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Two Communication Approaches Improve Monte Carlo Simulations


Regular CWF contributor Gustavo Vinueza shares his preference for communicating Monte Carlo Simulations using two approaches.
Regular CWF contributor Gustavo Vinueza shares his preference for communicating Monte Carlo Simulations using two approaches.

In this article, we touch on two different altitudes to understand MCS. At a 30,000-foot view, we focus on the methodology and frameworks of MCS, steering clear of the nitty-gritty calculations and focusing on simple and complete visualizations. As we descend to a 10,000-foot view, we delve into the tactical calculations and practical applications of MCS, showcasing how to address uncertainties and risk events in projects before and after the mitigation phase. This journey offers a well-rounded MCS view, perfect for beginners and experts.

 

A High-Level, 30,000-Foot View

The strategic view gives senior management a simplified, big-picture understanding of the project.


It compares the baseline static timeline and budget estimates to the probabilistic forecasts from the Monte Carlo simulation. The strategic view of senior management focuses on the potential range of outcomes and contingency needed. It also shows some best practices around showing simulation results for C-level teams. 


Simple graphics best convey key messages to senior management.
Simple graphics best convey key messages to senior management.

Example Outcomes of the Strategic View

For the webinar example, the initial insights and recommendations with senior management were:

  • Reaching six years has a high chance of missing the market window

  • Need a strategy for mitigating risk and reducing time and cost variability

  • Explore options like modifying scope, adding team members, hiring experts, insurance, etc.

  • So, not everything is lost! We can still mitigate our risks

Senior management focuses on completing the planning exercise and assuring the funding is in place. The mitigation strategy, well executed, will make the project economics work.

 

A More Detailed, 10,000-foot View

The technical view details how the Monte Carlo analysis was constructed.

The lower-level technical view dives into the components of modeling uncertainty in task durations and costs. It also identifies and quantifies risk events, including mitigation strategies to reduce their impact. This drills down into how the final Monte Carlo results were calculated.


Examples of Outcomes of the Tactical View

The tactical level focuses on mitigating and monitoring risks and high-volatility tasks. A key aspect is to watch the critical path and the critical risks.


In essence, these are the same results presented before, but now with an additional level of complexity, drilled down to understand how they were built up. The framework is very flexible and lets you run scenarios with different risks and variables selected.

 

The Big Takeaway

Senior management is looking for different information than those of us at the technical and project management levels. Keep the discussions and visualizations straightforward for senior management. Save the detailed discussions and visuals for the technical professionals doing the scenario analysis and mitigation.

 

Moving Forward with Monte Carlo Simulations

The webinar and this article advocate starting communications with senior management at the strategic level. Once they grasp the high-level insights, the technical view can provide supplemental technical details on the Monte Carlo simulation process and results for those interested. This caters information to different audiences while demonstrating the value of the analysis.


 

Gustavo "Guz" Vinueza provided the CWF November webinar, "How to Get Senior Management to Understand Monte Carlo Analysis." Guz is also a regular CWF contributor, including his guest article earlier this year "6 Tips That Improve Business Presentations from Dashboard and UX Design."


Guz's day job is as Head of Analytics at Betterfly, a disruptive Insurtech company expanding through Latin America and Europe. He has a range of experience in other technology and programming roles in the financial sector. Guz holds an MBA from the Universidad Torcuato Di Tella in Buenos Aires and a master's in finance from Universidad Adolfo Ibáñez in Santiago. He has published several articles in the Project Management Institute (PMI) and the Association for the Advancement of Cost Engineering (AACE) forums.


 

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