Project Risk Management: Essential Methods for Project Teams and Decision Makers

CHAPTER FOURTEEN

Using Outputs of Monte Carlo Analyses in Decision Making

Questions Addressed in Chapter 14

• What is the anatomy of output distributions?
• How may the overall project cost and schedule uncertainty be assessed?
• What is the primary accuracy range of a base estimate?
• Do we really need Association for Advancement of Cost Engineering (AACE) classes of base estimates in risk management?
• What are confidence levels of Cost and Schedule baselines and what are ways to make things better?
• How may criteria for project reserve be selected?
• Why do we need sensitivity analysis and what-if scenarios?
• Are we ready for construction, turnaround, and logistics windows?

IN THIS FINAL CHAPTER of Part III we size up the value of Monte Carlo outputs for project decision making and methods of their interpretation. Some practical examples of interpretation of the results and their use for decision making are found in Chapter 16.

ANATOMY OF OUTPUT DISTRIBUTIONS

Figure 14.1 is a blown-up part of Figure 3.6, which represents typical output of probabilistic cost or schedule analysis. This figure shows the anatomy of the output distribution (the curve) at a higher level of detail. The curve could be used for assessment of overall cost or schedule uncertainty and the definition of project cost ...