What does EMV stand for and what data does it use?

• A. EMV stands for Estimated Market Value; computed from cost savings only.
• B. EMV stands for Expected Monetary Value; computed using probability and monetary impact.
• C. EMV stands for Expected Mean Value; derived from qualitative scales.
• D. EMV stands for Economic Market Variation; deduced from inflation.

Answer: (B)

EMV stands for Expected Monetary Value. It's a decision-analysis concept that quantifies risk by combining how likely each possible monetary outcome is with how large that outcome would be. You use probabilities and monetary impacts as data: for each outcome multiply its probability by its monetary value, then sum across all outcomes. The result is the average monetary effect you would expect if the situation could be repeated many times. For example, if there is a 20% chance of losing $5,000 and an 80% chance of losing nothing, EMV = 0.2*(-5000) + 0.8*(0) = -$1,000. This helps compare options on a monetary basis rather than just worst-case or best-case scenarios. Other interpretations listed would mix in non-monetary measures or omit probabilities, which misses the essential probabilistic, monetary weighting that defines EMV.