Risk Simulation Techniques to Aid Project Cost-Time Planning and Management

It is essential to address uncertainties associated with individual activity durations and costs at the planning stage of projects, in order to establish realistic project budgets and forecasts. If uncertainties are not considered at the planning stage then difficulties (ie cost and time overruns) may arise later, during the project implementation stage. The repeated trial approach of Monte Carlo simulation, integrated with network logic and critical path analysis, offers an effective and established method for integrating risk assessment into project schedule and cost analysis. Individual activity durations and costs are best input to simulations as probability distributions, or possible ranges that reflect incomplete knowledge, uncertainty or the level of ignorance, rather than as deterministic single-point estimates.