Reference no: EM132388894 , Length: word count : 3500

Assessment – Report (Project Budget)

Project Risk Management : Monte Carlo Simulation

Aim of Assessment

General Learning Outcome   

1. To apply risk analysis quantitative techniques to projects

2. Apply quantitative risk analysis using specialist software to create a cost model, and evaluate and analyse the results

Select a project. Can be from your work experience, or a social project (could be same project as Part A of Assessment 1, but best for learning purposes if the project is a real future project.  Could use project from Time Management or Cost Management units).

Budget Report (using Monte Carlo Simulation)

NOTE: This is a formal project management document, not an academic assignment.

Produce a Budget Report: The document is designed to be given the Project Sponsor for approval. The sponsor is not knowledgeable about the cost estimating process or Monte Carlo simulation. The report must strictly have has the following six sections (a-g):

a) Introduction : e.g. executive summary (key results within the report), project scope, and any other relevant information. Appropriate context must be provided when describing the project, this includes background information on the organization, the intended goals/benefits of the project, and the project and product scope.

b) Recommended Baseline Budget: Provide a baseline budget composed of 10-30 cost variables (This is a deterministic estimate based on most likely value for each cost variable, excluding risk events and contingency). You must structure the budget in a manner consistent with industry best practices. Furthermore, you must explain the source of information used to produce the estimate for each item in the budget (i.e. suppliers, subcontractors, historical costs, etc.).

NOTE: Once you have completed the above deterministic baseline budget, then conduct Monte Carlo Simulation (including correlations). Your cost model for MCS will:

• Replace deterministic values in the Recommended Baseline Budget with probability distributions; and

• add 2 specific risk events.

c) Explanation of Two Risk Events: Provide one short paragraph for each risk event– briefly explaining what the risk event is. Briefly discuss: causes; probability and consequences.  Do not discuss treatments.

d) Recommendation for Contingency: Recommend a contingency amount.  Explain why you are recommending the contingency that you have selected.

e) Sensitivity Analysis: based on the Tornado Chart, explain to the Sponsor how you will control and minimise the following:

1. Most sensitive cost variable

2. Most sensitive risk event (probability OR consequences)

f) Organizational Policy: Compare and comment on your cost results against the organisational policythat states “it is expected that the Baseline Budget (ie excluding contingency) should have an 80% probability of being with arange of -5/+10%.”

g) Appendix:

1. Quick Output Report

2. The sponsor wants to understand MCS. To facilitate this, the sponsor has asked for:

1. Justification of Probability Distribution for Cost Variable: Explain and justify the selected values (minimum, most likely and maximum) in the probability distributions for one of the cost variables.

2. Justification of Probability and Consequences of Risk Event: Explain and justify the selected values for minimum, most likely and maximum consequence of one risk event. Then justify the probability of occurrence for the same risk event.

3. Correlation Matrix: Select two correlated variables (i.e. one correlation) from your cost model. Explain why they might be correlated. And the likely nature and strength of this correlation.