This exercise will show how you can use Monte Carlo simulation to allocate risk response funds $($from your contingency reserve$)$ in the best possible manner. We have simplified the scenario so it does not take much time, but the reasoning here can be extended to more complex situations.

Consider the following hypothetical project with five activities $($A$,$ B$,$ X$,$ P$,$ and Q$)$ on the critical path. The mean duration and standard deviations are shown for each activity, meaning that the variation in each duration is a normal curve with the mean and standard deviation shown. The variations $($standard deviations$)$ take risk into account. Assume that all other begin$-$end paths in the network diagram are far shorter than the total duration of the critical path $(70).$

You have $$10,000$ to spend on risk responses and are particularly concerned about two risks: R$1$ which could impact the variation in the duration of B and R$2$ which could affect the variation in the duration of P$.$ If you spend the $$10,000$ to mitigate R$1,$ the standard deviation of B would drop from $4$ to $2.$ If you spend the $$10,000$ on R$2,$ the standard deviation of P would drop from $5$ to $3.$ If your goal is to realize the shortest possible schedule, would you spend the $$10,000$ on R$1$ or on R$2?[$Hint: Run two Crystal Ball simulations, one with the $$10,000$ spent on R$1,$ and one with the $$10,000$ spent on R$2.$ Then determine which of the two results in the lower $95\%$ confidence level schedule.$]$ Your justification should clearly explain your rationale for your answer and you should attach the two charts and the EXCEL tab for each simulation.

Activities on Critical Path

Critical Path A B X P Q

Duration $($Mean$)1618131112$

Standard Deviation $34552$