W1_Thuraiya_Leadership Styles analysis Using Tuckman model

W9_Nasser_ Expected Monterey Value (for identified Risks during monthly invoice processing and payment)

1-    Problem Recognition

Under Clients Contract & Interface department there are several number of tasks that some of them must be done in monthly basis according to certain clause in the purchase agreement. One of these tasks is processing the monthly invoice which is submitted in monthly basis from the project company (which is known as a Generator) to the Buyer.

 Processing the monthly invoices can be considered as a small project under CCI department since it has START and FINISH Date to be completed. The Generator in each month (Belling period) shall submit an Invoice to the Buyer which describes the different charges according to its product (Power/Water). At the date of receiving the invoice, the Contract team shall start processing the invoice and on or before the Due Date the buyer shall pay all the payments to the Generator. If the payment is not payed to the Generator by the Due Date, this will cause a Risk on the Buyer.

In This W9 blog will discuss the analysis of that Risk by using EMV (Expected Monterey Value technique).   

2-    Feasible alternative

Expected Monetary Value (EMV) is a statistical technique in risk management. Expected monetary value is used in the Perform Quantitative Risks Analysis process, and is one of the few techniques in the PMBOK Guide which involves mathematical calculations.

The EMV helps in:

• It helps in calculating the amount required to manage all identified risks.
• It helps in selecting the choice which involves less money to manage the risks. 

Picture from: https://pmstudycircle.com/2015/01/a-short-guide-to-expected-monetary-value-emv/

In order to calculate the EMV, it’s important to know main two concepts which they are the Probability of the event occurrence and the Impact of the occurrence of the risk.

1. Probability is the measurement of the likelihood of the occurrence of any event.
2. The impact is the amount that you will have to spend if any identified risk occurs. 

The equation that is used in calculating the EMV is:

Expected Monetary Value (EMV) = Probability * Impact

3-    Development of the outcome of Alternative

In case of the problem statement which I discussed above, the probability of non- payed payment to the Generator on or before the Due Date is 50% (1/2). And this probability is might be occurred because of such reasons such as:

• The load of the work during that month.
• The availability of the team during that month.
• The availability or any issue of such tools and models that the monthly invoices depend on (EX: Fuel Model). 

The impact of that event is that there will be an interest that will be applied in the full amount against the Buyer. There is a specific way to calculate the impact of the risk or the occurrence of the that event. 

4-    Selection Criteria

Month	Probability of not payed amount on or before D. D	Impact	EMV
Month 1	50%	- [(Agreed interest *X value %*) *(number of days delayed) *Full amount	= P*(-Impact)

{Note: * is a contractual value}.

Risk	Probability of occurrence	Impact	EMV
Load of the work during that month	20% *	-X value	EMV1 = 0.2*(-X value)
Non-availability of the team during that month.	10% *	-Y value	EMV2 = 0.1*(-Y value)
Availability or any issue of such tools and models that the monthly invoices depend on (EX: Fuel Model)	5% *	-Z value	EMV3 = 0.05*(-Z value)
		N = (-X value-Y value-Z value)	Total EMV= EMV1+EMV2+EMV3

{Note: * estimated data only).

5-    Analysis and comparison of the Alternative

The above two tables show that way of calculating the impact of the occurs event is affected by the value of the interest that apply on the Buyer and also the number of days from the Due Date to the date of actual payment in case there is a delay in the payment. Moreover, since there are number of risks that may cause the delay in the payment, so the EMV will equal to the summation of all EMVs (of each risk). And in that case, we may need the N amount to manage all the risks, but this would not be correct since that may not all risks will occur. So, in that case we will need to add the Total EMV to cover all identify risks. 

6-    Selection of the preferred Alternative

By identifying the list of risks that may occurs in each project ( processing the monthly invoices and the payment of them in the specified and scheduled time), and by specifying the way of calculating the impact in case delaying, this will help in calculating the EMV which will assist in calculating the  Contingency Reserve by the manager.

7-    Performance Monitoring and the Post Evaluation of result

Processing the monthly invoices and the payment of it on or before the Due Date can be monitored by calculating the EMV of each risk that may cause the delay, and which will help in calculating the Contingency Reserve (the duration of task or may be the number of employees which help in mitigate the occurrence of the risk). 

8-    References

• Fahad Usmani, (2017). A Short Guide to Expected Monetary Value (EMV). Retrieved 14 November 2017, from https://pmstudycircle.com/2015/01/a-short-guide-to-expected-monetary-value-emv/

• Fahad Usmani, (2017). Contingency Reserve vs Management Reserve. Retrieved 14 November 2017, from https://pmstudycircle.com/2012/02/contingency-reserve-vs-management-reserve/

• A Guide to the PROJECT MANAGEMENT BODY OF KNOWLEDGE (PMBOK GUIDE), Fifth Edition. Retrieved 14 November 2017.