26 October 2010

Monte Carlo Simulation

Constantinescu Eugen

Index1. Motivation and objectives2. Basic Knowledge3. Practical examples4. Conclusions5. Reference Links

Motivation and objectivesMotivation:1. Our estimations from projects are not good enough2. There is place for risks assessment improvement3. This model is closer to reality than the classical one4. Let's try to see our projects from more points of view

Objectives:1. Learn about the basic knowledge MCS2. What are the main benefits from using MCS?3. What we can change?4. Where we can improve?

Basic knowledgeProcess determinist versus process stochastic

Monte Carlo Simulation is a method for iteratively evaluating a deterministic model using sets of random numbers as inputs. This method is often used when the model is complex, nonlinear, or involves more than just a couple uncertain parameters.

Basic knowledgeStep 1: Create a parametric model, y = f(x1, x2, ..., xq).

Step 2: Generate a set of random inputs, xi1, xi2, ..., xiq.

Step 3: Evaluate the model and store the results as yi.

Step 4: Repeat steps 2 and 3 for i = 1 to n.

Step 5: Analyze the results using histograms, summary statistics, confidence intervals, etc.

Basic knowledgeHistograms

Data:

Frequency

Cumulative frequency

Min, Mean (Average), Max

Skewness

Kurtosis

Confidence Interval

Practical examples1.MSP small example

MCS sheets

Analysis

2.MSP real life example

MCS sheets

Analysis

Conclusions1. Learn about the basic knowledge MCS – DONE

Take a look over the MATH behind MCS, or just go to point 2.

2. What are the main benefits from using MCS?CP and PERT (Program Evaluation and Review Technique) are

optimistic estimations => MCS helps for a better planning

3. What we can change?We should focus on the tasks which have highest chance to

become CP. We should start to change the current estimation template and

MSP template so that we can include Min, Most Likely and MAX estimation values.

Conclusions4. Where we can improve?

Identify and define the risks easier (Assessing Risks Improvement )Analyze the tasks which have higher impact into the project costs (See the most sensitive tasks)

Reference Links

1. http://www.vertex42.com/ExcelArticles/mc/MonteCarloSimulation.html

2. http://mathworld.wolfram.com/MonteCarloMethod.html

3. http://rule-of-thumb.net/monte-carlo-simulation-for-ms-project/http://sourceforge.net/projects/montecarloprj/

4. file://storage/IIC-ForAll/08_PM_Community/MCS