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Using Monte Carlo Tool for Risk Assessment

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Using Monte Carlo Tool for Risk Assessment
CMGT/442
March 21, 2016
Craig McCormick

Using Monte Carlo Tool for Risk Assessment A project can have many variables that can prevent it from completion. No one variable can effect a project more than a project’s risks. The key to having a successful completion of a project is through a risk assessment. It is the project manager’s job to identify potential risks within a project. Identifying these uncertainties will help to minimize the risks and their impact on the project. The Monte Carlo tool can be an asset for a project manager and risk assessment process.
What is Monte Carlo? Monte Carlo is a simulation of mathematical technique that analyzes risk for decision making. The simulation uses different choices of action and gives a variety of probabilities and possible outcomes based on those actions. These possible outcomes are given in the most extreme situations, as well as with minor decisions. Additionally, the Monte Carlo simulation provides possible consequences of conservative decisions. Overall, “Monte Carlo analysis involves determining the impact of the identified risks by running simulations to identify the range of possible outcomes for a number of scenarios.” (Marom, 2010)
How Monte Carlo Works Project risks are one of the big unknowns when it comes to risk assessment. Monte Carlo attempts to change these unknowns by using probability distributions. Probability distributions show that each risk variable can have various probabilities with different outcomes for each. The Monte Carlo simulation uses probability distributions to analyze risk with a range of values. Calculations of the values are run repeatedly, showing different values of outcomes. After assessing hundreds or thousands of outcomes, the Monte Carlo will complete, producing a distribution list of the outcomes. This simulation will

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