Quantitative Risk Analysis Simulation
Quantitative Cost and Schedule Risk Analysis often uses the Monte Carlo method of simulation to model the impacts of various risks. By using variable rather than fixed (deterministic) values, the simulation generates random values for the variables across a selected number of iterations producing an overall set of results. By determining the cumulative percentage of overall results, it is possible to select a value that represents a specified level of confidence, or vice-versa.
The video below (best viewed in full screen) provides a demonstration of a very simple simulation using 100 iterations of cost and schedule and how these produce overall results, explanation is provided further below on each of the individual displays:
For each simulation iteration, the result for schedule using the random variable is shown.
- Red lines represent the original deterministic schedule duration values
- Green bars are the inherent risk applied to the schedule durations
- Orange bars are the contingent or discrete risk bars that are applied to the schedule
For each simulation iteration, the result for cost using the random variable is shown.
- Red lines represent the original deterministic cost values
- Green bars are the inherent risk applied to the cost
- Orange bars are the contingent or discrete risk bars that are applied to cost
For both cost ($) and schedule (Duration), the results for each iteration are plotted as they are generated.
- Green bars represent the total cost or duration for the iterations of inherent risk
- Orange bars represent the total cost or duration for the iteration from contingent risk
- Purple line represents the original deterministic cost or duration
- Red and Green lines represent the P50 and P80 values respectively of the iterations produced
For both cost ($) and schedule (Duration), as each iteration is produced, the overall cumulative percentage of results can be plotted:
- The vertical axis represents the number of times a result occurred
- The horizontal axis provides the range of results of all iterations
- The red cumulative line provides the results in % terms (where 0% is the lowest result and 100% is the highest result)
- The purple line indicates the % of confidence of achieving the deterministic value.
Cost and Schedule Scatter
Each Iterations result for cost and and schedule can also be plotted on a scatter plot:
- Vertical axis is cost and horizontal axis is duration
- Blue and Green lines represent the P50 and P80 values for cost and duration
- Dashed lines represent the deterministic value
- Iterations where the results was below P50 for both cost and time are shown in blue dots
- Iterations where results was above P80 for both cost and time are shown in red dot