This recommended practice (RP) defines and explains the integration of cost and schedule risk analysis using a Monte Carlo simulation of a critical path method (CPM) resource-loaded schedule. It explains in some detail the use of risk drivers to represent the identified risks to a project’s cost and schedule in an integrated approach. There are generally three overall purposes of such an exercise:

• To estimate the probability of finishing on or before the schedule date and on or under the cost estimate.
• To determine the amount of cost and schedule contingency needed to provide a chosen degree of confidence of hitting both targets.
• To identify the risks that cause any estimated overrun.

Using root-cause risks to generate the simulation results permits the prioritization of identified and quantified risks by their impact on the schedule. This focus on risks facilitates identification of effective risk treatment options and estimates of the post-treatment results.

This document is not intended to be a standard. This document is intended to provide a guideline for integrated project cost and schedule risk analysis using risk drivers in the context of conducting a Monte Carlo simulation-based schedule risk analysis of a CPM project schedule that most practitioners would consider to be good practice. This RP illustrates some of the most important features of risk drivers and compares the method to other risk analysis methods also described in AACE International recommended practices. Alternative methods to evaluate contingency include those relying on parametric estimation such as those described in Recommended Practice 42R-08. The reader is also encouraged to read recommended practices 44R-08, Risk Analysis and Contingency Determination Using Expected Value and 64R-11, CPM Schedule Risk Modeling and Analysis: Special Considerations.