The formula to calculate the expected cost is:
EC=MC×P(x)100
Where:
Let's say the maximum cost (MC) is $10,000 and the probability of cost (P(x)) is 20%. Using the formula:
EC=10000×20100
We get:
EC=10000×0.20=2000
So, the expected cost (EC) is $2,000.
Expected cost is the anticipated amount of money that will be spent, calculated by multiplying the maximum cost by the probability of the cost occurring. This helps in budgeting and financial planning by providing a more realistic estimate of potential expenses.