The Risks Hidden in Single Point Estimates

Building a spreadsheet model for a business case, product profitability projection, etc. often entails estimating some input factors.  The estimates are often a most likely value, an estimated average, or median.  These are single-point estimates since you’re only using one number (a single data point) for each input.  Finally, you get an output number from …

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Optimizing a Design with Monte Carlo Simulation

Performance and cost trade-offs are a constant in engineering design.  Optimizing a design to balance these competing forces can be challenging to quantify and we often have to resort to experience or intuition.  One of the traditional cost drivers is specifying tolerances.  Part dimensions are naturally random variables since each part manufactured will not be …

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Project in action

Quantitative Risk Analysis for Project Management

In this article we are going to discuss using Monte Carlo simulation to perform quantitative risk analysis for project management.  The three primary risks to a project are schedule, financial, and technical.  Two of these three risks readily lend themselves to be quantified with Monte Carlo simulation: schedule risk and financial risk. If you’re unfamiliar …

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