Monte Carlo Simulations and Oracle Crystal Ball
According to the sixth edition of the PMBOK® Guide, simulation is the process of using the representation of a system to analyze the behavior or performance of that same system. It involves calculating multiple durations with various sets of assumptions. Simulations are essential because they help in forecasting, decision-making, and risk assessment and management. The most common simulation is the Monte Carlo Analysis, which was developed by Stanislaw Ulam and John Neumann. Funnily enough, the simulation is named after the gambling hot spot, Monaco, since chance and risk are part and parcel of the analysis. Crystal Ball, a software application, has adopted the Monte Carlo Analysis and is an add-in in Excel that helps project managers to forecast the future. This paper will describe my experiences with the Monte Carlo Analysis and Crystal Ball, based on what I watched. Further, it will discuss how Crystal Ball is useful for project management and its benefit to risk assessment.
The Guide describes Monte Carlo Analysis as a risk assessment technique that performs project simulations several times to calculate or generate a string of likely results. My experience with Monte Carlo simulation came when I worked at my father’s jewelry shop. I had to use Microsoft Excel to make an asset price model for the incoming stock. At the end of each day, I would calculate or at least forecast what the next day would be. Asset pricing depends on the drift and a random input that usually represents the market’s volatility. My formula at the shop used to be (Next Day’s Price=Today’s Price× e (Drift+ Random Value). I enjoyed using the simulation as it helped us forecast future prices and manage risks hence making the right decisions.
Mercer (2002) states that a good project manager needs to be skilled in not just planning and estimating but also seeing their project to completion. In real sense, good managers are supposed to be more of seers. Hence, Oracle made it more comfortable and provided Crystal Ball, as an add-in to Excel spreadsheets. It is more of a fine-tuned Monte Carlo Simulation with additional and exemplary features, of course. I watched the OracleCrystalBall video “Introduction to Crystal Ball” and became familiarized with this application and its performance. I realized it was the most straightforward and complete application to perform Monte Carlo simulations, optimization using OptQuest, and forecasting on spreadsheets. I defined a range for some different products in the market, and Crystal Ball performed lots of simulations and projected the results on charts. Impressive isn’t it? I thought as much.
Crystal Ball has features that are necessary for project management, such as progress tracking, checking the workflow, scheduling, risk management, estimating, and project management. These features are the core of project management itself; hence, Crystal Ball would help by performing thousands of simulations once the values are inserted to forecast the necessary results. It would help project managers make better decisions and reduce the risks involved. In terms of risk assessment, Crystal Ball would help identify the risks of a project and do simulations to quantify those risks. Any project manager who incorporates Monte Carlo simulations in their projects and uses Crystal Ball to help in that analysis is already headed for success.
References
Guide, P. M. B. O. K. (2017). A Guide to the Project Management Body of Knowledge. Sixth Edit. Project Management Institute, Inc.
Mercer, E. (2002). A crystal ball, a bottle of whiskey, and a revolver—the essential project management skills for leading a software project. Paper presented at Project Management Institute Annual Seminars & Symposium, San Antonio, TX. Newtown Square, PA: Project Management Institute. Retrieved from https://www.pmi.org/learning/library/pm-skills-leading-software-project-121
OracleCrystalBall. (2012, April 6). Introduction to Crystal Ball [Video file]. Retrieved from https://www.youtube.com/watch?v=dn1Y-a-P1gk&feature=youtu.be