6th June 2017: APM CPD Event at Jurys Inn, Aberdeen, Tonight's theme was project risk and included an illuminating presentation from Dr Keith Eagles on the Monte Carlo Simulation risk technique. Keith's approach was that Monte Carlo is often perceived as a bit of black art, but that in practice it is much more straightforwardonce you know how it works. He outlined the general principles of this technique using several practical examples and engaged with the audience to discuss their experiences and the pros and cons of how and when to apply Monte Carlo Simulation. In the second part of the session Neil Harkin of 20|20 Business Insight gave a brief overview of APM's Risk Qualifications and how these can help individuals to demonstrate knowledge and competency of applying risk management within a project environment.

1. Monte Carlo Simulation –
Black Art or
Misunderstood Child?
6th June 2017
www.apm.org.uk/scotland

2. Agenda
▪ Monte Carlo Simulation Presentation
▪ Overview of APM’s Risk Management certifications

3. Monte Carlo Simulation – Black Art or
Misunderstood Child?
Dr Keith Eagles
Principal
Decision & Risk Consulting

4. How MC Works - The Supermarket Run
• Bread @ £1.83
• Milk @ £1.67
• Bag of Apples @ £2.30
• ~500g Cheese @ £3.84
• Newspaper @ £1.30
• Total @ £10.94
• How much will I spend
today??
• £1.70 - £2.20
• £1.55 - £1.80
• £2.10 - £2.80
• £3.50 - £4.50
• £1.30

7. 3 Major Factors to Consider
• Central Limit Theorem

8. My Project - Risk Profile
• £1,000k project with -20% to +50% risk profile
• 2 off £500k cost elements, each with -20% to + 50% risk
profile
• 10 off £100k cost elements, each with –20% to + 50% risk
profile

9. Base
Estimate

13. Full Monte Carlo

14. Average of the Sum Monte Carlo

15. AACE RP 18R-97 Estimate Classification
Estimate
Class
Level of
Project
Definition
Purpose of
Estimate
Typical
Estimating
Method
Expected Accuracy
Range
Class 5 0% to 2% Concept Screening Judgement, analogy,
parametric models,
capacity factored
L: -20% to – 50%
H: +30% to + 100%
Class 4 1% to 15% Study or Feasibility Primarily stochastic L: -15% to -30%
H: +20% to +50%
Class 3 10% to 40% Budget Authorisation Mixed, but primarily
stochastic
L: -10% to -20%
H: +10% to +30%
Class 2 30% to 70% Control or Bid/Tender Primarily deterministic L: -5% to – 15%
H: +5% to +20%
Class 1 50% to 100% Check Estimate / EFC Deterministic L: -3% to -10%
H: +3% to +15%

18. 3 Major Factors to Consider
• Central Limit Theorem
• The Uncertainty Distribution and 3-Point Estimates

21. 3 Major Factors to Consider
• Central Limit Theorem
• The Uncertainty Distribution and 3-Point Estimates
• Rose Tinted Spectacles – judgement bias

22. 10080 200
Base Estimate/
Most Likely P50
P10
P90
Probability
117

23. Conclusions
• MC is a powerful simulation methodology
• It could/should be more widely used to allow PMs to make
more informed decisions about their projects, but lacks
credibility in the eyes of many = ‘black art’
• Many ‘analysts’ remain blissfully unaware of the statistical
idiosyncrasies of MC and the impact of psychological bias
that lead to non-credible results = ‘misunderstood child’
• Risk analysis is a completely different skill set to cost
estimating and planning/scheduling
• A scalpel in the hands of a butcher does not make them a
heart surgeon
• BECOME A HEART SURGEON

24. APM Risk Qualifications

25. APM Project Risk Management Single
Subject Certificate
▪ The APM Project Risk Management
Single Subject Certificate is a
qualification which has two levels. It is
designed to build on the knowledge
gained in the APM Project Management
Qualification (PMQ/APMP) or similar
project management qualifications.

26. APM Project Risk Management Single
Subject Certificate
▪ Who is it for?
– Level 1 determines the candidate’s knowledge of
the subject, sufficient to allow them to contribute
to risk management within a project.
– Level 2 determines the candidate’s knowledge,
understanding and capability in the subject,
sufficient to allow them to undertake formal
project risk management.

27. APM Project Risk Management Single
Subject Certificate
▪ How is it assessed?
– Level 1 is a 60-question multiple choice
examination that lasts for 1 hour.
– Level 2 is a 3 hour and 15 minute written
examination, answering three questions, one
compulsory and two from four optional questions.