Benefits of Monte Carlo simulation as the extension to the Programe Evaluation and Review Technique

Abstract

Given the complexity and innovation of projects, project managers are increasingly forced to take into account the aspect of risk and uncertainty in project planning. The aim of the article is to compare two project management best planning practices: the Programe Evaluation and Review Technique and Monte Carlo simulation, as well as to present benefits of employment Monte Carlo simulation as the extension to the Programe Evaluation and Review Technique. The research methodology included literature review of strengths and weaknesses of two methods and the analysis of PERT and Monte Carlo simulation results for estimating the budget for the construction project presented in a case study. Automated Monte Carlo simulation was modeled and performed in MS Excel with additional Monte Carlo add-on “@Risk for Excel”. Key findings of the comparative study show better precision and comprehensiveness of Monte Carlo simulation in contrast to ease of use of PERT method. PERT provides better project estimates when used alongside with Monte Carlo simulation.