Skip to Content
Author's profile photo Amit Dhar

Formula for calculating Risk Adjusted NPV

Dear All,

I was going through BI report of PPM and I found one issue in that i.e. formula for calculating RISK ADJUSTED NPV.  As per my understanding the way we are calculating formula for RISK ADJUSTED NPV is wrong.

Correct me, if I am wrong and also provide inputs and your understanding for the same. 

As per formula used in BI reports for deriving Risk Adjusted

NPV = Net Present Value * Derived Risk / 100.


And Derived Risk: (1- Probability Technical Success% + 1 – Probability Commercial Success) / 2

For Example:

   If pts. = 80% and pcs = 50%

Risk = [(1 – 80%) + (1 – 50%)] / 2


Derived Risk = 35%

NPV = 100000 INR

As per formula, my Risk Adjusted NPV = 100000 * 35/100 = 35000 INR


But as per my understanding, it should be 100000 * (100-35)/100= 65000 INR.

Kindly Correct and provide your inputs for the same.

With Regards

  Amit Dhār

Assigned Tags

      You must be Logged on to comment or reply to a post.
      Author's profile photo Luc Vanrobays
      Luc Vanrobays

      Not a Ppm expert, but pts will influence pcs to some extend, and inversely high pcs may decrease pts. Capturing this double inverse cause-effect will get you to an overall success factor.

      I agree, the current formula is not capturing this.


      Author's profile photo Ashwini Pingle
      Ashwini Pingle

      Hi Amit,

      What is the PPM version where you found this NPV related issue? Any solution/workaround yet for this? We might do an implementation in PPM and hence curious to know.

      Author's profile photo Amit Dhar
      Amit Dhar
      Blog Post Author

      Hi Ashwini,

      I found this issue in PPM BI reports.


      Amit Dhar