Uncertainty Archives

Four Important Things You Should Know About Monte Carlo Analysis

Monte Carlo analysis is a computer-based method of analysis developed in the 1940s that uses statistical sampling techniques to obtain a probabilistic approximation. Monte Carlo simulation uses thousands of permutations of random variables to generate a probability distribution that can be used to forecast uncertainties and variability. The bottom line is that you may be making reasonable decisions without this type of analysis, but it is nearly certain that you are leaving value on the table if Monte Carlo analysis is not in your toolbox.

[Read more…]

by JD Solomon Leave a Comment

Evaluating Risk: When to Apply a Risk Matrix or Monte Carlo Analysis

I seldom hear anyone criticize the risk matrix in asset management. Such criticism is usually reserved for the risk management community, where the risk matrix remains the favorite punching bag. On the other extreme of analytics, Monte Carlo analysis is seen as the quiet, poorly understood savior of all. As with most things, the truth is somewhere in between. This article briefly describes when to apply a risk matrix and when to opt for Monte Carlo analysis.

[Read more…]

by JD Solomon Leave a Comment

Why Reliability Engineers Should Embrace Monte Carlo Analysis

Monte Carlo analysis, or Monte Carlo simulation, is a technique for forecasting that accounts for uncertainty and variability. As an analytical tool, Monte Carlo analysis forces the project development process to incorporate wider thinking and minimize biases. As a communication tool, Monte Carlo analysis is powerful in showing the probabilities and possibilities and identifying the input parameters that impact a specific project context.

Monte Carlo analysis is now more convenient and affordable than at any point in its 70-year history. The technique provides huge additive value for large and complex projects and capital-intensive programs.

[Read more…]

by JD Solomon Leave a Comment

How the Bottom Fin of the FINESSE Fishbone Diagram Improves Big Decisions

Communicating related to big decisions is a long game. Many presentations involving uncertainties and changing information will be made over months if not years. The FINESSE fishbone diagram provides the seven essential elements for effective communication for big decisions. Playing on the theme of a fish, a fish’s bottom fin provides it with stability. Let’s explore the bottom fin of the FINESSE fishbone diagram.

[Read more…]