Monte Carlo Schedule Analysis The Concept, Benefits and Limitations Intaver Institute 400, 7015, Macleod Trail S.W., Calgary, Alberta, T2H 2K6, Canada

What is Monte Carlo Analysis? Monte Carlo simulation is a mathematical method used in risk analysis. Monte Carlo simulations are used to approximate the distribution of potential results based on probabilistic inputs.

Monte Carlo Simulations Monte Carlo simulations use distributions as inputs, which are also the results

Monte Carlo Schedule Analysis Monte Carlo simulations take multiple distributions and create histograms to depict the results of the analysis

Two Approaches to Estimating Probabilities The relative frequency approach, where probability equals the number of occurrences of specific outcome (or event) divided by the total number of possible outcomes. The subjective approach represents an expert’s degree of belief that a particular outcome will occur.

Two of Approaches for Defining Uncertainties Distribution-based approach Event-based approach Monte Carlo can be used to simulate the results of discrete risk events with probability and impact on multiple activities

What Distribution Should Be Used? Also useful for Monte Carlo simulations: Lognornal Beta

Ignoring Base-Rate Frequencies Historically, the probability that a particular component will be defective is 1%. The component is tested before installation. The test showed that the component is defective. The test usually successfully identifies defective components 80% of the time. What is the probability that a component is defective? The correct answer is close to 4%, however, most people would think that answer is a little bit lower than 80%.

Emotions can affect our judgment Role of Emotions Emotions can affect our judgment

Eliciting Judgment About Probabilities of Single Events Pose a direct question: “What is the probability that the project will be canceled due to budgetary problems?” Ask the experts two opposing questions: (1) “What is the probability that the project will be canceled?” and (2) “What is the probability the project will be completed?” The sum of these two assessments should be 100%. Break compound events into simple events and review them separately.

Probability Wheel Use of visual aids like a probability wheel can aid in the increasing validity of estimates

Eliciting Judgment: Probability Method

Eliciting Judgment: Method of Relative Heights Plotting possible estimates on a histogram can help improve estimatesc

How Many Trials Are Required? Huge number of trials (> 1000) usually does not increase accuracy of analysis Incorporate rare events Use convergence monitoring

What Is The Chance That a Project Will Be on Time And Within Budget?

Analysis of Monte Carlo Results Sensitivity and Correlations Critical Indices Crucial tasks Critical Risks Probabilistic Calendars Deadlines Conditional Branching Probabilistic Branching Chance of Task Existence

Crucial tasks for project duration Monte Carlo analysis identifies task cruciality, how often tasks are on the critical path.

Critical Risks

Conditional Branching

Monte Carlo and Critical Chain Monitoring Project Buffer

Tracking Chance of Project Meeting a Deadline

When Monte Carlo Is Useful You have reliable historical data You have tools to track actual data for each phase of the project You have a group of experts who understand the project, have experience in similar projects, and are trained to avoid cognitive and motivational biases

Additional Resources Project Think: Intaver Institute 2011 Additional Resources Project Think: Why Good Managers Make Poor Project Choices Project Decisions: The Art and Science Introduction to Project Risk Management and Decision Analysis Project Risk Analysis Made Ridiculously Simple

Questions?