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Software Project Management Unit-3 - 7

This document discusses Monte Carlo simulation, a method used for risk quantitative analysis and decision making. It was first used by scientists working on the atom bomb in 1940. The document outlines the important characteristics, advantages, and disadvantages of Monte Carlo simulation and provides a flow diagram of the Monte Carlo simulation method.

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jayantsrivastava005
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10 views

Software Project Management Unit-3 - 7

This document discusses Monte Carlo simulation, a method used for risk quantitative analysis and decision making. It was first used by scientists working on the atom bomb in 1940. The document outlines the important characteristics, advantages, and disadvantages of Monte Carlo simulation and provides a flow diagram of the Monte Carlo simulation method.

Uploaded by

jayantsrivastava005
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Software Project Management (KOE-068)

UNIT-3 (Lecture-7)
Risk Management: Monte Carlo simulation
This method is applied to risk quantitative analysis and decision making problems. This method
is used by the professionals of various profiles such as finance, project management, energy,
manufacturing, engineering, research & development, insurance, oil & gas, transportation, etc.
This method was first used by scientists working on the atom bomb in 1940. This method can
be used in those situations where we need to make an estimate and uncertain decisions such as
weather forecast predictions.

Monte Carlo Simulation ─ Important Characteristics

Following are the three important characteristics of Monte-Carlo method −

Its output must generate random samples.


Its input distribution must be known.
Its result must be known while performing an experiment.

Monte Carlo Simulation ─ Advantages

Easy to implement.
Provides statistical sampling for numerical experiments using the computer.
Provides approximate solution to mathematical problems.
Can be used for both stochastic and deterministic problems.

Monte Carlo Simulation ─ Disadvantages

Time consuming as there is a need to generate large number of sampling to get the
desired output.
The results of this method are only the approximation of true values, not the exact.

RAVIKANT NIRALA Page 1


Software Project Management (KOE-068)

Monte Carlo Simulation Method ─ Flow Diagram

The following illustration shows a generalized flowchart of Monte Carlo simulation.

RAVIKANT NIRALA Page 2

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