Question:

Your recommendation for the oil drilling company – should they implement Monte Carlo Simulation?  Why or why not?

Answer:-

In spite of the inherent problems of the Monte Carlo Simulation, the oil drilling company can use this model with some precautionary measures as has been used by several other companies in the same field.

In reality, it is quite unlikely that the oil drilling company would focus on a single project at a time. The same model can be developed into a complex one to address the multi-project and multi-activity approach of the company. The model needs to be developed to accommodate the parallel running of multiple projects and also consider the interventions and other associated work which are not directly related to the project. Each resource can be individually considered for this and a periodic resource output can be generated while keeping the prior requirements same (Howard, 2019) . The model has definite scopes of improvements in multi-project scenarios but it needs to be effectively used. It is avoided because of its complex nature and also such nature of complexity makes it difficult to pair with the required software. An industry specific approach can be taken to analyse environmental risks of oil drilling, financial considerations, correlation matrices etc. Oil drilling companies involve expensive procedures which require cash flow risk analysis. Therefore, sensitivity analysis is highly required by the company and Monte Carlo simulation can provide the same. The problem of probability distribution in accordance with the project deadlines where data is insufficient the risks can be combined by the company in the probability distributions.