A project manager is quantifying the potential impact of non-compliance with a new data protection law. The legal team estimates a 20% probability of a fine of $500,000 if the project is found non-compliant. The cost to implement the necessary controls is $80,000.<br/><br/>Based on Expected Monetary Value (EMV) analysis, what is the MOST logical business decision?

Q: What mistakes do candidates make on this PMP question?

Comparing the cost of control directly to the full fine amount (A) rather than the probability-weighted amount.

Answer options:

Do not implement controls because the cost ($80,000) is less than the fine ($500,000).

Implement the controls because the cost ($80,000) is less than the risk exposure ($100,000).

Do not implement controls because the cost ($80,000) is greater than the risk exposure ($10,000).

Implement the controls regardless of cost because compliance is mandatory.

How to approach this question

Calculate EMV: Probability * Impact. Compare EMV to Cost of Prevention.

Full Answer

B.Implement the controls because the cost ($80,000) is less than the risk exposure ($100,000).✓ Correct

EMV = 0.20 * $500,000 = $100,000. This is the 'cost' of the risk. The cost to prevent it is $80,000. Since preventing it is cheaper than the expected cost of the risk ($80k < $100k), the logical business decision is to implement the controls.

Common mistakes

Comparing the cost of control directly to the full fine amount (A) rather than the probability-weighted amount.

Question 09 All questions Question 11

Practice the full PMP Business Environment Domain Practice Exam

60 questions · hints · full answers · grading

More questions from this exam

Q01A project manager is leading a medical device development project. During the execution phase, a ...Hard Q02A global fintech organization is launching a new payment platform. The project manager is identif...Hard Q03A project manager discovers that a subcontractor has been disposing of chemical waste improperly,...Hard Q04An Agile team is developing a healthcare application. A new patient privacy regulation is passed ...Hard Q05A project team is building a new headquarters. The project manager must ensure that the building ...Hard

View all 60 questions →