Risk and Uncertainty

Question 1

What are the advantages and disadvantages of Expected values?

Answer 1

Advantages

• Takes risk in to account - using each probability.
• Result is a single number - easier decision making
• Calculations are relatively simple.

Disadvantages

• Probabilities are subjective
• EV is a weighted average so is generally relevant for one off projects
• EV gives no indication of risk
• EV may not correlate to any of the actual possible outcomes.