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A 2007 article by Young Hoon Kwak and Lisa Ingall, titled “Exploring Monte Carlo Simulation Applications for Project Management”*, examines the Monte Carlo Simulation method and its uses in the field of Project Management.

Apart from being a good reference document, where a brief history of this technique is being discussed and explained, this article provides a good review of various studies published around the benefits as well as the potential complexities associated with implementing this technique in real life situations.

The article points out that one of the limitations of using this technique as being project managers’ discomfort with statistical approaches, as well as lack of thorough understanding of the method (see also my earlier post discussing  this issue in “Some Risk Management Related Thoughts“.

Discussing the process for utilizing Monte Carlo Simulation in the context of Time Management, the article suggests the following steps are commonly used:

1. Utilize subject matter expertise to assign a probability distribution function of duration to each task or group of tasks in the project network;
2. Possibly use Three-Point-Estimates to simplify this process, where an expert knowledge is used to supply the most-likely, worst-case and best-case durations for each task or group of tasks;
3. Fit the above estimates to a duration probability distribution (such as Normal, Beta, Triangular, etc.) for the task;
4. Execute the simulation and use the results to formulate expected completion date and required schedule reserve for the project.

Outlining the advantages of utilizing Monte Carlo Simulation applications in Project Management, the article points out that its primary advantage is in being an “extremely useful tool when trying to understand and quantify the potential effects of uncertainty in projects“. Clearly, not utilizing this technique, project managers lack a powerful tool that can result in not meeting the project’s schedule and cost targets. Better quantification of the necessary schedule and cost reserves can substantially reduce such risks.

The article highlights the importance of having access to expert knowledge and prior experience and detailed data from previous projects in order to mitigate the inherent issues of estimates uncertainly which would ultimately affect the quality of the simulation results. This is correct not just with respect to the three-point-estimates but also with respect to choosing the correct probability distributions with which to model these estimates.

An interesting point is raised when referring to an earlier study published  by Grave R. (2001. “Open and Closed: The Monte Carlo Model,” PM Network, vol. 15, no. 2, pp. 48-52) which discusses the merits of using different types of probability distributions for project task duration estimates. Grave suggests the use of open-ended distribution (the lognormal distribution) instead of using closed-ended distributions (such as the triangular distribution) when performing the Monte Carlo Simulations.

His logic is as follows: A closed-ended distribution (e.g. triangular distribution) does not consider the possibility  of a task duration completing BEFORE the best-case or AFTER the worst-case duration estimate. However, in real life projects, due to various constraints, it is possible for a task to complete before or after the best or worst scenarios.

When an open-ended distribution is used, the possibility for exceeding the upper limit of the task duration is recognized, thus making the simulation more realistic.

The article touches (although very briefly) on one of the aspects used within the context of Monte Carlo Simulation which is the Criticality Index (I will endeavor to provide a more detailed discussion about  this feature in a future post). In a nutshell, the Criticality Index is a reflection of the rate at which the task appears on the critical path of the project through the simulation iterations.

Overall an interesting article. If you are already using Monte Carlo Simulation as part of your portfolio of project tools, this article will encourage you to keep doing so. And if you’re not – you’ll need to ask yourself – WHY?

*see in http://home.gwu.edu/~kwak/Monte_Carlo_Kwak_Ingall.pdf

Related posts:

1. Monte Carlo Simulation – Project Risk Analysis Report
2. Project Risk Management and the application of Monte Carlo Simulation
3. The Monte Carlo Simulation execution trial
4. Monte Carlo Simulation for Dummies
5. Project Management – Statistics for Dummies (part 2)