Risks (P6 Professional Only)

Risks are any uncertain events or conditions that, if they occur, have a positive or negative effect on project objectives.

Use the integrated risk management feature to identify, categorize, and prioritize risks, to assign an owner (a person responsible for managing the risk) to each potential risk, to assign risks to activities that could be effected by the risk, and to perform qualitative analysis on each project risk. You can respond to a risk and create an associated risk response.

Managing Risks

When a risk is identified, it is automatically assigned to the open project. If more than one project is open, the project it assigns the risk to depends on the current grouping. Then you can assign the risk to activities it may impact. Assigning a risk to an activity, or an activity to a risk, creates a risk assignment. A risk can be assigned to multiple activities; likewise an activity can be assigned to multiple risks.

Based on risk assignments and impact parameters that you can define for each risk, the application generates data, including an overall risk score, discussed below, that you can use to evaluate the significance of the risk. Other data include the potential start date of the risk, the potential end date of the risk, and the potential cost the risk may impose. A subsection below discusses the calculation used to determine potential cost.

Based on your qualitative analysis of the risk, you can respond to the risk and develop a response, also discussed below.

How the risk score is calculated

The application calculates an overall risk score. There are actually two overall risk score fields: The Score field that displays in the Pre-Response section of the Risks, Impact tab, and the Score field that displays in the Post-Response section of that tab if you respond to a risk and complete the Post-Response fields. The following discussion refers to both the Pre- and Post-Response Score fields generically as the Score fields because both are calculated using the same equation.

The Score field is calculated based on the values you select for three fields (located on that same tab): Probability, Cost, and Schedule. Two of these fields, Cost and Schedule, are known as the impact fields.

The Probability field and each impact field have these possible values: Very High, High, Medium, Low, Very Low, and Negligible. The application uses the highest value selected for the Cost and Schedule fields as the overall impact value. The application determines the Score by plotting the overall impact value with the value entered for Probability, as shown in the table below.

For example, if you enter the value Low for Cost and the value Medium for Schedule, the application uses Medium, the highest of the two, as the overall impact value. The application then uses the table below to determine the Score value by plotting the overall impact and Probability values. The columns in the table represent the overall impact values (Negligible through Very High), while the rows represent the Probability values (Very High through Negligible). The application determines the Score as the number that corresponds to the intersection of the applicable Impact column and Probability row. So, to continue our example, if you entered a value of High for Probability, the Score would display as 14, the number shown where the Impact Medium column intersects the Probability High row.

How the potential cost is calculated

The application calculates the potential cost of a risk. The potential cost displays in the Pre-Response Exposure Cost and Post-Response Exposure Cost fields on the Risks, General tab. (The Post-Response Exposure Cost field displays only after a response is made to a risk using the Post-Response fields on the Impact tab.) The following discussion refers to both the Pre- and Post-Response Exposure Cost fields generically as Exposure Cost fields because both are calculated using the same equation.

The value for the Exposure Cost field is based on the values selected for the Probability and Cost fields, located on the Risks, Impact tab, and on cost figures associated with the activities assigned to the risk or to the project, if no activity assignments have been made.

The application calculates the Exposure Cost value using this equation: Exposure Cost = Planned/Budgeted Total Cost * (Probability Midpoint * Cost Midpoint).

The Planned/Budgeted Total Cost is the sum of the Planned/Budgeted Cost values for each activity assigned to the risk (or the planned project cost, if no activities are assigned to the risk).

The Probability Midpoint is the midpoint of the Probability field value for the selected risk. The Cost Midpoint is the midpoint of the Cost field value for the selected risk. The way each is calculated is discussed below.

Note: The Cost and Probability midpoint for the value Negligible is always zero, so the value of Negligible is not relevant to the following discussion.

The equation for the calculation of Probability Midpoint and Cost Midpoint varies, depending on which values are selected for the Probability and Cost fields:

• When using a value between highest and lowest:
  • When a value of High (50% to 70%), Medium (30% to 50%), or Low (10% to 30%) is selected for the Probability field, then the Probability Midpoint is calculated using this equation: Probability Midpoint = (lower range for selected value + higher range of selected value)/2. So if the Probability value is Medium (30% to 50%), then the Probability Midpoint is calculated as follows: (30+50)/2 = 40%.
  • When a value of High (20% to 40%), Medium (10% to 20%), or Low (1% to 10%) is selected for the Cost field, then the Cost Midpoint is calculated using the same equation as Probability Midpoint. So if the Cost value is Medium (10% to 20%), then the midpoint is calculated as follows: (10 + 20)/2 = 15%
• For highest values:
  • When the value Very High (70% or higher) is selected for the Probability field, then the Probability Midpoint is calculated as the midpoint between the lower value and 100%. So the Probability Midpoint for the value Very High (70% or higher) midpoint is calculated as follows: (70 + 100)/2 = 85%.
  • When the value Very High (40% or higher) is selected for the Cost field, then the Cost Midpoint is calculated using this equation: ((the lower range for the selected value * 2) + the high range for the selected value)/2. So the Cost Midpoint for the value Very High (40% or higher) is calculated as follows: ((40 * 2) + 100)/2 = 90%.
• For lowest values:
  • When the value Very Low (<=10%) is selected for the Probability field, then the Probability Midpoint is calculated as the midpoint between zero and the upper value. So the Probability Midpoint for the value Very Low is calculated as follows: (0 + 10)/2 = 5%.
  • When the value Very Low (Up to 1%) is selected for the Cost field, then the Cost Midpoint is calculated as the midpoint between zero and the upper value. So the Cost Midpoint for the value Very Low is calculated as follows: (0 + 1)/2 = .005%.

So if the Planned/Budgeted Total Cost is $700,689.00, and the Probability Midpoint is Medium (40%), and the Cost Midpoint is Very High (90%), then the Exposure Cost would be calculated as follows: $700,689.00 * (.4 * .9) = $252,248.00.

Responding to a Risk

If, based on your qualitative analysis of a risk, you determine that a risk is sufficient to warrant a response, then you can do so by selecting a response and by adding a response description. If the risk is a threat, you can select to accept, avoid, transfer, or reduce the risk. If the risk is an opportunity, you can select to enhance, exploit, facilitate, or reject the risk.

Response planning allows you to identify and document methods you might use to manage risks. Use a risk response to determine what actions could be taken to promote the most favorable outcome. You can enter a description of the risk and then select post-response values for Probability, Schedule, and Cost fields, which the application uses to calculate the score and the exposure cost.