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How to manage risk in Primavera P6 Professional

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How to manage risk in Primavera P6 Professional

Risk Management in Primavera P6 Release 8.2

Risks are uncertain events/conditions that have the potential to negatively (or positively) impact project objectives. Primavera P6 Release 8.2 Professional includes an integrated Risk Management feature that enables you to identify, categorize and prioritize risks, assign a responsible person for managing the risk, assign risks to one or more activities that may be impacted by the risk, and conduct qualitative analysis on each risk. Additionally, you have the ability to record a risk response.

P6 generates a “Risk Score” based on information that is entered for each risk. The “Risk Score” can then be used to help you evaluate the significance of the risk. This tutorial demonstrates the process of using the Risk Management functionality in P6 R8.2.

Step 1. We will document a possible risk to our project involving the Design and Engineering process. We want to document that if the customer changes the design of our Office Building Addition, the project may incur additional costs as well as schedule delays. The image below illustrates the Design and Engineering WBS element (work breakdown structure). As you can see below, this portion of the project is currently scheduled to start on Jan. 11 and finish on Feb. 9, and the total budgeted cost is $3120. We can also view the activities comprising this WBS element and their corresponding dates & budgeted cost. Please note that we have added the “Risks” tab in our Activity Details.

 

Step 2. Access the “Risks” icon on the directory bar and click the add icon on the Command Bar to begin the process of documenting the potential risk. The details pertaining to the risk are added using the detail tabs. The “General” tab is used to identify the risk category, risk type, owner or person responsible for resolving the risk, and status. The Exposure Start and Exposure Finish dates correspond to the start and finish of the activities in the Design and Engineering WBS. These dates represent the earliest and latest dates this risk may occur. The Pre-Response Exposure Cost represents the possible cost this risk may impose, and the Post-Response Exposure Cost is the cost the risk may impose based on your risk response. We will discuss the calculations behind these values shortly. Notice that you can also provide the date the risk was identified as well as the resource that identified the risk.

 

Step 3. The impact tab enables you to identify both pre-response and post-response parameters. Notice that you can select the Probability that the risk will occur, the impact that the risk may have on the schedule, and the monetary impact on the project if this risk occurs. The Risk Score is calculated based upon the values selected for the above mentioned parameters. The impact tab can also be utilized to document a response plan as well as response impact parameters to arrive at a Post-Response Risk Score.

 

The Help menu indicates how the Risk Score (both Pre-Response and Post-Response) is calculated:

The overall risk score based on the values you select for three fields: 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 higher 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.

Impact Negligible Impact Very Low Impact Low Impact Medium Impact High Impact Very High
Probability Very High 0 5 9 18 36 72
Probability High 0 4 7 14 28 56
Probability Medium 0 3 5 10 20 40
Probability Low 0 2 3 6 12 24
Probability Very Low 0 1 1 2 4 8
Probability Negligible 0 0 0 0 0 0

The Help menu identifies how the Pre-Exposure and Post-Exposure cost values are calculated. These values can be viewed on the General tab (see the image for Step 2 above):

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.

 

Step 4. You can use the Activities tab to identify activities that may be impacted by this risk.

 

Step 5.  Use the Description tab to further describe the risk.

 

Step 6.  Use the Cause tab to document the cause of the risk.

 

Step 7. Document the effect of the risk.

 

Step 8. Additional Notes can be entered.

 

Step 9.  In the Activities window, you can view and/or assign risks to activities using the Risks tab in activity details.

 

Do you need P6 training?

MSS Inc. is now offering the Oracle University Primavera training curriculum in a live virtual training environment. The training courses will be taught in a web-based format where you will have access to P6 software to use during the course. The curriculum will be taught by a live instructor. You will no longer have to travel to get Oracle certificates of completion. No one wants to pay to for training AND travel & lodging expenses. Visit our project management training webpage to learn more about the course and view the next course dates.

1 Comment

  1. Simon Dewey Reply

    Hi There
    Are you using Primavera Enterprise? My company is using Primavers Enterprise v8.3, and has been told that Risk Mgt function is not available for that version.

    Hope you can help, as we have to log in to web UI to enter details of risks, which isn’t a good user experience.

    Kind Regards
    Simon

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