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Monte Carlo Simulation Approach for the Probability Distribution of Project Performance Functions

  • Ivan Damnjanovic
  • Kenneth Reinschmidt
Chapter
Part of the Risk, Systems and Decisions book series (RSD)

Abstract

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.

Keywords

Monte Carlo simulation Correlated random variates Sample size Confidence intervals 

References

  1. Higham NJ (2002) Computing the nearest correlation matrix—a problem from finance. IMA J Numer Anal 22(3):329–343MathSciNetCrossRefGoogle Scholar
  2. Law AM, Kelton WD (1991) Simulation modeling and analysis, vol 2. McGraw-Hill, New YorkzbMATHGoogle Scholar

Copyright information

© Springer Nature Switzerland AG 2020

Authors and Affiliations

  • Ivan Damnjanovic
    • 1
  • Kenneth Reinschmidt
    • 2
  1. 1.Texas A&M UniversityCollege StationUSA
  2. 2.College StationUSA

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