Monte Carlo Simulation, or Monte Carlo Analysis, is a method detailed by the Project Management Institute for risk analysis.
You may or may not discover an actual need for it in real-life project management.
But you will almost certainly discover a need for it on the PMP Exam, if you intend to get your Project Management Professional certification.
In this post, we’ll detail what Monte Carlo Analysis is and what you need to know about it before taking the exam.
What is Monte Carlo Analysis?
Monte Carlo Analysis is a Data Analysis tool, noted in the PMBOK Guide.
In the guide’s sixth edition, it is detailed among the Tools and Techniques of the Develop Schedule process and the Perform Quantitative Risk Analysis process.
In the seventh edition, it is less prominent but still very much present, detailed as Monte Carlo Simulation among the commonly used data gathering and analysis methods.
The PMBOK defines Monte Carlo Simulation as:
“A method of identifying the potential impacts of risk and uncertainty using multiple iterations of a computer model to develop a probability distribution of a range of outcomes that could result from a decision or course of action.”
What does that mean, exactly?
In short, a Monte Carlo Simulation relies on a computer program to create many different possible outcomes for a decision.
In project management, this can be useful to help you consider the effects of actions you might take. Seeing potential outcomes of those actions can help you:
- a. Decide on which action to take.
- b. Plan for risks associated with the decisions.
Studying Monte Carlo Simulation for the PMP Exam
You most certainly won’t have to know all there is to know about running Monte Carlo Simulations for the PMP Exam.
You will at least need to remember that a Monte Carlo Analysis, or Simulation, is a tool to help you with risk management planning on your projects.
Here’s one way to commit that to memory:
- Monte Carlo Analysis considers risks and other uncertainties to calculate possible outcomes for a project.
- Monte Carlo is the name of a famous casino in Monaco.
- When you gamble at a casino, you risk losing your money.
- So connect Monte Carlo with risk to help you remember the concept and narrow down the potential answers when this term comes up on your PMP exam.
The PMP Exam can be tricky in that, at times, you won’t see a single correct or obvious answer, so you have to select the best of the four options presented.
This was a frustrating concept for me while taking simulation exams; I often just want to be able to memorize facts and figures so that when I’m asked a question, I can respond with the correct answer.
But the PMP Exam is structured a lot more similarly to real-life situations in project management, because you don’t always have the luxury of turning to a single ideal answer to a question or challenge; you often have to choose the best answer or solution from a pool of less-than-desirable available options.
So to help you narrow down questions on the PMP Exam that involve Monte Carlo Simulation, make the connection between “Monte Carlo” and “risk” as noted above, and also remember that Monte Carlo Analysis is a simulation tool that we can use in areas of uncertainty, to help us analyze risks to our project and show possible outcomes.
We do this data analysis while Planning.
It is specifically useful while developing our project schedule and while performing quantitative risk analysis.
I hope that helps you remember how and when Monte Carlo analysis can be used in project planning. Make sure you read more about Monte Carlo analysis in the PMBOK Guide.