INTRODUCTION
The term "Monte Carlo method" was coined in the 1940s by physicists working on nuclear weapon
projects in the Los Alamos National Laboratory.
Monte Carlo is a mathematical method used on risk analysis in many areas and is used to approximate
the distribution of potential results based on probabilistic inputs. This method is a class of
computational algorithm that relies on repeated random sampling to compute its result. Because of its
reliance on repeated computation of random or pseudo-random numbers, this method is most suited to
calculation by a computer and tend to be used when it is infeasible or impossible to compute an exact
result with a deterministic algorithm.
When Monte Carlo simulations have been applied in space exploration and oil exploration, actual
observations of failures, cost overruns and schedule overruns are routinely better predicted by the
simulations than by human intuition or alternative "soft" methods.
IN CONSTRUCTION SCHEDULING
Construction project scheduling is a topic that has received extensive research over a number of
decades. Monte Carlo stimulation method is one of the advanced scheduling techniques used. To
overcome the challenges, associated with the PERT method, Monte Carlo method can be used as an
alternative for risk analysis related to construction projects. Monte Carlo simulations have been proven
an effective methodology for the analysis of project schedule with uncertainties.
Monte Carlo is a project risk analysis and simulation method that can give us the information we need to
make the tough decisions, develop contingency plans and manage risks based on hard facts and realistic
probabilities. Monte Carlo gives us the communication tools - reports and graphics - to convey risk and
uncertainty to clients, management and other decision makers. Using Monte Carlo simulation
techniques, we can gauge the likelihood of meeting delivery dates. Model the range of prices likely to be
paid for materials and labour. Integrate and analyze all the elements of a project plan. Monte Carlo
supports conditional logic. It also supports probabilistic branches, so we can evaluate alternative courses
of action following a decision point.
Each simulation is generated by randomly pulling a sample value for each input variable from its defined
probability distribution, e.g. uniform, normal, lognormal, triangular, beta, etc. These input sample values
are then used to calculate the results, i.e. total project duration, total project cost, project finish time.
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Assignment PROJECT MANAGEMENT - I
The inputs can be task duration, cost, start and finish time, etc. This procedure is then repeated until the
probability distributions are sufficiently well represented to achieve the desired level of accuracy. They
are used to calculate the critical path, slack values, etc.
Monte Carlo simulations can be used to find answer to a number of questions related to a construction
project, like:
• What is the chance of your project being completed on schedule and within budget?
• What is the chance that the particular task will be on the critical path?
• What tasks affect the project duration at most?
• What is the project success rate?
PROCEDURE
This technique calculates sets of artificial (but realistic) activity duration times and then applies a
deterministic scheduling procedure to each set of durations. Numerous calculations are required in this
process since simulated activity durations must be calculated and the scheduling procedure applied
many times. For realistic project networks, 40 to 1,000 separate sets of activity durations might be used
in a single scheduling simulation.
Given a plan and the activity duration distributions, the core of the Monte Carlo simulation procedure is
the derivation of a realization or synthetic outcome of the relevant activity durations. Once these
realizations are generated, standard scheduling techniques can be applied. Assumption is that the
various steps involved in forming a network plan and estimating the characteristics of the probability
distributions for the various activities have been completed. To generate normally distributed
realizations of activity durations, we can use a two step procedure. First, we generate uniformly
distributed random variables, ui in the interval from zero to one. For example, a general formula for
random number generation can be of the form:
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Eq. (11.6)
Where, = 3.14159265,
and ui-1= previously generated random number or a pre-selected beginning or seed number.
For example, a seed of u0 = 0.215 in Eq. (11.6) results in u1 = 0.0820, and by applying this value of u1, the
result is u2 = 0.1029.
This formula is a special case of the mixed congruential method of random number generation. While
Equation (11.6) will result in a series of numbers that have the appearance and the necessary statistical
properties of true random numbers, we should note that these are actually "pseudo" random numbers
since the sequence of numbers will repeat given a long enough time.
With a method of generating uniformly distributed random numbers, we can generate normally
distributed random numbers using two uniformly distributed realizations with the equations:
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_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Eq. (11.7)
With,
and,
x = the mean of x,
x = the standard deviation of x, and u1 and u2 are the two uniformly distributed random variable
realizations.
For the case in which the mean of an activity is 2.5 days and the standard deviation of the duration is 1.5
days, a corresponding realization of the duration is s = 2.2365, t = 0.6465 and xk = 2.525 days, using the
two uniform random numbers generated from a seed of 0.215 above.
Correlated random number realizations may be generated making use of conditional distributions. For
example, suppose that the duration of an activity d is normally distributed and correlated with a second
normally distributed random variable x which may be another activity duration or a separate factor such
as a weather effect. Given a realization xk of x, the conditional distribution of d is still normal, but it is a
function of the value xk.
In particular, the conditional mean ( ’x |x = xk) and standard deviation ( ’x|x = xk) of a normally
distributed variable given a realization of the second variable is:
_ _ _ _ _ _ _ _ _ _ _ _ _ Eq. (11.8)
Where, dx is the correlation coefficient between d and x. Once xk is known, the conditional mean and
standard deviation can be calculated from Eq. (11.8) and then a realization of d obtained by applying
Equation (11.7).
Correlation coefficients indicate the extent to which two random variables will tend to vary together.
Positive correlation coefficients indicate one random variable will tend to exceed its mean when the
other random variable does the same. From a set of n historical observations of two random variables, x
and y, the correlation coefficient can be estimated as:
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_ _ _ _ _ _ _ _ _ _ _ _ _ Eq. (11.9)
The value of xy can range from one to minus one, with values near one indicating a positive, near
linear relationship between the two random variables.
It is also possible to develop formulas for the conditional distribution of a random variable correlated
with numerous other variables; this is termed a multi-variate distribution. Once a set of random variable
distributions is obtained, then the process of applying a scheduling algorithm is carried out.
LIMITATIONS
• Statistical distributions of project inputs such as task durations should be obtained based on
reliable historical data and in many cases this data is unavailable. For example, a project
manager usually knows that particular construction job will take between 1 and 3 days and can
be defined by normal distribution. However, in some cases, especially for research and
development projects, this information is not available and using Monte Carlo simulation may
not improve your estimations.
• Another problem associated with Monte Carlo simulations is that, if a project slips, project
managers usually perform certain actions. It is difficult to define and forecast the management
response within a Monte Carlo simulation method.
• CPM schedule to be used for the basis of analysis must be complete and correct. In this context,
complete refers to having all activities properly tied in with predecessors and successors and
lags where appropriate. Correct refers to using durations that do not include float, that reflect
activity scope, and reflect the construction plan. Negative lags should be avoided as they do not
represent the way activities are undertaken in the field.
• Experts are very comfortable in estimating the most likely values of activity duration but are not
as experienced in estimating the upper and lower limits. The collection of real data to support
these estimates could be really beneficial but estimates provided by probabilistic distribution
don’t provide that confidence.
• It’s quite difficult to accurately represent the correlations between the activities, so
approximations are developed to simplify the process. The effect of these approximations is
not known with certainty.
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CONCLUSIONS
From the above discussion about the Monte Carlo Simulation method, its importance in construction
project scheduling and the limitations associated with it, following conclusions can be derived:
1. Monte Carlo simulation method quantifies the risks involved as we build the schedule. While a
deterministic schedule uses only a single estimate of activity duration to calculate the project
schedule, Monte Carlo looks at the range of possibilities. Hence ,
• We can monitor the risks involved during the management of project by performing regular
risk analysis during the project.
• We can measure the risks involved for smaller for smaller elements of the project by doing
the analysis at different levels.
2. Monte Carlo simulation method Gauge the probability of on-time completion by determining
likelihood of meeting delivery dates.
3. Monte Carlo simulation method set up contingencies that make sense. Since we can see the
range of possible outcomes, contingency allowances and reserves can be set to avoid
embarrassment or failure to deliver.
4. This method could provide valuable information to the owner and contractor. Unfortunately the
lack of common knowledge about the technique is major barrier to its use.
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REFERENCES:
• http://www.intaver.com/Articles/RP_Art_MSProjectRiskAnalysis2.html
• http://pmbook.ce.cmu.edu/11_Advanced_Scheduling_Techniques.html
• http://en.wikipedia.org/wiki/Monte_Carlo_method#Monte_Carlo_and_r
andom_numbers
• http://www.iaarc.org/external/isarc2009-
cd/www/Construction%20Scheduling%20Optimization%20by%20Sim
ulated%20Annealing.pdf
• http://www.p3k.com/data/montecrl.pdf
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