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Uncertainty
y Some scheduling procedures explicitly consider the
uncertainty in activity duration
Stochastic Scheduling y Use probabilistic distribution of activity durations
y a particular activity is assumed to be a random variable that is
Topics distributed in a particular fashion
1. Uncertainty y Beta distribution is often used to characterize activity
2. PERT durations (absolute min and max) three-four parameters
3. Monte Carlo Simulation y Normal distribution is a good approximation (uses two
4. Software and Excel examples parameters)

Beta and normally distributed

activity durations
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PERT
y Program Evaluation and Review Technique (PERT) method
incorporate uncertainty in the scheduling
y A project broken down into activities represented in the
form of a network diagram (AOA, AON) sequential/logical
relationships
y Critical path represents the minimum time required to
complete the project
y Expected project duration is equal to the sum of the
expected durations of the activities along the critical path
“central limit theorem”
y Three time estimates for each activity (Optimistic (a), Most
likely (m), Pessimistic (b))

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PERT
y Probability distribution for an activity is based on these three
estimates (managers estimate subjectively)
y Beta distribution (construction activities)
y Simple approximations for the activities’ mean time and its
standard deviation
y If expected mean time for project duration (TX) and standard
deviation (σX) are determined, the chance of meeting specific
project duration (TS ) is calculated
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Example
y Consider the nine activity example project shown in Table
below. Suppose that the project have very uncertain activity
time durations. As a result, project scheduling considering
this uncertainty is desired.
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PERT procedure
1. Make forward and backward pass computations based on a
single estimate (mean) for each activity.
2. Obtain estimates for a, m, and b for only critical activities. If
necessary, adjust the length of the critical path as dictated by
the new te values based on a, m, and b.
3. Compute the variance for event x (νX) by summing the
variances for the critical activities leading to event x.
4. Compute Z using the above Equation and find the
corresponding normal probability.
Example
y Activity duration estimates are follows:
y Considering the mean duration of each activity., perform
CPM analysis
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Solution Solution
y CPM calculations : Critical path : A, C, F and I y For example, find the probability of project completion
within 35 days is:

y From tables: the probability of completing the project in 35

days is 100%.

y Sum of the means for the critical activities is 4.0 + 8.0 + 12.0 +
6.0 = 30.0 days,
y Sum of the variances : (0.33)2 + (0.67)2 + (0.67)2 + (0.67)2 =
9 1.44 and the standard deviation is 1.2 days. 10

Criticism to PERT Technique Monte Carlo simulation

y Focus on only a single path (many paths might become y Monte Carlo simulation creates artificial futures by
critical due to random fluctuations) generating thousands and even hundreds of thousands of
y Incorrect to assume that most construction activity durations sample paths of outcomes and analyzes their prevalent
are independent random variables. In practice, durations are characteristics. (probability simulation)
correlated with one another. ( e.g. delivery of concrete for a y In practice, Monte Carlo simulation methods are used for:
project) y Risk analysis,
y Difficulty of estimating three activity durations (threefold) y Risk quantification,
y Sensitivity
S iti it analysis,
l i andd
y prediction
y It is a type of parametric simulation, where specific
distributional parameters are required before a simulation
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can begin

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Monte Carlo Simulation Estimating range of values

y Forecasting –any model that plans ahead for the future-
y In Construction management
g assumptions
p :
y about cost of a construction project,
y how long it will take to complete the project,
y etc..
y Based on historical data and past experience, we can draw
estimates (estimate of an unknown value)
y Estimates are used to develop models;
y In construction projects, estimates of absolute minimum and
maximum time for an activity can be made based on expert
knowledge (also for project cost)
y By using a range of possible values, instead of a single guess,
you can create a more realistic picture of what might happen
in the future.
y When a model is based on ranges of estimates, the output of
th model
the d l will
ill also
l bbe a range
y Monte Carlo simulation tells – based on how you create the
ranges of estimates – how likely the resulting outcomes are.

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Monte Carlo process Example 1

y A random value is selected for each of the activity, based on
the range of estimates.
y The model is calculated based on this random value. The
result of the model is recorded, and the process is repeated.
y A typical Monte Carlo simulation calculates the model
hundreds or thousands of times, each time using different
randomly-selected values.
y When the simulation is complete, (a large number of results)
describe the likelihood, or probability, of reaching various
results in the model.
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y A construction project, with three parts to be done one after
the other
y We create three estimates of time for each part of the project
(based on our experience, or expertise, or historical
information)
y The project might be completed in as little as 11 months, or
as long as 19 months.
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Solution Solution
y We will randomly generate values for each of the tasks, then y Probability of Completion Within Specified Time (Months)
calculate the total time to completion ( beta-PERT
distribution is used to generate random values)
y The simulation run 500 times.
y The results describe some of the characteristics of the risk in
the model (Results of MCS shown in the Table)

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Solution Example 2
y The original estimate for the “most likely”, or expected y Given data and the network below for a project, find the
case, was 14 months. probability that the project ends in 20 weeks (use MCS)
y we can see that out of 500 trials using random values,
the total time was 14 months or less in only 34% of the
cases
y It is extremely unlikely that we will ever fall at the
absolute minimum or maximum values
y Based on this information, we might make different
choices when planning the project
y Having more information about risk at the beginning
means we can make a better plan for going forward.
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Example 2 Solution
y Data for Example 2 y 50 simulation runs and summary results of the first 10 runs

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Solution How to do the calculations

y Probability that the Project duration distribution y RiskAMP is a Monte Carlo simulation engine that works with
project ends in 20 Microsoft Excel. (probability simulation to spreadsheet
weeks or less is: models) website: http://www.riskamp.com./
y The PERT distribution for cost and project modeling
y An easy-to-use wizard for creating tables and charts
y 21 random distributions, including correlated multivariate
y Criticality index is
normal
defined as the
y 18 statistical analysis functions
proportion of runs in
y Latin Hypercube sampling
which the activity was
in the critical path. y Comprehensive VBA integration
y Automatic, embeddable histogram and correlation charts

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The beta-PERT Distribution The model

y When used in a Monte Carlo simulation, the PERT y The PERT distribution is a special case of the beta
distribution can be used to identify risks in project and cost distribution that takes three parameters: a minimum,
models based on the likelihood of meeting targets and goals maximum, and most likely (mode)
across any number of project components
y Depending on the values provided, the PERT distribution can
provide a close fit to the normal or lognormal distributions
y PERT distribution emphasizes the “most likely” value (In
practice,
ti this
thi means that
th t we “trust”
“t t” ththe estimate
ti t ffor th
the mostt
likely value)

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The model PERT distribution

y Minimum and maximum values (scale) and two shape
parameters, v and w are required .
y The scale parameter λ scales the height of the distribution;
the default value for this parameter is 4.
y μ and shape parameters are calculated
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y In RiskAMP Add-in include a project/task model using the
PERT distribution
y The RiskAMP function PERTValue( ) uses these inputs to
generate a random sample from the distribution:
=PERTValue( Minimum, MostLikely, Maximum )
y The scale, or λ (lambda) parameter, can also be used to
modify the distribution:
y =PERTValue( Minimum, MostLikely, Maximum, Lambda )
y But use of the scale parameter is optional. If omitted, the
default scale value is 4, which produces a curve that
reasonably approximates the normal distribution.
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Examples – Monte Carlo Sim.

y Investment model using RiskAmp
y Project
j with three activities usingg RiskAmpp
y Project with three activities: develop own EXCEL
spreadsheet

y Assignment 1: Solve example 2 using Monte Carlo

Simulation by developing own EXCEL sheet and determine
the criticality index of each activity by running 10
simulations.

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