ABSTRACT
Chapter 4 discussed a simplified manual method of assessing project cost risk.
While the approach described there has some utility, it is far more practical
and in most cases requires less effort to use Monte Carlo software approaches
to estimate cost overrun probability and the amount of contingency required to
reduce the overrun probability to an acceptable level. The software approaches
produce more reliable results than the manual method of Chapter 4. They also
enable the cost engineer to explore alternate project scenarios quickly in order
to determine the optimum solution for virtually any economic decision, some-
thing which is often not practical or feasible with manual methods. The software
provides the cost engineer with an estimate of required contingency to avoid
overruns at any desired probability level, it identifies the required contingency
for each critical project item, and it identifies those items within the estimate
that contribute most significantly to project risk, as well as those that afford
the greatest areas of opportunity.
