AACE DRMP cheat sheet

EMV of a chance node = sum of (probability of each branch × its outcome value); branch probabilities at a chance node must total 1.0.

Risk-neutral decision rule: select the alternative with the highest EMV. Risk-averse decision-makers instead maximize expected utility.

Utility curve shapes: concave = risk-averse (certainty equivalent < EMV), linear = risk-neutral (CE = EMV), convex = risk-seeking (CE > EMV).

Risk premium = EMV of the gamble − certainty equivalent; it is what the decision-maker would give up to remove the uncertainty.

EVPI = expected value with perfect information − expected value of the best alternative without it; information is worth buying only when its cost is below EVSI, and EVSI never exceeds EVPI.

Decision trees are solved by rollback: replace each chance node with its EMV and each decision node with its best branch, working right to left to the root.

AHP uses Saaty's 1–9 pairwise comparison scale; priority weights come from the principal eigenvector and the matrix is acceptable when the consistency ratio CR < 0.10.

One-at-a-time sensitivity analysis gives the range of each input over which the preferred alternative stays preferred; tornado diagrams rank variables by the width of their outcome swing.

Sunk costs are excluded from incremental comparison; common distorting biases are anchoring, framing, confirmation, availability, and overconfidence.

Risk score = probability × impact on a defined scale (commonly a 5×5 matrix); scores rank risks for response priority and trigger thresholds.

Threat responses: escalate, avoid, transfer, mitigate, accept. Opportunity responses: escalate, exploit, share, enhance, accept.

Contingency reserve covers identified risks (known-unknowns) and sits inside the cost or schedule baseline; management reserve covers unidentified risks (unknown-unknowns) and sits outside it.

PERT three-point: expected = (O + 4M + P) / 6; standard deviation = (P − O) / 6; variance = ((P − O) / 6)².

Monte Carlo simulation samples input distributions (often via Latin Hypercube) to build a cumulative distribution; contingency for a target confidence level = cost at that percentile − deterministic estimate.

Positive correlation between cost or duration elements widens the simulated total range compared with an independence assumption; negative correlation narrows it.

Residual risk remains after a response is applied; secondary risk is a new risk created by the response itself.

Risk appetite = willingness to take risk in pursuit of objectives; risk tolerance = acceptable range of deviation; risk threshold = the specific measurable point at which action is mandated.

Minimum risk register fields: ID, cause, event, potential effect, probability, impact, score, owner, response plan, residual rating, and status.