As per the risk analysis process carried out for a project, two risks are registered. The probability risk A will occur is 40% and its monetary impact to the project is US$100,000. The probability risk B will occur is 60% and its monetary impact to the project is US$20,000.
What is the total contingency budget that should be created?
To determine the total contingency budget for the project, we calculate the Expected Monetary Value (EMV) for each risk by multiplying the probability of each risk occurring by its monetary impact. For risk A, the EMV is 40% × $100,000 = $40,000. For risk B, the EMV is 60% × $20,000 = $12,000. Adding these two amounts gives the total contingency budget: $40,000 + $12,000 = $52,000.
the c. budget should be $40k+$12k=$52k
Contingency Budget >> Contingency Reserve $52k
The total contingency budget that should be created is US$80,000. The contingency budget is a sum of money set aside to cover unexpected risks or events that may occur during the project. To determine the total contingency budget that should be created, the risk manager should calculate the expected monetary value (EMV) of each risk by multiplying the probability of the risk occurring by the monetary impact of the risk. For risk A, the EMV is 40% x $100,000 = $40,000. For risk B, the EMV is 60% x $20,000 = $12,000. The total contingency budget is the sum of the EMVs for each risk, which is $40,000 + $12,000 = $52,000. Therefore, the total contingency budget that should be created is US$80,000. Other potential total contingency budgets could include US$120,000 or US$68,000. However, these values are not correct because they do not take into account the probabilities and impacts of the individual risks.