Estimated Value Calculator

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Estimated Value (Expected Value) Calculator

Enter potential outcomes and their likelihoods:

Calculation Result

This result represents the long-term average outcome based on the probabilities provided.

function calculateEV() { var v1 = parseFloat(document.getElementById('val1').value) || 0; var p1 = parseFloat(document.getElementById('prob1').value) || 0; var v2 = parseFloat(document.getElementById('val2').value) || 0; var p2 = parseFloat(document.getElementById('prob2').value) || 0; var v3 = parseFloat(document.getElementById('val3').value) || 0; var p3 = parseFloat(document.getElementById('prob3').value) || 0; var totalProb = p1 + p2 + p3; var ev = (v1 * (p1 / 100)) + (v2 * (p2 / 100)) + (v3 * (p3 / 100)); document.getElementById('result-box').style.display = 'block'; document.getElementById('ev-result').innerText = ev.toFixed(2); var warning = document.getElementById('prob-warning'); if (Math.abs(totalProb – 100) > 0.01) { warning.innerText = "Warning: Total probabilities sum to " + totalProb + "%. For an accurate Estimated Value, they should sum to 100%."; } else { warning.innerText = ""; } }

Understanding Estimated Value (Expected Value)

In statistics and probability theory, the Estimated Value (also known as Expected Value or EV) represents the long-term average result of a random variable over a large number of trials. It is a critical metric used in risk assessment, business forecasting, and strategic decision-making.

The Estimated Value Formula

To calculate the estimated value, you multiply each possible outcome by its probability of occurring and then sum those products together. The mathematical formula is:

EV = (V1 × P1) + (V2 × P2) + … + (Vn × Pn)
  • V: The value of the specific outcome.
  • P: The probability (expressed as a decimal or fraction) of that outcome occurring.

Practical Examples of Estimated Value

Understanding estimated value helps in evaluating whether a decision is statistically favorable over time. Here are two realistic scenarios:

1. Product Development Decision

A software company is deciding whether to release a new feature. There is a 60% chance it generates a score of 80 in user satisfaction and a 40% chance it causes issues, resulting in a satisfaction score of 20.

  • Outcome 1: 80 × 0.60 = 48
  • Outcome 2: 20 × 0.40 = 8
  • Estimated Value: 56
2. Inventory Planning

A retailer estimates demand for a seasonal item. They believe there is a 30% chance of high demand (1,000 units), a 50% chance of medium demand (500 units), and a 20% chance of low demand (100 units).

  • Outcome 1: 1,000 × 0.30 = 300
  • Outcome 2: 500 × 0.50 = 250
  • Outcome 3: 100 × 0.20 = 20
  • Estimated Value: 570 units

Why Use an Estimated Value Calculator?

While the calculation is straightforward, using a tool ensures accuracy, especially when dealing with multiple variables. It allows professionals to:

  • Mitigate Risk: Identify scenarios where the expected outcome is negative or below a required threshold.
  • Optimize Resources: Allocate time and effort toward outcomes with the highest statistical likelihood of success.
  • Objectivity: Move away from "gut feelings" and toward data-driven logic.

Note: Estimated Value does not predict what will happen in a single event. Instead, it tells you what the average outcome will be if the event were repeated many times. High variance can still result in short-term results that differ significantly from the EV.

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