Case Studies, Examples & Thought Experiments

Choosing a phone plan (to avoid nasty surprises)

You are faced with a critical decision: which monthly phone plan do I subscribe to for my teenager? You have selected two plans, one from Telstra and the other, Optus, each offering different benefits. This example provides a simple illustration of Monte Carlo analysis at work; defining assumptions, defining forecasts, and using sensitivity analysis.

How much contingency should we allow in our bid?

Your team are estimating the cost of replacing an air filtration system at a manufacturing plant and have prepared a traditional contingency analysis. But concerns remain that a bid of $82 million will significantly reduce your chances of winning the project. How do you find the lowest amount your firm can bid, while remaining confident that there is only a 5% chance of exceeding your estimated costs and losing money on the project? This example discusses how Monte Carlo simulation can aid in minimising the use of contingency, in turn lowering the risk of overestimation that may also lower the chances of a successful bid.

The value of information in uncertainty management

The value of any piece of information is the difference between the expected value of the project (or asset, or portfolio) with the information, and the expected value without it. The document (PDF) located at this link provides thought prompts in the form of a list of nine (9) issues with a significant bearing on the value of information managers use in decision making. There are many more.

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