Monte Carlo Schedule Analysis

The Concept, Benefits and Limitations

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 What is Monte Carlo Analysis?

Monte Carlo simulations 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
Input Parameters Output Parameters

Calculation
Engine

( Critical Path
Scheduling
Engine )

Task duration Project duration

cost, finish time, cost, finish time,
etc. etc.

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

1 2 3 4 5 6 7 2 3 4 5 6 7 8 1 2 3 4 5 6 7

Task 1

Task 3
Task 2

7
6
5
4
3
2
1

8 9 10 11 12 13 14 15 16

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 experts 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?

Normal Triangual Uniform

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%.
 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

25% No delay of activity

35% 3 day delay of activity

40% 5 day delay of activity

Use of visual aids like a probability wheel can aid in the increasing
validity of estimates
 Eliciting Judgment: Probability Method

Probability
Frequency 20 100%

16 80%

12 60%

8 40%

4 20%
Question: What is the chance that duration
is less than 3 days?
2 3 4 5 6
Task Duration
(days)
 Eliciting Judgment: Method of Relative Heights

Probability
Frequency
10 50%

8 40%

6 30%

4 20%

2 10%

2 3 4 5 6
Question: How many times the duration
will be between 2 and 3 days? Task Duration
(days)

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

Crucial tasks for

project duration

Monte Carlo analysis identifies task cruciality, how often

tasks are on the critical path.
Critical Risks
 Conditional Branching

6 days

If duration <= 6 days

If duration > 6 days

Monte Carlo and Critical Chain

Monitoring Project Buffer

 Tracking Chance of Project Meeting a Deadline

Mitigation efforts can increase

a chance to meet a deadline
Chance of project meeting a dealine

100%

80%

60%
Chance to meet a deadline
is reducing as a results of events
40%

20%

0%
0 2 4 6 8 10 12 14
Project Duration (weeks)
 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
 Future Reading

Lev Virine and Michael Trumper

Project Decisions:
The Art and Science
Management Concepts, Vienna, VA, 2007

Project Think:
Why Good Managers Make Poor Project
Choices
Gower, 2013
Questions?