Example with formulas Beta Value in PERT, Expected Monetary Value (EMV) and Risk Priority Number

1. Beta Value in PERT

Formula: Beta = (Pessimistic + 4 Most Likely + Optimistic) / 6 

Beta value in PERT (Program Evaluation and Review Technique) is a weighted average taken from three values. Optimistic Value, Most Likely Value, and Pessimistic Value. Suppose a task takes 5 days to finish on average, but when things do not go according to plan it could take up to 10 days. When prioritized and everything goes according to plan it can be completed in 3 days. 

3 becomes the Optimistic Value, 5 is the Most Likely Value, and 10 is the pessimistic value. 

So, Beta value will be (3 + (4x5) + 10)/6 

= 5.5 days. 

This is also sometimes calculated without giving weightage to the most likely value 

In that case the calculation will be (3+5+10)/3 

= 6 days 

2. Expected Monetary Value (EMV)

Formula: EMV = P x I 

EMV or Expected Monetary Value is a concept in risk management. It is calculated by multiplying the probability of an event and the impact of it. 

Let’s say that we have estimated the probability of an event to be 1/3rd or 0.33. If that event occurs it would cost, you $6000. In this instance EMV would be calculated as 

6000 * 1/3 = $2000 

 This value will help you assess and compare the magnitude of risks and prepare for them. 

3. Risk Priority Number

Formula: RPN = Severity x Probability x Detection 

Risk Priority Number or RPN is a value that will help you rank the risks of tasks. This is calculated by multiplying three values. 

Severity – denoting the severity of the risk. 

Probability – denotes how likely the severity would be. 

Detection - represents the ease with which it can be detected. 

The rankings are done in a reverse order. For example, if there are 50 risks the one with the highest risk will be ranked 50. The one with the highest likelihood of happening will get the highest numerical value and under detection the highest number would go to the risk that is hardest to detect. The value is usually represented on a scale of 0 to 1. With a risk that has a high severity, high probability, and low chance of getting detected will have values close to 0.9 and the lower risk tasks will have values closer to 0.1.  

By multiplying the three values you get the RPN. The RPN can be used to decide which task requires more focus and control from the perspective of project success or risk mitigation. The higher the value of RPN the more attention it should be given.  

Related Posts

Example with formular Present Value (PV), Future Value (FV), Target Price and Point of Total Assumption

22. Present Value (PV) Formula: PV = Future Value / (1 + i)n   Present Value (PV) considers the time value of money. This is useful to calculate what a future amount of money would mean today if adjusted for time. ‘i’ represents the interest rate or the discounting rate. ‘n’ represents t...

Example with formular Return on Investment (ROI), Payback Period and Cost Benefit Ratio

19.  Return on Investment (ROI) Formula: ROI = (Net Profit / Cost of Investment) x 100   Return on Investment is the measurement of the rate at which the amount invested in a project gets recovered. This is expressed as a percentage. If net profit is $2000 and the Cost of Investment is ...

Example with formular Cost plus Fixed Fee, Cost plus Award Fee and Cost plus Incentive Fee

16. Cost plus Fixed Fee Formula: Cost plus Fixed Fee = Cost + n   This is done in a contract where the buyer agrees to pay all the costs plus a pre-decided amount to the seller. ‘n’ stands for the fixed amount that is to be paid apart from the costs. With the cost at 50 and ‘n’ at 5 that...

Example with formular Standard Deviation, Communication Channels and Cost plus Percentage of Cost

13. Standard Deviation Formula:  Standard Deviation (σ) = (Pessimistic – Optimistic) / 6  Standard Deviation expressed by the character ‘ σ’ represents the degree to which the values can change within a project. Let's imagine a task that takes 4 days to complete in the best case and 16 d...

Example with formular Variance at Completion, Estimate to Complete (ETC) and To Complete Performance Index (TCPI)

10. Variance at Completion Formula:  Variance at Completion = Budget at Completion – Estimate at Completion   Variance at Completion calculates how much the project budget is accurate to the planned budget. This will help you to plan and estimate requirements more accurately.   If ...

Example with formular Cost Performance Index (CPI), Schedule Performance Index (SPI) and Estimate at Completion (EAC)

7.  Cost Performance Index (CPI)   Formula CPI = Earned Value / Actual Cost   The Cost Performance Index measures the cost efficiency of the project in utilizing the funds invested in it.  It is calculated through dividing earned value by actual cost. A higher CPI means that you are exce...

25 PMP Formulas you must remember to pass the PMP exam

Purpose Formula Description Calculate Beta Value in PERT (Program Evaluation and Review Technique) Beta = (Pessimistic + 4 Most Likely + Optimistic) / 6 This equation finds the expected value by giving weightage to the most likely Value. Calculate Estimated Monetary ...

Example with formulas Earned Value, Cost Variance and Schedule Variance

4. Earned Value Formula:  EV = % Complete x Budget at Completion   Earned Value estimates the amount of work done in terms of monetary value.   It is calculated by multiplying the percentage of work completed and the project value represented by budget at completion.   If the Bu...