List your risks with probability and impact. See each risk's expected monetary value, total exposure and a suggested contingency reserve.
| Risk | Probability % | Impact $ (threat −, opportunity +) | EMV |
|---|
EMV = Probability × Impact. Use negative impact for threats and positive for opportunities. Adding up all EMVs gives the net expected effect of your risks, a core input to decision tree analysis and to sizing the contingency reserve.
Contingency reserve is part of the cost baseline and is controlled by the project manager. Management reserve sits outside the baseline and needs management approval to use.
Quantitative. Qualitative analysis uses probability-impact matrices; EMV puts a number on risk using money.
Contingency reserve handles identified risks and is inside the cost baseline. Management reserve handles unknown-unknowns and is outside the baseline.
Calculate EMV for each branch (probability × payoff, minus the cost of the option), then choose the option with the best net EMV.