

Tips to Manage Risk Based on EMV

 

• Mitigate High-EMV Risks: Focus on managing risks with high EMV to prevent significant financial losses.
  
• Use EMV for Cost-Benefit Analysis: Use the EMV to decide whether the cost of mitigating a risk is justified by the potential savings or revenue protection.
• Monitor and Adjust: Regularly monitor risks and recalculate EMV as conditions change, such as probability or impact adjustments.