In a project of course we will be faced with many things or many problems, in order to ensure the successful completion of a project, it is very important for the project manager to find ways to deal with uncertainties that can pose risks potential for a project. To resolve or prevent the problem, a risk analysis is needed, risk analysis is part of the decisions we make. Maybe while working on a project we will be faced with ambiguity, variability, and also other uncertainties. To overcome this, we are faced with Monte Carlo Simulation, also known as the monte karlo method, which functions to enable us to see all the results of your decision. Apart from that it can help you to enable better decision making under uncertainty. To find out more about this method, consider the review below:
What is a Monte Carlo Simulation?
Maybe there are still many of you who don’t understand about this one simulation or method. Because there are still many who do not understand, this time we will inform you about the explanation of Monte Carlo simulations so that you can find out and can apply this method to solve your problem.
Monte Carlo simulation is one type of technique that is integrated with mathematics and computerization which helps or allows a person to be able to calculate risks in quantitative analysis and decision making. This method of Monte Carlo Simulation method or technique is used by professionals in the fields of finance, energy, project management, engineering, manufacturing, research and development, oil and gas, transportation, environment, even insurance. So that this application is not only used for 1 scientific discipline but can be used for various types of disciplines that are very different in their backgrounds.
This technique, known as the Monte Carlo Method, was first used by scientists who had made or worked on atomic bombs. Named Monte Carlo because it happened at that time the scientists were creating a bomb ato in the city of Monte Carlo which is one of the resort cities in Monaco which is famous for its casino. After the method proved successful and has been proven by scientists or experts, the method was introduced during World War II, since then the Monte Carlo Method or Simulation is used to model various types of physical and conceptual systems to solve various kinds of problems. Now do you understand not information about Monte Carlo Simulation? Now of course you become more aware of this one method.
How can a Monte Carlo simulation work?
After you know the information about definitions and brief history of Monte Carlo techniques or simulations we will now tell you other important information about how Monte Carlo simulations can work and how they are implemented. As we explained above, if this Monte Carlo simulation is one type of simulation used to carry out risk analysis by constructing it from the resulting substitution model, the range of values and probability distribution. Besides these two things, any factor that is uncertain in nature can also be used. In this Monte Carlo simulation we will use thousands to tens of thousands of recalculation before it is finished. This simulation also results in a distribution of possible outcome values.
Usually in this method we use a probability distribution. Where the probability distribution is the method used in this method and more realistic, the probability distribution is the right way to describe the uncertainty in the risk analysis variable.
Common types of probability distributions include:
In the use of the Monte Carlo method we will use a probability distribution as we mentioned above a little. You need to know if this probability distribution includes many things and not just one type but includes several types. On this occasion we will provide important information to you about the types of general probability distributions that you should know. Check out the brief review below:
–Normal: The first
type of general probability distribution is normal or often referred to as lonveng quva. Usually when using this type of normal method, the user only defines the average value or what they expect and uses the deciasi standard to describe variations regarding the average. The values in the middle close to the average are most likely to occur. Usually used as an example for measurement is a daily phenomenon such as the height of a person. Examples of variables will be explained by normal distribution including high inflation rates and energy prices.
–Lognormal
The next is lognormal, the value is a positive and asymmetrical slant like the normal distribution we mentioned above. Usually this type of distribution is used to represent values that do not exceed zero but have unlimited positive value potential. Usually this type of lognormal probability distribution is used to calculate property values or real estate values then used also to calculate stock prices and oil reserves.
-Uniform
Third is uniform, in this type of probability all values have the same chance to occur and we will only define minimum and maximum. Examples of variables used in this type of probability are usually used to calculate production costs or future sales revenues for new products.
-Pert
the fourth type of probability is pert. If we use the probability of Pert then we as users will only define the minimum, maximum, and most likely values such as triangle distributions. Usually this type of probability describes the duration of the task in the project management model.
-Discrete
The last type of distribution you need to know is discrete. If you use this Discrete method, we as users will define some specific values that might occur. An example in a discrete case is like a possible outcome of a lawsuit: a 20% chance of a positive verdict, a 30% change in a negative verdict, a 40% chance of a settlement, and a 10% chance of a wrong hearing.
You already know what types of general probability distributions are in the Monte Carlo method. Now you already know the information more clearly so you can distinguish between the types of probabilities.
Advantages of using Monte Carloanalysis This Monte Carlo
Methodmethod is one type of method that is suitable for use when we face a complex forecast situation involving relatively high complexity and uncertainty, because this method has the benefit of analyzing the possibility of meeting your goals. Given the many risk factors for your project. If using the Monte Carlo Method analysis, it will be very effective because the work is done on evaluating the data numerically and also there is no other guess involved. The following are some:
-Used to analyze data
of the advantages of using Monte Carlo analysisThe advantages of using analysis Monte Carlo method is that it can be used to analyze costs and schedules. If you are confused to analyze costs and schedules that might be rather complicated then you can use this Monte Carlo Method. You can add cost events and also schedule risks to the approximate model that you make with a greater level of trust. That way you can find the solution correctly and also quickly.
-Used to meet the objectives
Actually there are many uses of this Monte Carlo Method. Besides being able to analyze data, the Monte Carlo method can also be used to meet your targets and goals. As we said above, if the Monte Carlo Method can be used for a variety of disciplines. This Monte Carlo method can also be used to meet your desired goals. For example, if you want to set a target in your business or maybe target it in your finances, you can use this method.
-Used for decision making
There are so many uses of this Monte Carlo method, besides being used to analyze data or schedules, and can be used to meet targets. This Monte Carlo method can also be used for decision making. Maybe for those of you who are feeling troubled or confused because they have to make a decision, we recommend that you use this method because this method can help you to make valid decisions easier because decisions will be taken based on existing numerical data and can support your decision.
-Many chosen because of an easy-to-use method
The next reason why this Monte carlo method is chosen is because this method is one type of method that is easier than other methods or techniques. This method is one method that is very easy and the results are more valid than if you use other methods. This method is easier to use and besides it is clearer than other methods because if you use this method you only need to identify the rent limit and the correlation of the data with other variables from the data that you have collected.
Now you know what are the benefits of Monte Carlo analysis. There are so many not benefits that we can take from using this method. Therefore, because you now know the benefits, we recommend that you start learning to use this method. After this we will tell you a few steps you can take to try Monte Carlo analysis.
Steps to take to do Monte Carlo Analysis
After knowing some information, this time we will tell you important information about the steps you can take to prove the Monte Carlo analysis. Don’t wait long here are the steps you need to do:
- Identify the main project risk variables
The first step that must be done in the first step is to identify the main project risk variable, to identify the most critical variables in the project then all variables which is subject to a fixed deviation then the results will be analyzed. Variables that later have the greatest impact on the outcome of the project are isolated as the main project risk variable.
- Identify range limits for this project variable
The second step you need to do to be able to use this method is to identify the range limit for the project variable. What is in this process will involve the minimum value and also the maximum value for each project risk variable identified. If you have historical data available, it will make your task easier to calculate using the Monte Carlo method.
- Determine the relationship for correlated variables
The next thing we can do to calculate using the Monte Carlo method is that it involves the allocation of probability of events to your project’s risk variable. To be able to get valid results, a multi-value probability distribution is used. The various types of common probablities used have been mentioned in the above points.
- Do simulations based on identified variables
The next step you need to do is to involve the situation that you are running. This usually uses software that can run 500 to 1000 simulations.
- Analyzing the results of running statistics
Next, the thing you have to do is to analyze the results of the statistics that are running and that you have tried. Probability distribution can be used to assess overall project risk. So you can find values or results after using the Monte Carlo method. By using this method many problems that you can solve easily because the results obtained are optimal and also the method used is easier. So we recommend that from now on you start using this method and start learning to find the results of the problems you are experiencing using Monte Carlo Method. If you are still confused if you want to use this method, you can use the services of the financial advisor or financial planner so that you can help you find the right and maximum results.
That was some information that we could convey about the Monte Carlo simulation. Hopefully, the article that we share this time can be useful and also useful for you all to estimate budget with Monte Carlo Method! To be able to get results after using the Monte Carlo system, we recommend that you collect the data correctly and also we recommend that you calculate it slowly and thoroughly. Hopefully, the article we provide can be useful, more or less we apologize!
