10.2 Qualitative and quantitative approaches (Continued) - This shows when the project will make a profit or a loss
- Should materials increase by 10 percent, unless there is a drop in labour costs, the project will make a loss
10.2 Qualitative and quantitative approaches (Continued) - 3. Monte Carlo simulation
- Practicable if use computer (extension to popular spread sheets)
- Use range of values of distribution apply to time, cost and other estimates
- Shows effect on finances or other critical factors
10.2 Qualitative and quantitative approaches (Continued) - Example
- Revenue stream to be generated: in the range of £.75m to £1.15m
- Equally likely to be any value
- Materials costs: £.25m most likely
- Labour costs: £.55m
- Could be more, could be less
- Profit
10.2 Qualitative and quantitative approaches (Continued) - Figure 10.3 Examples of the use of Monte Carlo analysis
10.2 Qualitative and quantitative approaches (Continued) - 4. PERT: Programme evaluation and review technique
- Likely a single value for ‘time for completion’ will have an error
- Three estimates for each activity are required
- Optimistic (o) – if conditions are ideal
- Most probable (m) – if conditions are ‘normal’
- Pessimistic (p) – if things go wrong
- Expected time is (o + 4m + p)/6
- Use expected time in critical path analysis
- May effect the duration, may change the critical path
- The downside
- Shows outcome (partial picture) but does not indicate probability
- Additional complexity may not be justified by a return in accuracy of the plans
- Relies on people being accurate in their forecasting
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