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E-grāmata: Risk, Opportunity, Uncertainty and Other Random Models

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Risk, Opportunity, Uncertainty and Other Random Models (Volume V in the Working Guides to Estimating and Forecasting series) goes part way to debunking the myth that research and development cost are somewhat random, as under certain conditions they can be observed to follow a pattern of behaviour referred to as a Norden-Rayleigh Curve, which unfortunately has to be truncated to stop the myth from becoming a reality! However, there is a practical alternative in relation to a particular form of PERT-Beta Curve.

However, the major emphasis of this volume is the use of Monte Carlo Simulation as a general technique for narrowing down potential outcomes of multiple interacting variables or cost drivers. Perhaps the most common of these in the evaluation of Risk, Opportunity and Uncertainty. The trouble is that many Monte Carlo Simulation tools are ‘black boxes’ and too few estimators and forecasters really appreciate what is happening inside the ‘black box’. This volume aims to resolve that and offers tips into things that might need to be considered to remove some of the uninformed random input that often creates a misinformed misconception of ‘it must be right!’

Monte Carlo Simulation can be used to model variable determine Critical Paths in a schedule, and is key to modelling Waiting Times and cues with random arisings. Supported by a wealth of figures and tables, this is a valuable resource for estimators, engineers, accountants, project risk specialists as well as students of cost engineering.

Recenzijas

"In the Working Guides to Estimating and Forecasting Alan has managed to capture the full spectrum of relevant topics with simple explanations, practical examples and academic rigor, while injecting humour into the narrative." Dale Shermon, Chairman, Society of Cost Analysis and Forecasting (SCAF).

"If estimating has always baffled you, this innovative well illustrated and user friendly book will prove a revelation to its mysteries. To confidently forecast, minimise risk and reduce uncertainty we need full disclosure into the science and art of estimating. Thankfully, and at long last the "Working Guides to Estimating & Forecasting" are exactly that, full of practical examples giving clarity, understanding and validity to the techniques. These are comprehensive step by step guides in understanding the principles of estimating using experientially based models to analyse the most appropriate, repeatable, transparent and credible outcomes. Each of the five volumes affords a valuable tool for both corporate reference and an outstanding practical resource for the teaching and training of this elusive and complex subject. I wish I had access to such a thorough reference when I started in this discipline over 15 years ago, I am looking forward to adding this to my library and using it with my team." - Tracey L Clavell, Head of Estimating & Pricing, BAE Systems Australia

"At last, a comprehensive compendium on these engineering math subjects, essential to both the new and established "cost engineer"! As expected the subjects are presented with the authors usual wit and humour on complex and daunting "mathematically challenging" subjects. As a professional trainer within the MOD Cost Engineering community trying to embed this into my students, I will be recommending this series of books as essential bedtime reading." - Steve Baker, Senior Cost Engineer, DE&S MOD

"Alan has been a highly regarded member of the Cost Estimating and forecasting profession for several years. He is well known for an ability to reduce difficult topics and cost estimating methods down to something that is easily digested. As a master of this communication he would most often be found providing training across the cost estimating and forecasting tools and at all levels of expertise. With this 5-volume set, Working Guides to Estimating and Forecasting, Alan has brought his normal verbal training method into a written form. Within their covers Alan steers away from the usual dry academic script into establishing an almost 1:1 relationship with the reader. For my money a recommendable read for all levels of the Cost Estimating and forecasting profession and those who simply want to understand what is in the blackbox just a bit more." - Prof Robert Mills, Margin Engineering, Birmingham City University. MACOSTE, SCAF, ICEAA.

"Finally, a book to fill the gap in cost estimating and forecasting! Although other publications exist in this field, they tend to be light on detail whilst also failing to cover many of the essential aspects of estimating and forecasting. Jones covers all this and more from both a theoretical and practical point of view, regularly drawing on his considerable experience in the defence industry to provide many practical examples to support his comments. Heavily illustrated throughout, and often presented in a humorous fashion, this is a must read for those who want to understand the importance of cost estimating within the broader field of project management." - Dr Paul Blackwell, Lecturer in Management of Projects, The University of Manchester, UK.

"Alan Jones provides a useful guidebook and navigation aid for those entering the field of estimating as well as an overview for more experienced practitioners. His humorous asides supplement a thorough explanation of techniques to liven up and illuminate an area which has little attention in the literature, yet is the basis of robust project planning and successful delivery. Alans talent for explaining the complicated science and art of estimating in practical terms is testament to his knowledge of the subject and to his experience in teaching and training." - Therese Lawlor-Wright, Principal Lecturer in Project Management at the University of Cumbria

"Alan Jones has created an in depth guide to estimating and forecasting that I have not seen historically. Anyone wishing to improve their awareness in this field should read this and learn from the best." Richard Robinson, Technical Principal for Estimating, Mott MacDonald

"The book series of Working Guides to Estimating and Forecasting is an essential read for students, academics and practitioners who interested in developing a good understanding of cost estimating and forecasting from real-life perspectives". Professor Essam Shehab, Professor of Digital Manufacturing and Head of Cost Engineering, Cranfield University, UK.

"In creating the Working Guides to Estimating and Forecasting, Alan has captured the core approaches and techniques required to deliver robust and reliable estimates in a single series. Some of the concepts can be challenging, however, Alan has delivered them to the reader in a very accessible way that supports lifelong learning. Whether you are an apprentice, academic or a seasoned professional, these working guides will enhance your ability to understand the alternative approaches to generating a well-executed, defensible estimate, increasing your ability to support competitive advantage in your organisation." - Professor Andrew Langridge, Royal Academy of Engineering Visiting Professor in Whole Life Cost Engineering and Cost Data Management, University of Bath, UK.

"Alan Joness "Working Guides to Estimating and Forecasting" provides an excellent guide for all levels of cost estimators from the new to the highly experienced. Not only does he cover the underpinning good practice for the field, his books will take you on a journey from cost estimating basics through to how estimating should be used in manufacturing the future reflecting on a whole life cycle approach. He has written a must-read book for anyone starting cost estimating as well as for those who have been doing estimates for years. Read this book and learn from one of the best." - Linda Newnes, Professor of Cost Engineering, University of Bath, UK.

List of Figures
xiii
List of Tables
xviii
Foreword xxii
1 Introduction and objectives
1(14)
1.1 Why write this book? Who might find it useful? Why five volumes?
1(1)
1.1.1 Why write this series? Who might find it useful?
1(1)
1.1.2 Why five volumes?
2(1)
1.2 Features you'll find in this book and others in this series
2(5)
1.2.1
Chapter context
3(1)
1.2.2 The lighter side (humour)
3(1)
1.2.3 Quotations
3(1)
1.2.4 Definitions
3(1)
1.2.5 Discussions and explanations with a mathematical slant for Formula-philes
4(1)
1.2.6 Discussions and explanations without a mathematical slant for Formula-phobes
5(1)
1.2.7 Caveat augur
6(1)
1.2.8 Worked examples
6(1)
1.2.9 Useful Microsoft Excel functions and facilities
6(1)
1.2.10 References to authoritative sources
7(1)
1.2.11
Chapter reviews
7(1)
1.3 Overview of chapters in this volume
7(1)
1.4 Elsewhere in the `Working Guide to Estimating & Forecasting' series
8(5)
1.4.1 Volume I: Principles, Process and Practice of Professional Number Juggling
9(1)
1.4.2 Volume II: Probability, Statistics and Other Frightening Stuff
10(1)
1.4.3 Volume III: Best Fit Lines and Curves, and Some Mathe-Magical Transformations
11(1)
1.4.4 Volume IV: Learning, Unlearning and Re-Learning Curves
12(1)
1.4.5 Volume V: Risk, Opportunity, Uncertainty and Other Random Models
13(1)
1.5 Final thoughts and musings on this volume and series
13(2)
References
14(1)
2 Norden-Rayleigh Curves for solution development
15(80)
2.1 Norden-Rayleigh Curves: Who, what, where, when and why?
15(15)
2.1.1 Probability Density Function and Cumulative Distribution Function
17(1)
2.1.2 Truncation options
18(3)
2.1.3 How does a Norden-Rayleigh Curve differ from the Rayleigh Distribution?
21(5)
2.1.4 Some practical limitations of the Norden-Rayleigh Curve
26(4)
2.2 Breaking the Norden-Rayleigh `Rules'
30(19)
2.2.1 Additional objectives: Phased development (or the `camelling')
30(1)
2.2.2 Correcting an overly optimistic view of the problem complexity: The Square Rule
31(4)
2.2.3 Schedule slippage due to resource ramp-up delays: The Pro Rata Product Rule
35(1)
2.2.4 Schedule slippage due to premature resource reduction
36(13)
2.3 Beta Distribution: A practical alternative to Norden-Rayleigh
49(8)
2.3.1 PERT-Beta Distribution: A viable alternative to Norden-Rayleigh?
55(1)
2.3.2 Resource profdes with Norden-Rayleigh Curves and Beta Distribution PDFs
56(1)
2.4 Triangular Distribution: Another alternative to Norden-Rayleigh
57(1)
2.5 Truncated Weibull Distributions and their Beta equivalents
58(5)
2.5.1 Truncated Weibull Distributions for solution development
58(3)
2.5.2 General Beta Distributions for solution development
61(2)
2.6 Estimates to Completion with Norden-Rayleigh Curves
63(29)
2.6.1 Guess and Iterate Technique
64(4)
2.6.2 Norden-Rayleigh Curve fitting with Microsoft Excel Solver
68(5)
2.6.3 Linear transformation and regression
73(8)
2.6.4 Exploiting Weibull Distribution's double log linearisation constraint
81(9)
2.6.5 Estimates to Completion -- Review and conclusion
90(2)
2.7
Chapter review
92(3)
References
93(2)
3 Monte Carlo Simulation and other random thoughts
95(88)
3.1 Monte Carlo Simulation: Who, what, why, where, when and how
95(33)
3.1.1 Origins of Monte Carlo Simulation: Myth and mirth
95(1)
3.1.2 Relevance to estimators and planners
96(1)
3.1.3 Key principle: Input variables with an uncertain future
97(4)
3.1.4 Common pitfalls to avoid
101(2)
3.1.5 Is our Monte Carlo output normal?
103(9)
3.1.6 Monte Carlo Simulation: A model of accurate imprecision
112(4)
3.1.7 What if we don't know what the true Input Distribution Functions are?
116(12)
3.2 Monte Carlo Simulation and correlation
128(19)
3.2.1 Independent random uncertain events -- How real is that?
128(3)
3.2.2 Modelling semi-independent uncertain events (bees and hedgehogs)
131(4)
3.2.3 Chain-Linked Correlation models
135(5)
3.2.4 Hub-Linked Correlation models
140(3)
3.2.5 Using a Hub-Linked model to drive a background isometric correlation
143(1)
3.2.6 Which way should we go?
143(3)
3.2.7 A word of warning about negative correlation in Monte Carlo Simulation
146(1)
3.3 Modelling and analysis of Risk, Opportunity and Uncertainty
147(30)
3.3.1 Sorting the wheat from the chaff
149(2)
3.3.2 Modelling Risk Opportunity and Uncertainty in a single model
151(7)
3.3.3 Mitigating Risks, realising Opportunities and contingency planning
158(4)
3.3.4 Getting our Risks, Opportunities and Uncertainties in a tangle
162(3)
3.3.5 Dealing with High Probability Risks
165(1)
3.3.6 Beware of False Prophets: Dealing with Low Probability High Impact Risks
166(4)
3.3.7 Using Risk or Opportunity to model extreme values of Uncertainty
170(1)
3.3.8 Modelling Probabilities of Occurrence
171(3)
3.3.9 Other random techniques for evaluating Risk, Opportunity and Uncertainty
174(3)
3.4 ROU Analysis: Choosing appropriate values with confidence
177(4)
3.4.1 Monte Carlo Risk and Opportunity Analysis is fundamentally flawed!
178(3)
3.5
Chapter review
181(2)
References
182(1)
4 Risk, Opportunity and Uncertainty: A holistic perspective
183(18)
4.1 Top-down Approach to Risk, Opportunity and Uncertainty
183(6)
4.1.1 Top-down metrics
183(2)
4.1.2 Marching Army Technique: Cost-schedule related variability
185(1)
4.1.3 Assumption Uplift Factors: Cost variability independent of schedule variability
186(2)
4.1.4 Lateral Shift Factors: Schedule variability independent of cost variability
188(1)
4.1.5 An integrated Top-down Approach
189(1)
4.2 Bridging into the unknown: Slipping and Sliding Technique
189(7)
4.3 Using an Estimate Maturity Assessment as a guide to ROU maturity
196(2)
4.4
Chapter review
198(3)
References
200(1)
5 Factored Value Technique for Risks and Opportunities
201(6)
5.1 The wrong way
201(2)
5.2 A slightly better way
203(1)
5.3 The best way
204(1)
5.4
Chapter review
205(2)
Reference
206(1)
5 Introduction to Critical Path and Schedule Risk Analysis
207(15)
6.1 What is Critical Path Analysis?
207(3)
6.2 Finding a Critical Path using Binary Activity Paths in Microsoft Excel
210(3)
6.3 Using Binary Paths to find the latest start and finish times, and float
213(2)
6.4 Using a Critical Path to Manage Cost and Schedule
215(3)
6.5 Modelling variable Critical Paths using Monte Carlo Simulation
218(2)
6.6
Chapter review
220(2)
References
221(1)
7 Finally, after a long wait ... Queueing Theory
222(42)
7.1 Types of queues and service discipline
224(3)
7.2 Memoryless queues
227(4)
7.3 Simple single channel queues (M/M/1 and M/G/1)
231(11)
7.3.1 Example of Queueing Theory in action M/M/1 or M/G/1
236(6)
7.4 Multiple channel queues (M/M/c)
242(5)
7.4.1 Example of Queueing Theory in action M/M/c or M/G/c
243(4)
7.5 How do we spot a Poisson Process?
247(10)
7.6 When is Weibull viable?
257(2)
7.7 Can we have a Poisson Process with an increasing/decreasing trend?
259(3)
7.8
Chapter review
262(2)
References
263(1)
Epilogue 264(1)
Glossary of estimating and forecasting terms 265(19)
Legend for Microsoft Excel Worked Example Tables in Creyscale 284(1)
Index 285
Alan R. Jones is Principal Consultant at Estimata Limited, aconsultancy service specialising in Estimating Skills Training. He is a Certified Cost Estimator/Analyst (US) and Certified Cost Engineer (CCE) (UK). Prior to setting up his own business, he enjoyed a 40-year career in the UK aerospace and defence industry as an estimatorAlan is a Fellow of the Association of Cost Engineers and a member of the International Cost Estimating and Analysis Association. Historically (some four decades ago), Alan was a graduate in Mathematics from Imperial College of Science and Technology in London, and was an MBA Prize-winner at the Henley Management College.