Monte Carlo Simulation
13392Instructions
To complete this week’s advanced Monte Carlo Risk Analysis assignment, you will download an excel extension: @Risk by Palisade. NOTE: Microsoft Excel software is required.
Step 1: Go to the website: https://www.palisade.com/risk/. Spend a few minutes to review the Palisade platform. We will use @Risk extension which is only one of many analytics products offered in the Palisade Suite. Watch the @Risk overview video.
Step 2: Refresh yourself with Risk Analysis: https://www.palisade.com/risk-analysis/
Step 3: Read about Monte Carlo Simulation and watch the Introduction to Risk Analysis using @RISK https://www.palisade.com/risk/monte_carlo_simulation.asp
Step 4: Click of Start Trial button and request a Trial Version. https://www.palisade.com/risk/ NOTE: This trail version is only good for 15 days. Once the software has installed, you’ll be prompted with a Getting Started Guide.
Step 5: Review the example models (to be familiar with the uses of Monte Carlo): https://www.palisade.com/models/
Step 6: Open the attached Cost Estimation model spreadsheet. This model is already set up with a Monte Carlo simulation. NOTE: For this simulation to work, you have to have downloaded the trial version of the software to get the @Risk function (see step 4 above).
Your assignment:
Using the @Risk Cost Estimation Model, run two Monte Carlo Simulations by using the alternate set of data points. Record your results.
Minimum
Most Likely
Maximum
First Simulation Data
Raw Mats
3,300
4,000
9,000
IT
900
1,500
1,950
Second Simulation Data
Raw Mats
3,500
5,700
13,000
IT
1,200
1,700
2,150
Write a 2-3 page paper documenting the significance of Monte Carlo Simulation and address the following questions for each of the two simulations: (1) what is the total budget to achieve a 95% probability that the project will actually be delivered within this budget? Address why this is important to a project manager; and (2) How much contingency (extra budget) should be included so that this budget level will be achieved with a given degree of confidence? Address why this is important to a project manager.
NOTE: For our purposes, this assignment is to get you familiar with Monte Carlo and its significance to a project manager. The Palisade Suite of products, and @Risk specifically, are very powerful. If you’d like to learn more, here are some resources that go beyond the scope of our course:
Transition Guide: https://help.palisade.com/v8_2/en/Guides/@RISK-Transition-Guide.pdf
Palisade YouTube channel: https://www.youtube.com/user/PalisadeCorp/featured
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