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To Monte Carlo or Not to Monte Carlo…. That is the Question!

Author: PRICE® Customer Success Team

Category: White Papers

During cost estimation training events and consulting efforts, the author is often asked about the similarities and differences between two common risk methodologies: Method of Moments and Monte Carlo. These methodologies are used in a number of commercial software tools, such as TruePlanning®, Crystal Ball®, and @Risk®. Cursory observations show that the results are similar. However, a full study of the similarities and differences has not been done with regard to the behavior of these two risk methodologies within a commercial parametric estimating framework such as TruePlanning®.

Independent of the method used, one of the most abstract tasks facing the cost estimator is how to spread risk dollars across a program once the risk analysis has been completed. Programs differ, phases differ, inherent program risks differ; there is no one perfect solution for every situation. The author will examine several risk phasing methodologies to assist the estimator in choosing an appropriate solution.

To Monte Carlo or Not to Monte Carlo….