For mega-construction projects, organizations usually borrow money – because, of course, most organizations don’t have a few billion dollars sitting around. If you’re going to borrow money, it’s important to know how much money you will need to borrow and when you’ll need to borrow it.
Project management in the construction industry creates plans in advance to try to forecast how much money the project is going to cost and how long it’s going to take. Deterministic plans have a single price and a single date at the end of the process of planning.
However, everybody knows that things don’t always turn out exactly as the deterministic schedule forecasts. Wouldn’t it be nice to have a tool that could calculate the probability of completing on the deterministic date, as a percentage of a particular budget or a particular schedule? That is what running a Monte Carlo or Latin Hypercube risk analysis on your schedule and your budget accomplishes.
Risk assessment gives you the percentage probability for completing your schedule by a certain date and in a certain cost range. This means that you can more accurately and efficiently borrow money to support your project. This can save you a tremendous amount of money, because you don’t pay interest on the money you borrowed too early, and you don’t get in a cash flow crunch if you borrowed too late.
Let’s say you have a three-year, three billion dollar project and your deterministic schedule says you’re going to finish on October 1st, but the statistical analysis says that the probability to finish by that date is 50%. You’re probably going to want to borrow the last billion dollars a little later than you would otherwise.
Risk assessment can be more efficient when you employ these tremendous tools, which can easily swing projects from red to black.