Monte Carlo
A r ticle
EX P L O R I N G M O N T E C ARLO
SI MU L AT I O N A PPL IC AT I O NS
FOR PROJ E C T M A NAGE M E NT
Young H o o n Kwa k a a nd L is a I ngal l b a Department of Decision Sciences, School of Business, The George Washington
University, Washington, DC , USA b IBM Systems Technology Group, Silver Spring , MD, USA
Correspondence: Young Hoon Kwak, Associate Professor of Project Management, Department of
Decision Sciences, School of Business, The George Washington University, Washington, DC 20052,
USA. E-mail: kwak@gwu.edu
A b stra ct
Monte Carlo simulation is a useful technique for modeling and analyzing real-world systems and situations. This paper is a conceptual paper that explores the applications of Monte Carlo simulation for managing project risks and uncertainties. The benefits of Monte Carlo simulation are using quantified data, allowing project managers to better justify and communicate their arguments when senior management is pushing for unrealistic project expectations. Proper risk management education, training, and advancements in computing technology combined with Monte Carlo simulation software allow project managers to implement the method easily. In the field of project management, Monte Carlo simulation can quantify the effects of risk and uncertainty in project schedules and budgets, giving the project manager a statistical indicator of project performance such as target project completion date and budget.
Key wo rds
Monte Carlo simulation, project management, risk analysis and management, exploratory study
Risk Management (2007) 9, 44–57. doi:10.1057/palgrave.rm.8250017 Risk Management 2007, 9, (44–57) © 2007 Palgrave Macmillan Ltd 1460–3799/07 $30.00 www.palgrave-journals.com/rm Risk Management
45
I n t ro ductio n
T
he area of risk management has received significant recognition in the field of project management in recent years (Kwak and Stoddard, 2004).
Project managers and their
EX P L O R I N G M O N T E C ARLO
SI MU L AT I O N A PPL IC AT I O NS
FOR PROJ E C T M A NAGE M E NT
Young H o o n Kwa k a a nd L is a I ngal l b a Department of Decision Sciences, School of Business, The George Washington
University, Washington, DC , USA b IBM Systems Technology Group, Silver Spring , MD, USA
Correspondence: Young Hoon Kwak, Associate Professor of Project Management, Department of
Decision Sciences, School of Business, The George Washington University, Washington, DC 20052,
USA. E-mail: kwak@gwu.edu
A b stra ct
Monte Carlo simulation is a useful technique for modeling and analyzing real-world systems and situations. This paper is a conceptual paper that explores the applications of Monte Carlo simulation for managing project risks and uncertainties. The benefits of Monte Carlo simulation are using quantified data, allowing project managers to better justify and communicate their arguments when senior management is pushing for unrealistic project expectations. Proper risk management education, training, and advancements in computing technology combined with Monte Carlo simulation software allow project managers to implement the method easily. In the field of project management, Monte Carlo simulation can quantify the effects of risk and uncertainty in project schedules and budgets, giving the project manager a statistical indicator of project performance such as target project completion date and budget.
Key wo rds
Monte Carlo simulation, project management, risk analysis and management, exploratory study
Risk Management (2007) 9, 44–57. doi:10.1057/palgrave.rm.8250017 Risk Management 2007, 9, (44–57) © 2007 Palgrave Macmillan Ltd 1460–3799/07 $30.00 www.palgrave-journals.com/rm Risk Management
45
I n t ro ductio n
T
he area of risk management has received significant recognition in the field of project management in recent years (Kwak and Stoddard, 2004).
Project managers and their