Live Chat ×
Skip to main content

(RISK-2441) Integrated Cost-Schedule Risk Analysis Using Monte Carlo Simulation

Level: Intermediate
Author(s): Dr. David T. Hulett, FAACE
Venue: 2017 AACE International Annual Meeting, Orlando, FL

Abstract: Originally cost contingency calculations were based on historical ratios and did not refer to schedule risk.

Early cost risk analyses were based on Monte Carlo simulation (MCS) of cost models created in spreadsheets. Generally schedule risk was not seen as a needed input.

Gradually schedule variability was introduced to cost risk models. Sometimes the schedule contingency in days beyond the scheduled finish date could be applied to the indirect costs or the average daily cost of the entire project.

Soon, simulating a schedule could produce a probability distribution of possible schedule dates. These schedule-risk iteration data could be represented as a distribution within the spreadsheet MCS software and applied in the cost risk simulation.

Today integrated cost-schedule risk analysis is practiced on schedule platforms with specialized software that simulates schedules and the corresponding cost for each iteration. Implementing the Joint Confidence Level (JCL) approach to risk allows estimating the targets needed for achieving both objectives.