In risk management, to calculate the contingency budget for risks, we use the Expected Monetary Value (EMV) formula: EMV=Probability of Risk×Impact of Risk\text{EMV} = \text{Probability of Risk} \times
\text{Impact of Risk}EMV=Probability of Risk×Impact of Risk
For Risk A:
* Probability: 40% or 0.40
* Impact: US$100,000\text{EMV of Risk A} = 0.40 \times 100,000 = US$40,000 For Risk B:
* Probability: 60% or 0.60
* Impact: US$20,000\text{EMV of Risk B} = 0.60 \times 20,000 = US$12,000 Total contingency budget = EMV of Risk A + EMV of Risk B40,000 + 12,000 = US$52,000 Thus, the total contingency budget required for both risks is US$52,000. This approach follows PMI's risk management guidelines, specifically under the "Quantitative Risk Analysis" process. This process focuses on determining numerical probabilities and monetary impacts to compute the expected financial impact of identified risks.