Monte Carlo Simulation Approach for the Probability Distribution of Project Performance Functions
In this chapter we discuss the implementation of Monte Carlo simulation evaluating of project performance functions such as the total project cost and the total project duration. We focus on the key considerations that are often ignored when Monte Carlo simulation is implemented in project risk analysis – the effect of correlation and the sample size selection. Further, we provide the methods to determine if the correlation matrix is positive-semi definite, if not, how to fix it. Finally we show the method to evaluate the effect of sample size on the confidence intervals of decision variables.