Expected Monetary Value


When determining a business case, one can’t know ahead of time exactly how much value a product or service will bring to an organization. At the same time, it may be difficult to determine the value of a product or service relative to another. In these cases, it is good to use a decision tree.EMVdecisiontree

 

The tree above illustrate three choices for a company. They currently have a product released, and are making a decision to design a completely new product, enhance the current product, or keep the current product as is and do nothing.

Each scenario applies the expected investment, the chance of strong or weak demand, and the value of the associated strong or weak demand. As a result, it allows one to apply a confidence factor to the decision making process.

Note that this same approach can be used for quantifying risks as well. One can determine the chance a risk will occur, apply an estimated cost to each risk, and produce an understanding of which risks will cost the most.

 

 

 

 

 

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