What is Monte Carlo analysis and how do you do it ?

Anything on this monte carlo analysis? Has anyone got some experience

Monte carlo Analysis Methodology. This is a team effort where your project manager, discipline managers and financial manager as well as the PCM should be involved in.  1. For this to work you cannot have lags (positive or negative in your schedule.  2. Predecessors should preferably be FS or FF  3. Select the critical path of the project.  4. Now select the 3 or 4 paths that is most near critical.  5. Put these on your flip chart and carry out a risk assessment on each area with your team mentioned above analysing both time and cost risks to the listed paths.  5. Once done you determine the mean time and cost risk for each path.  6. Open your monte carlo software, enter the path descriptions, risk value and possible time delay for each.  7. Monte Carlo have different methodoloy of how it will calculate factors. You have to select the methodology that you prefer. It may be advisible to run different options.

Projects are commonly over budget and behind schedule, to some extent because uncertainties are not accounted for in cost and schedule estimates. Projects and building constructions is now addressing this problem, often by using Monte Carlo methods to simulate the effect of variances in work package costs and durations on total cost and date of completion.  The most important risk about the construction schedule is duration risk. Duration risk means the possibility and loss of incompletion in the total stipulated duration limit. This Analysis simulates the projects duration and analyzes the risk of construction schedule by Monte Carlo simulation (MCS) method. At the same time it is applied in a numerical example. The result shows that the MCS method is very convenient, effective and efficient. It provides scientific quantitative basis and information for project management and helps decision makers easily make control with duration risk of project and make true decision.  . Monte Carlo Method is performed by applying the risk to the appropriate estimated cost and schedule elements identified by the PDT. For the cost estimate, the contingency is calculated as the difference between the P80 cost forecast and the base cost estimate. The project begins with identifying the main features, major application deficiencies and summarization of the encountered risks. Afterwards, schedule risk analysis and cost risk analysis are subsequently performed for these risks. A stochastic risk analysis technique, similar to Monte Carlo simulation, was utilized in both schedule risk and cost risk analysis steps. Microsoft Excel  Was used to simulate the data and perform the required analysis.  Most business activities, plans and processes are too complex for an analytical solution just like the physics problems. But you can build a spreadsheet model that lets you evaluate your plan numerically you can change numbers, ask what if and see the results. This is straightforward if you have just one or two parameters to explore. Many business situations involve uncertainty in many dimensions for example, variable market demand, cost planning, budget forecast, scheduling, unknown plans of competitors, uncertainty in costs, and many others. Any type of problem solving or risk solver can be delivered using Monte carlo Analysis Method. I am not much familiar with this method, In our project using Monte carlo Analysis tool and Excel software’s are used to play a role with this. 

The Monte Carlo "process" is not singular; there are many variations and points of view on the so-called "right" way to perform the analysis. The Internet is loaded with articles and papers; a Q&D Google search brought up over 350,000 hits. While many of the methodologies can be performed manually, the computer makes the process faster and more accurate, provided the correct and accurate information is utilized

What a Monte Carlo Analysis is based on is the assumption that each "question" has a range of estimates. There was a program years ago that used range estimating to do the same thing for estimates.  The therory is that each estimate, be it cost or duration really has many possible answers, not just the one we select. So for the cost of a widget for example we may say that it costs 100. In MC or Range Estimating we expand the answer to be the Widget has cost as little as 85, as much as 122, but is usually 100 and we are 80% confident that the cost will be 100.  So when looking at our estimate or schedule we look at each item and decide is the answer defined ( fixed price or PO ) or is it variable. Those things that are fixed are what we call the knowns, no analysis needed. Then the are the known unknowns such as our widgets for which we have some data to go on that have a known range and a confidance factor. Then there are the things we have no knowledge of ( contingency )  With a Monte Carlo simulation you input all of those items and then complile multiple paths through the estimate or schedule ( usually about 500 - 1000 ) calculating all the possible combinations of "answers" weighed by the confidence factor. Each estimate or path becomes an answer that is plotted on an S curve.  So you will come up with the shortest possible path the longest possible path and all the paths in between. When you have calculated your S curve you then have the shortest possible path with 100% Risk, the longest path with 0% Risk and the range in-between. You or management selects the risk level you har comfortable with, find it on the S curve and that is your Duration or Estimate including contingency or float.  I know you guys all know this but it was fun to put it down, thanks for bearing with me