Monte Carlo

Simulations
BY
ABHISHEK SINGH
BBA-3D 1

A30606418049
In a Monte Carlo simulation,

A random value is selected for each of the tasks

based on the range of estimates.

The model is calculated based on this random

value.

The result of the model is recorded and the

process is repeated. 2
A typical Monte Carlo simulation calculates the
model hundreds or thousands of times, each
time using different randomly-selected
values.

The completed simulation yields a large

results pool with each result based on
random input values.

These results are used to describe the

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likelihood, or probability, of reaching

 BASIC DEFINITION

A Monte Carlo Simulation (MCS) yields risk

analysis by generating models of possible
results through
substituting a range of values (a
probability distribution)…
 for any factor that has inherent uncertainty…
 then running (calculation) cycles…
 using different sets of random values…
 from the probability functions…
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 on each cycle.
 The Monte Carlo method is based on the
generation of multiple trials to determine
the expected value of a random variable.

 Vital to the execution is the

(mathematical) assumption that each
(project) variable/activity being simulated
is NOT influenced by other variables
(tasks).
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 SCHEMA OF THE MONTE
CARLO METHOD;
• Generate random values (formulas) for each
of the activities (cost/time).
 =RAND()*(20,000-10,000)+10,000
(generates a random value between 10,000 and 20,000)
• Sum each series of random values to arrive
at the total project (cost/time).

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 THREE POINT ESTIMATES

Three point estimates are the weighted average

of three estimates for a particular task based
on predictive distribution of possible outcomes
against a set of choices as;

Best-Case (conservative)
Most-Likely (expected)
Worst-Case (extreme)
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 THREE POINT ESTIMATES CONT.

The formula is expressed as

(E=Estimate):
E = (B + 4 M + W)/6
B = Best-Case (x1)
M = Most-Likely
(x4) W = Worst-
Best-Case estimate + 4X the Most Likely estimate + the Worst Case estimate / 6 = Estimate (E).
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Case (x1)
 CAVEATS

Depending on;
 the number of
uncertainties and
 the ranges specified for
them

A MCS could calculate 1k/10k cycles to

complete (“skewness”).
The technique works particularly well when;
 the underlying probabilities are known 9

 but the results are difficult to determine.

 ESSENTIAL
CONSTRUCT
a.k.a. the “Three Point Estimate”
(“TIME” on EACH project task/activity
)
1) Best-Case (Min.)
2) Most-Likely (Mean)
3) Worst-Case (Max.)
The 3-point estimate approach does 10

not