When to use it
Use it to test how effective a response must be when its cost and the impact are fixed.
This simplification does not apply unchanged if the response also changes impact or creates other costs.
- Define the scope, status date and units before collecting the inputs.
- Substitute the values into the formula and retain their units.
- Interpret the result against the assumptions and decide what evidence or action is needed next.
Formula & inputs
Use fractional probabilities and a positive monetary impact.
Worked example
A gateway delay has a 25% chance of costing €40,000. The proposed response costs €5,000 and leaves the impact unchanged.
A residual probability below this threshold improves expected cost; equality only breaks even. A negative threshold means this response cannot pay on these assumptions.
Common pitfall
Calling the exact break-even threshold a financial saving.
Source & related material
Standard quantitative technique; this explanation is by fannarmaximus. No single inventor is claimed. The arithmetic is computed from explicit inputs, not copied from an official sample question.