Monte Carlo Advantages from a business and project management perspective

Question:-

Advantages from a business and project management perspective – why should this oil drilling company implement Monte Carlo Simulation on all of their projects?

Answer:-

The oil drilling company should consider the advantages of the Monte Carlo Simulation model in project management prior to its implementation in all of its projects. Using this model would help the company to identify early the probability of meeting the already framed milestones and deadlines which are mentioned in the project timeline. Since the model uses realistic probability distributions, the budgeting and scheduling activities would also be achievable and realistic (Kok, Kaya, & Akin, 2006). The different patterns of distribution would forecast the probability of compliance with the schedule. It also indicates the chances of costs exceeding the recommended budget. The risk probabilities are identified in quantitative terms which helps the company to decide on risk priorities. It also provides improved risk assessments. The produced data is specific to the analysed risk and therefore it facilitates decision making.

The sensitivity analysis is the most important benefit of this model in project management. This model analyses the sensitivity of the projects simultaneously with the project deadline and schedule probabilities. A project schedule is determined but to analyse what it is sensitive to, can be done through this model so that any required alterations to the deadline can be processed. The tornado graph method is used for this purpose. This graph produces the result of sensitivity analysis by dissecting the most prioritized or most important activities which have the maximum influence on the project deadline. It is based on correlation between the activities and the deadline. The most important feature of this graph is the relative rankings which makes it realistic. It shows an activity-based report which is based on each activities level of sensitivity to the projected deadlines. A project manager finds the rankings to be more crucial because of the relative presentation as compared to the appropriateness of the numerical values in the graph (Howard, 2019). The activities which have the maximum correlation appear on top of the tornado graph. This means that these activities are most sensitive to the project deadlines. Therefore, these activities should be prioritized so as to achieve the maximum impact on the deadline. Where there is dearth of essential resources this model helps the project manager to determine the appropriate resource allocation for each activity. The tornado graph is a further demonstration of the model’s ease of use and simplicity of understanding. This graph projects either single paths or parallel paths and therefore it offers flexibility as well. The models help to identify the critical paths and prioritize activities according to the connection to project deadlines. It also determines what route of project management should be followed. When the model’s convergence is theoretically supported, it is easy to use (Kok, Kaya, & Akin, 2006). In projects where it I difficult to optimize, activities, resources, processes, costs and schedules, the model can deliver an optimum output which would be valid in all spheres of the project and local constraints can be dealt with. Another crucial benefit is that the model can work both with or without probability, i.e. it is both stochastic and deterministic.

1          References

Verschoor, J. (2005). RISK.10 The Benefits of MonteCarlo Schedule Analysis. 2005 AACE International Transactions .