Monte Carlo Analysis in Project Management

For those of you unfamiliar with Monte Carlo Analysis, it is a type of simulation analysis used to determine the outcome of multiple variables using random numbers and statistics. Maybe you guessed when you heard this name, Monte Carlo was once called the center of the world. That's why this method got its name from where it was developed. Well, if you're going to ask why, the answer is quite interesting. The method was intended to allow you to predict your probability of winning at roulette. Later it was used in a wide variety of fields.

What is Monte Carlo Analysis?

Do you think what would have happened if this scenario had happened? If you have statistical data about the past, the method we call simulation makes it possible to test it. In this way, you can try the same scenario 1000 times. Monte Carlo analysis is actually a kind of simulation and a data analysis technique. If you want to see the probability of an event and want this prediction to be consistent, it is quite possible to use it in the field of project management. In other words, this simulation is an analysis that gives you valuable insight into how your project will perform under various conditions and helps you make decisions based on that estimated performance.

By using Monte Carlo analysis, you can produce uniform simulations without many features, or you can produce comprehensive simulations with more components. Complex simulations go into much more detail than just looking at individual tasks and their duration. Unlike other simulation methods, Monte Carlo only requires you to find the expected values.

How to Use Monte Carlo Simulation?

Using a Monte Carlo simulation, you can identify specific risks or areas where performance could be improved. Then, after you run a Monte Carlo simulation, you can adjust your project plan and budget accordingly. You can use it to develop schedule and perform risk analysis.

See also:

Probability and Impact Matrix

Multicriteria Decision Analysis

Decision Tree Analysis

Regression Analysis

What-If Scenario Analysis

Regression Analysis