Research On Monte Carlo Simulation Application In Project Contingency Estimation

Normally,targets of project management include aspects of cost,schedule,EHS(Environment,Health & Safety)quality,contract,information and coordination for whoever you are in the project,either as client,designer,constructor or supplier.Within these scopes,cost management really accounts because it will have great impact on project and even company revenues.But unfortunately,overspending can be found everywhere.According to some records,even 85% of projects overrun.These overspending may be caused by complex reasons.They may come from parties of client,such as client themselves,designer or end user,from implementation parties,such as constructor,subcontractor or supplier,or from third parties like government,third-party audit or market.They may also be accounted for design miss or fault,for volatile site condition or for outer causes like changes of laws,codes,exchange rate and inflation.However,all these reasons can be included in one word,that is “Risk”.Usually in an estimate,this Risk will be covered in contingency and escalation.In China,contingency is calculated as project cost plus project other cost,and then multiply by a percentage.And this percentage given by the country ranges from projects of different industries.Then,how can we get an exact percentage from the range? Sometimes,this figure will influence an estimate very much as maximum,minimum or medium.Meanwhile,the Risk also differs for projects with different characters,types,regions,or phases,thus the Risk cost will be changed.In order to solve this problem,this thesis tries the way of risk assessment and management.By Monte Carlo simulation,risks will work as a cost and unforeseeable risks will be ranged and included in cost estimate.And the pharmacy project of Project A will be set as an example.In this way,we would like to work out a solution to find a proper and reliable contingency figure for a specific project.We also hope,in this way,cost estimate could be improved for management decision and project could be executed within its proper budget.