Review the following field definition and examples to learn how to calculate risk exposure.
Exposure field
The monetary impact value for each risk, response action, and response plan calculated from the values selected for the probability and cost impact.
Risk exposure, also known as Value at Risk (VaR), provides data that is generally used during the analysis and prioritization phases of the risk management process. The difference in exposure for a risk and its associated response plan is indicative of the effectiveness of the response plan.
Calculated as probability midpoint times cost midpoint. A midpoint is calculated by adding the lower value and the higher value in the threshold range and dividing the sum by two. The cost midpoint for the highest threshold range is calculated as the midpoint between the lower value in the threshold range and a value that is twice the lower value.
Note: The cost and probability midpoint for Negligible thresholds is always 0.
For projects calculating cost impact by percentage, the cost threshold range is converted into monetary values by multiplying the lower value and the higher value in the percentage range with the project's Planned Total Cost. These two monetary values are then used to calculate the cost midpoint.
Example: Calculating Risk Exposure using a Range of Monetary Values
Table of Risk Exposure Examples: Calculating using Values
Item | Description |
|---|---|
| Calculating risk exposure: The cost midpoint calculation is (45,000 plus 90,000) divided by two equals 67,500. The probability midpoint calculation is (50% plus 70%) divided by two equals 60%. The exposure for the risk is 67,500 times 60% equals 40,500. |
| Calculating risk exposure for the highest threshold range: The cost midpoint for the highest threshold range is calculated as the midpoint between the lower value in the threshold range and a value that is twice the lower value. The cost midpoint calculation is (300,000 plus (300,000 times two)) divided by two equals 450,000. The probability midpoint for the highest threshold range is calculated as the midpoint between the lower value in the threshold range and 100%. The probability midpoint calculation is (70% plus 100%) divided by 2 equals 85%. The exposure for the risk is 450,000 time 85% equals 382,500. |
| Calculating risk exposure for the lowest threshold range: The cost and probability midpoint for the lowest threshold range is calculated as the midpoint between 0 and the upper value in the range. The cost value is Up to 45,000, therefore the midpoint calculation is (0 plus 45,000) divided by two, which equals 22,500. The probability midpoint calculation is (50% plus 70%) divided by two equals 60%. The exposure for the risk is 22,500 times 60% equals 13,500. |
Example: Calculating Risk Exposure as a Percentage of the Project's Planned Total Cost
Calculating Risk Exposure using Percentages Example
Item | Description |
|---|---|
| Calculating risk exposure: To convert the cost percentages into monetary values, multiply the project's Planned Total Cost by the lower value and the higher value in the percentage range. Lower value: 1% times 4,550,501 equals 45,505. Higher value: 10% times 4,550,501 equals 455,050. The cost midpoint calculation is 45,505 plus 455,050 divided by 2 equals 250,278. The probability midpoint calculation is (50% plus 70%) divided by two equals 60%. The exposure for the risk is 250,278 times 60% equals 150,168. |
| Calculating risk exposure for the highest threshold range: To convert the cost percentages into monetary values, multiply the project's Planned Total Cost by the lower value and the higher value in the percentage range. Lower value: 40% times 4,550,501 equals 1,820,200. Higher value: The cost midpoint for the higher value in the threshold range is calculated as the midpoint between the lower value in the threshold range and a value that is twice the lower value. In this example, the higher value is 1,820,200 times 2 equals 3,640,400. The cost midpoint calculation is (1,820,200 plus 3,640,400) divided by two equals 2,730,300. The probability midpoint for the highest threshold range is calculated as the midpoint between the lower value in the threshold range and 100%. The probability midpoint calculation is (70% plus 100%) divided by 2 equals 85%. The exposure for the risk is 2,730,300 time 85% equals 2,320,755. |
| Calculating risk exposure for the lowest threshold range: To convert the cost percentages into monetary values, multiply the project's Planned Total Cost by the lower value and the higher value in the percentage range. The cost and probability midpoint for the lowest threshold range is calculated as the midpoint between 0 and the upper value in the range. Lower value: The lower value is 0 times 4,550,501 equals 0. Higher value: 1% times 4,550,501 equals 45,505. The cost midpoint calculation is (0 plus 45,505) divided by two equals 22,752. The probability midpoint calculation is (50% plus 70%) divided by two equals 60%. The exposure for the risk is 22,752 times 60% equals 13,652. |