What it means
Many forecasts for projects, such as wind farms, oil fields and large construction schemes, are given as a range and not a single number. The P-number tells you how confident the forecaster is.
A P90 figure has a 90% chance of being met or exceeded and is therefore a cautious, conservative estimate. P50 is the middle of the range.
It is the figure that is equally likely to be beaten or missed, and it is often used as the base case. A P51 sits just below the middle, so the chance of meeting it is 51%, very slightly better than a coin toss.
Lenders usually look at the more cautious figures. A bank financing a solar farm may size its debt on the P90 or P99 output, so that repayments can be met even in a poor year, while the owners use the P50 for their expected return.
The gap between the two is a measure of uncertainty. Because P51 is so close to P50, it is rarely used on its own.
It might appear in a bespoke model, or in a tool where users can type any percentage, but there is no industry standard for it. If you meet the label in a document, check the definition the author gives, because other meanings are possible in other settings, such as a form or a code name.
The same logic applies in everyday budgeting. A manager who sets a sales target at the figure with a 51% chance of being hit will miss it almost half the time, while a target set at P90 will usually be met but may be too low to motivate.
In practice
Real-world examples.
Example
A wind farm developer reports expected annual output at P50 of 300 gigawatt hours. The bank asks for the P90 figure of 270 gigawatt hours before agreeing a loan. A P51 estimate would sit very close to the P50 number.
Example
An oil company models production from a new field and presents three cases to its board. The board uses the P50 case to plan spending. The finance team keeps the P90 case to check that debts can be repaid in a weak year.
Example
A sales director builds a forecast model that lets users pick any confidence level. A manager chooses 51% to see a number just below the median. The result is almost identical to the median forecast, so the manager moves to 80% to set a safer target.
Formula
Calculation
Pn value = the outcome that has an n% probability of being met or exceeded
Suppose a simulation of a project's yearly revenue gives results that are spread out evenly between $8,000,000 and $12,000,000. The P50 is the midpoint, 8,000,000 + 0.50 x (12,000,000 - 8,000,000) = $10,000,000. The P51 is the level with a 51% chance of being met, so it sits at 12,000,000 - 0.51 x 4,000,000 = $9,960,000. The P90 is 12,000,000 - 0.90 x 4,000,000 = $8,400,000.
Reading the result: P51 is only $40,000 below P50, which is 0.4% of $10,000,000, whereas P90 is $1,600,000 lower. This shows why moving from P50 to P51 changes very little, and why lenders look much further down the range.Case study
Seen in the real world.
Windermere Renewables is an illustrative, fictional developer planning a solar park with expected output of 120 gigawatt hours a year at P50. The lenders asked for a P90 of 108 gigawatt hours before agreeing the loan.
The finance team calculated that at 108 gigawatt hours and a price of $60 per megawatt hour, revenue would be 108,000 x 60 = $6,480,000, enough to cover debt payments of $5,000,000. At the P50 output the revenue would be 120,000 x 60 = $7,200,000.
The board used the illustrative P50 case for its return calculations, and the P90 case to prove the debt was safe. The lesson is that the choice of P-number depends on whether you are judging reward or protecting against risk.
Watch out
Common mistakes.
- Assuming a higher P-number means a more optimistic forecast, when P90 is actually more cautious than P50.
- Using P51 or any other label without stating how the probabilities were estimated.
- Treating a single P50 figure as a promise, when half of the outcomes will fall below it.
Questions
People also ask.
Is P51 a standard term?
No, the common figures are P50, P90 and P99, and P51 only follows the same logic.
Which P-number do lenders use?
Lenders usually size debt on cautious figures such as P90 or P99, while owners often use P50 for expected returns.
What does P50 mean?
It is the median outcome, which is as likely to be beaten as it is to be missed.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%Related