Disadvantages
of Expected Value
Disadvantages
of expected value can be explained in term subjective calculation, average
results, limited use.
1. Subjective Calculation
Expected
value highly depends on the probability, which is a subjective thing. It means
no accurate probabilities can be calculated, different people would give you
different expectation (probabilities of outcome).
2. Average Value
Expected
value gives you an average result and not actual outcome. It means that results
of expected can only be tele with actual result by chance.
3. Only useful for repetitive outcome
Expected
value concept has more usefulness, where outcome repeated. In case of one time
activity (project analyses), it has little usefulness.
|
NPV (x)
|
Probability (p)
|
Expected Value
(P*x)
|
|
5000
|
.2
|
1000
|
|
10,000
|
.8
|
8000
|
|
Expected
Value
|
|
9,000
|
