Measuring Cost Risk Using Monte Carlo Simulation

Description

The objective of this course is to present how to measure the cost risks associated to a building project.

In the first part of the course will be reviewed the fundamentals on risk management. Project objectives will be presented in the context of corporate financial decision. The concept of risk will be defined, and risk management processed will be presented.

In the second part, will be presented how cost risks and usually determined in a good number of organizations. And inconsistencies of this approach will be pointed. Then Monte Carlo analysis will be defined, and its procedure based on recognized best practices will be presented.

In the third part, as sample project summary report will be used as the basis of the Monte Carlo Analysis. Critical cost accounts will be identified, as well as their related risks. Then will followed the creation of a Monte Carlo Model and some preparations required for VBA simulation.

In the last part, mostly in the VBA interface, a sub procedure will be developed to collect the number of iterations from the user, a function defined to calculate the total cost for each iteration and another sub procedure for calculating the parameters for the entire number of iterations. Testing will be done to ensure everything works as expected.

Excel File and VBA Codes can be downloaded in the last lecture

This course is meant for educational purpose only. Please consult a professional if you need to apply this to an actual project.

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