# Calculating Expected Values

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• techno
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Hi,
I’m unclear on how to calculate expected values…say as an aid to risk assessment.

From what I understand, you multiply the likelihood of risk occuring, by the impact of the risk.
This gives you a “value” which you can use to rank risks and determine how you want to manage them.

Is this correct?

But, how on earth do you come up with a figure to represent “likelihood” and a figure to represent “impact”?

Do you just use a money sum figure for the “impact”….eg the amount we would lose.
And a percentage number for “likelihood”…eg 40% chance of the risk materialising?

My BPP textbook is a bit vague about what figure you should multiply by what,
and also, what do you do with your “expectected value” once calculated?
(I assume use it for ranking…but I’ve no idea really).

Many thanks.

MikeLittle
Keymaster
• Topics: 1
• Replies: 7092

What a brilliant question! I genuinely wish I had an equally brilliant and insightful answer. Unfortunately …….

To the best of my knowledge ( I have NO practical experience in this area ) the percentage probabilities are best guesses and the expected monetary figures are ……. best guesses!

As to what you do with the resultant products of these various best guesses…. well, I can only assume that you would rank them in order to give you an indication of “best” course of action.

Maybe John in F5, F9 or P5 ( Gromit in P5 ) could guide you better. Sorry!

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