Department of Civil Engineering

Graduate Program
University of Indonesia
25 October 2013
Manajemen Sistem Rekayasa & Nilai - 2013

Simulation Models
1

Iconic
Physical

replicas of real system, reduced scale

Interrelationship of components not well understood or
too complex

Analog
Real

system is modeled through a completely different

physical media

Analytical
System

component and structure defined as

mathematical model

Introduction to Simulation
2

Real situation rarely meet assumptions of analytical

model.
Market uncertainties vs. competitive may make predicting
unit profit very difficult
Rate at which resources are consume may vary
Availability of resources from suppliers may not be assured
Demand almost always uncertain

The more elegant the mathematical formulation of a

problem is, the less it matches reality.
Situations which problem does not meet the assumptions
required by standard analytical modeling approaches,
simulation can be a valuable approach to modeling
and solving a problem.
Evans & Olson, 1998

Simulation Definition
3

Is the process of building a mathematical or logical

model of a system or a decision problem, and
experimenting with the model to obtain insight into
the systems behavior or to assist in solving the
decision problem.
Key elements:
Model

Experiment

Evans & Olson, 1998

Where simulation fits in . . .

4

Programming

Simulation
Analysis
Modeling

Probability
&
Statistics

Examples of Simulation
5

Is used to forecast weather

In business, is used to predict, to explain, to train
and to help identify optimal solution
In manufacturing, is used to model production and
assembly operations, develop realistic production
schedules, study inventory policies, analyze
reliability, quality, and equipment replacement
problems, and design material handling and
logistics system
Finds extensive application in both profit-seeking
service firms and nonprofit service organization
Evans & Olson, 1998

Models and Simulation

6

Model is an abstraction or representation of a real

system, idea, or object
Determine
optimal policy

Linear
Programming

Prescriptive
Describe
relationships and
provide information
for evaluation

Refers to the types

of the variables in
the model
Integer programming
(discrete)
Linear programming
(continuous)

Discrete or
Continuous
Deterministic: all data are
known or assumed to be
known with certainty
Probabilistic: some data
are described by
probability distributions

Model

Deterministic
or
Probabilistic

Descriptive

Queuing
models

Linear programming
(deterministic)
Queuing models
(probabilistic)
Evans & Olson, 1998

Monte Carlo Simulation (MCS)

7

Is basically a sampling experiment whose purpose is to

estimate the distribution of an outcome variable that
depends on several probabilistic input variables
Example in financial problems: sales, costs, and inflation
are random variables
The term MCS was first used during the development of
the atom bomb as a code name for computer
simulations of nuclear fission.
Researchers coined this term because of the similarity to
random sampling in games of chance such as roulette in
the famous casinos of Monte Carlo
Evans & Olson, 1998

Generating Probabilistic Outcomes

8

Random Numbers
One

that is uniformly distributed between 0 and 1

In Excel, =RAND()

Random Numbers Seed

A

value from which a stream of a random numbers at a

later time.
Desirable when we wish reproduce an identical
sequence of random events in a simulation to test the
effects of different policies or decision variables under
the same circumstances

Random Numbers and MCS

9

A random number, Ri, is defined as an independent

random sample drawn from a continuous uniform
distribution whose probability density function (pdf)
is given by
1 0 x 1
f ( x)
0

otherwise

The procedure consists of two steps:

We

develop the cumulative probability distribution

(cdf) for the given random variable, and
We use the cdf to allocate the integer random numbers
directly to the various values of the random variables.

Monte Carlo Simulation

10

Similarity of statistical simulation to game of chance

Result
Solution

Random
sampling
Probability
Distribution
function

Equations:
algebraic or
differential

Monte Carlo
simulation
Physical System

MONTE CARLO SIMULATIONS (1)

11

Similar to Playing Coins or Dice Many Times

MONTE CARLO SIMULATIONS (2a)

12

Generating
Random
Numbers
between 0
and 1
Calculating x
Using CDF

MONTE CARLO SIMULATIONS (2b)

13

RV = 0 1
x = A + RV*(B-A)

1
RV

MONTE CARLO SIMULATIONS (3)

14
0.382
0.88461
0.863247
0.03238
0.285043
0.371838
0.42616
0.991241
0.705039
0.300211
0.074343
0.487045
0.040712
0.100314
0.809107
0.756157
0.552324
0.970275
0.805658
0.114841
0.986297
0.500778
0.037965
0.584521
0.200476
0.300211
0.90405
0.516648
0.789026
0.619404

0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9

MONTE CARLO SIMULATIONS (4)

15

Normal Distribution
Mean = 5, SD = 1
1.0
0.9
0.8
0.7
0.6

CDF

0.382
0.88461
0.863247
0.03238
0.285043
0.371838
0.42616
0.991241
0.705039
0.300211
0.074343
0.487045
0.040712
0.100314
0.809107
0.756157
0.552324
0.970275
0.805658
0.114841
0.986297
0.500778
0.037965
0.584521
0.200476
0.300211
0.90405
0.516648
0.789026
0.619404

0.5
0.4
0.3
0.2
0.1
0.0
0

6
x

10

12

0.382
0.88461
0.863247
0.03238
0.285043
0.371838
0.42616
0.991241
0.705039
0.300211
0.074343
0.487045
0.040712
0.100314
0.809107
0.756157
0.552324
0.970275
0.805658
0.114841
0.986297
0.500778
0.037965
0.584521
0.200476
0.300211
0.90405
0.516648
0.789026
0.619404

4.699768
6.19835
6.095023
3.153089
4.432075
4.673009
4.813842
7.375655
5.538948
4.476205
3.555813
4.967521
3.257517
3.720236
5.874609
5.693994
5.131536
6.884846
5.862008
3.798821
7.205688
5.001951
3.225194
5.213473
4.160078
4.476205
6.304979
5.041741
5.803045
5.303914

MONTE CARLO SIMULATIONS (5)

16

Bins

7.
25

6.
75

6.
25

5.
75

5.
25

4.
75

4.
25

Frequency

3.
75

4.699768
6.19835
6.095023
3.153089
4.432075
4.673009
4.813842
7.375655
5.538948
4.476205
3.555813
4.967521
3.257517
3.720236
5.874609
5.693994
5.131536
6.884846
5.862008
3.798821
7.205688
5.001951
3.225194
5.213473
4.160078
4.476205
6.304979
5.041741
5.803045
5.303914

3.
25

0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9

0.382
0.88461
0.863247
0.03238
0.285043
0.371838
0.42616
0.991241
0.705039
0.300211
0.074343
0.487045
0.040712
0.100314
0.809107
0.756157
0.552324
0.970275
0.805658
0.114841
0.986297
0.500778
0.037965
0.584521
0.200476
0.300211
0.90405
0.516648
0.789026
0.619404

USING MS-EXCEL 2003

USING MS-EXCEL (1)

18

USING MS-EXCEL (2)

19

USING MS-EXCEL (3)

20

USING MS-EXCEL (4)

21

USING MS-EXCEL (5)

22

USING MS-EXCEL 2007

Using MS-EXCEL (1)

24

Showing Up Data Analysis

25

Showing Up Data Analysis

26

Showing Up Data Analysis

27

Showing Up Data Analysis

28

Using MS-EXCEL (2)

29

Using MS-EXCEL (3)

30

Using MS-EXCEL (4)

31

Using MS-EXCEL (5)

32

SIMPLE PROBABILISTIC

SIMPLE EXAMPLE: DICE

34

2 Dice: A = Die #1 + Die #2

SIMULATIONS: 2 DICE
A = (Die No. 1 + Die No.2)
A<7
SIMULATIONS

THEORETICAL CALCULATION

RV1
Die No. 1
0.136265
1
0.19541
2
0.85876
6
0.637135
4
0.578234
4
0.409223
3
0.611133
4
0.188238
2
0.508499
4
0.091098
1
0.737358
5
0.056459
1
0.363964
3
0.243812
2
0.895169
6
0.85638
6
0.934294
6

RV2
Die No. 2
0.306009
2
0.600391
4
0.085177
1
0.079897
1
0.735679
5
0.141881
1
0.920103
6
0.262886
2
0.542375
4
0.106479
1
0.328867
2
0.003571
1
0.403638
3
0.380444
3
0.389203
3
0.915036
6
0.063875
1

No. Samples =
Total Samples =
p=
p=

A = 12

60
100
0.6
7/12
0.5833
A<7

A
3
6
7
5
9
4
10
4
8
2
7
2
6
5
9
12
7

3
100
0.03
1/36
0.0278
A = 12

1
1
1
1
0
1
0
1
0
1
1
1
1
1
0
0
1

0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
0

25

Frequency

20

15
Die No. 1
Die No. 2
10

0
1

Value of Die

SIMPLE EXAMPLE: DICE

37

RV1 = 0.136265 0 < RV1 < 1/6 Value of

Die #1 = 1
RV2 = 0.306009 1/6 < RV2 < 2/6 Value of
Die #2 = 2
A = Value of Die #1 + Value of Die #2 = 1 + 2 =
3
A 7? True 1
A = 12? False 0

SIMPLE EXAMPLE: DICE

38

Same process repeated for 100 times (see Total

Samples = 100)
From 100 samples 60 samples satisfy A 7?
p = 60 / 100 = 0.6 (theoretical p = 0.5833)
From 100 samples 3 samples satisfy A = 12?
p = 3/100 = 0.03 (theoretical p = 0.0278)

HOW MANY SAMPLES (1)

39

0.9

0.7

Probability A = 12

Probability A <7

0.8

0.6
0.5
0.4
0.3

0.1

0.2
0.1
0

0.01
1

10

100
No. Samples

1000

10000

10

100
No. Samples

1000

10000

HOW MANY SAMPLES (2)

40

Total No. Samples >

10 (1 / Probability)
More Samples
Better Typically

Probability

Rule of Thumb:
As a Minimum =
10 Samples Meeting
Criterion

0.1

0.01
1

10

100

1000

No. Sample Meeting Criterion

10000

ENGINEERING ECONOMY

Benefit / Cost Ratio

42

Initial Investment*
Annual Maintenance
Total

Design A
(4,074,088)
(1,500,000)
(5,574,088)

Design B
(426,209)
(150,000)
(576,209)

Annual Benefits

6,500,000

650,000

Benefit/Cost Ratio

1.17

1.13

Both Alternatives Economically Feasible

* Note:
Initial Investment = (40,000,000)
i=
8%
n=
20
Annual Worth = (4,074,088)

(4,000,000)
4%
12
(426,209)

Initial
Rate
Investment
Min = 36000000 6.00%
Max = 44000000 10.00%

0.382
0.014
0.032
0.554
0.426
0.952
0.3
0.064
0.041
0.776
0.756
0.555
0.806
0.762
0.501
0.672

0.101
0.407
0.164
0.357
0.304
0.053
0.75
0.358
0.231
0.68
0.627
0.181
0.262
0.738
0.675
0.732

0.596
0.863
0.22
0.372
0.976
0.705
0.351
0.487
0.005
0.809
0.174
0.97
0.178
0.986
0.49
0.585

Annual
Worth

Annual
Maintenance
1350000
1650000

Annual
Cost

Annual
Benefit
5850000
7150000

B/C Ratio

Prob of Failure
0.06

Average = 39975895
Min = 36113773
Max = 43923582

8.02%
6.02%
9.90%

4086120
3187186
4978663

1510867
1351492
1647977

5596987
4642614
6504055

6571531
5860633
7148334

1.183707
0.906326
1.481975

0.899
0.139
0.017
0.356
0.807
0.817
0.776
0.511
0.926
0.724
0.405
0.687
0.867
0.926
0.146
0.152

6.40%
7.63%
6.66%
7.43%
7.22%
6.21%
9.00%
7.43%
6.92%
8.72%
8.51%
6.72%
7.05%
8.95%
8.70%
8.93%

3517241
3577709
3331766
3944536
3782525
3868671
4207016
3563465
3408363
4531116
4445346
3736059
4021760
4595839
4289219
4508568

1528945
1608974
1415883
1461551
1642712
1561512
1455445
1496113
1351492
1592732
1402095
1641082
1403386
1645889
1496947
1525356

5046186
5186683
4747649
5406087
5425238
5430182
5662461
5059579
4759855
6123848
5847441
5377141
5425146
6241728
5786166
6033924

7018838
6030160
5872217
6312282
6898665
6911480
6858356
6514580
7053989
6791624
6376237
6743023
6976783
7053275
6039523
6047894

1.390919
1.162623
1.236868
1.167625
1.271588
1.27279
1.211197
1.287574
1.481975
1.109045
1.090432
1.254016
1.286008
1.13002
1.043787
1.002315

39056001
36115970
36259041
40429090
39409284
43613514
38401685
36512467
36325694
42205512
42049257
40441298
42445265
42092471
40006226
41372478

0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

Benefit / Cost Ratio (line1)

44

RV1 = 0.382 Initial Investment = 36M + RV1*8M =

39.1M
RV2 = 0.101 Rate = 6% + RV2*4% = 6.4%
Annual Worth = PMT(Rate,20,-Initial Investment) = 3.52M
RV3 = 0.596 Annual Maintenance = 1.35M +
RV3*0.3M = 1.53M
Annual Cost = 3.52M + 1.53M = 5.05M
RV4 = 0.899 Annual Benefit = 5.85M + RV4*1.3M =
7.02M
B/C Ratio = 7.02M / 5.05M = 1.39
B/C Ratio > 1.0 Not fail = 0

Benefit / Cost Ratio

45

Same process repeated for 100 times (see Total

Samples = 100)
Simulation: B/C Ratio = 1.18
Theoretical: B/C Ratio = 1.17
From 100 samples 6 samples do not satisfy
B/C Ratio 1.0 probability of failure = 6 /
100 = 0.06

RISK ASSESSMENT

Series Networks
47

If either one of A, B, or C fails, system fails

R
= 0.8521 0.9712 0.9357 = 0.7743
Pf
= 1 0.7743 = 0.2257

1
2
3
4
5
6
7
8

A
B
C

Reliability
0.8521
0.9712
0.9357

Probability of Failure
0.1479
0.0288
0.0643

Probability
0.7743
0.0532
0.0230
0.1344
0.0016
0.0092
0.0040
0.0003

Sum
0.7743

0.2257

SIMULATIONS: SERIES SYSTEM

SIMULATIONS

THEORETICAL

RV1
0.136265
0.19541
0.85876
0.637135
0.578234
0.409223
0.611133
0.188238
0.508499
0.091098
0.737358
0.056459
0.363964
0.243812
0.895169
0.85638
0.934294

RV2
0.306009
0.600391
0.085177
0.079897
0.735679
0.141881
0.920103
0.262886
0.542375
0.106479
0.328867
0.003571
0.403638
0.380444
0.389203
0.915036
0.063875

No. Samples =
Total Samples =
p=
p=

RV3
0.382
0.100681
0.596484
0.899106
0.88461
0.958464
0.014496
0.407422
0.863247
0.138585
0.245033
0.045473
0.03238
0.164129
0.219611
0.01709
0.285043

A
88
100
0.88
0.8521

As Scheduled
B
C
99
92
100
100
0.99
0.92
0.9712
0.9357

A
1
1
0
1
1
1
1
1
1
1
1
1
1
1
0
0
0

As Scheduled
B
C
1
1
1
1
1
1
1
1
1
1
1
0
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1

System
79
100
0.79
0.7743

System
3
3
2
3
3
2
3
3
3
3
3
3
3
3
2
2
2

1
1
0
1
1
0
1
1
1
1
1
1
1
1
0
0
0

Series Networks (line1)

49

RV1 = 0.136265 RV1 < Reliability of A =

0.8521 A is reliable A = 1
RV2 = 0.306009 RV2 < Reliability of B =
0.9712 B is reliable B = 1
RV3 = 0.382 RV3 < Reliability of C =
0.9357 C is reliable C = 1
Sum of A, B, C = 3 all subsystems reliable
series system network works = 1

Series Networks (line3)

50

RV1 = 0.85876 RV1 > Reliability of A =

0.8521 A is not reliable A = 0
RV2 = 0.085177 RV2 < Reliability of B =
0.9712 B is reliable B = 1
RV3 = 0.596484 RV3 < Reliability of C =
0.9357 C is reliable C = 1
Sum of A, B, C = 2 NOT all subsystems
reliable series system network fails = 0

Series Networks
51

Same process repeated for 100 times (see Total

Samples = 100)
From 100 samples 79 samples satisfy series
system network requirement p = 79 / 100 =
0.79 (theoretical p = 0.7743)

Parallel Networks
52

If both A and B fail, system fails

Rcomponent
= 0.7500
Rsystem
= 0.9375

1
2
3
4

A
B

Reliability
0.7500
0.7500

Probability of Failure
0.2500
0.2500

Probability
0.5625
0.1875
0.1875
0.0625

Sum
0.9375
0.0625

0.141881 0.958464
SIMULATIONS:
PARALLEL
SYSTEM
0.920103
0.014496
0.262886 0.407422
0.542375 0.863247
SIMULATIONS
No. Samples =
0.106479 0.138585
Total Samples =
0.328867 0.245033
p=
0.003571 0.045473
0.403638 0.03238
THEORETICAL
p=
0.380444 0.164129
0.389203 0.219611
RV1
RV2
0.915036
0.01709
0.306009
0.382
0.063875 0.285043
0.600391
0.703116 0.100681
0.343089
0.085177
0.107089 0.596484
0.553636
0.079897
0.215461 0.899106
0.357372
0.735679
0.88461
0.963591 0.371838
0.141881
0.327219 0.958464
0.355602
0.920103
0.358287 0.014496
0.910306
0.262886
0.200842 0.407422
0.466018
0.542375
0.492874 0.863247
0.42616
0.106479
0.303873 0.138585
0.303903
0.328867
0.454756 0.245033
0.975707
0.003571
0.34257 0.045473
0.806665
0.403638
0.03238
0.870815 0.991241
0.380444 0.256264
0.164129
0.392895

1
0
1
A
1
79
1
100
1
0.79
1
1
0.75
1
1
A
0
1
1
1
1
1
0
1
0
1
1
1
1
1
1
1
0
1

0
1
1
B
0
72
1
100
1
0.72
1
1
0.75
1
1
B
1
1
1
1
0
1
0
1
0
1
1
0
1
0
1
1
1
0
1
0
1
0
1

1
0
1
0
2
0
1 System 0
8
2
0
100
2
0
0.08
2
0
0.9200
2
0
0.9375
2
0
2
0
1 System 0
2
0
2
0
2
0
1
0
2
1
0
1
0
2
1
0
2
0
1
0
2
2
0
2
0
1
2
0
1
2
0
0
1
0
2

Parallel Networks (line1)

54

RV1 = 0.306009 RV1 < Reliability of A =

0.7500 A is reliable A = 1
RV2 = 0.382 RV2 < Reliability of B = 0.7500
B is reliable B = 1
Sum of A, B = 2 NOT all subsystems
unreliable parallel system network works =
0

Parallel Networks (line4)

55

RV1 = 0.079897 RV1 < Reliability of A =

0.7500 A is reliable A = 1
RV2 = 0.899106 RV2 < Reliability of B =
0.7500 B is not reliable B = 0
Sum of A, B = 1 NOT all subsystems
unreliable parallel system network works =
0

Parallel Networks (line?)

56

RV1 = 0.870815 RV1 < Reliability of A =

0.7500 A is not reliable A = 0
RV2 = 0.991241 RV2 < Reliability of B =
0.7500 B is not reliable B = 0
Sum of A, B = 0 all subsystems unreliable
parallel system network fails = 1

Parallel Networks
57

Same process repeated for 100 times (see Total

Samples = 100)
From 100 samples 8 samples fails parallel
system network requirement probability of
failure = 8 / 100 = 0.08 reliability = 1
0.08 = 0.92 (theoretical reliability = 0.9375)

Load, F

sQ
Capacity, Q

sF
Load, F

sQ
Capacity, Q

mF

mF
bability Density Function

Probability Density Function

sF

mQ

Reliability Index = mM/sM

= (mQ-mF)/(sQ2+sF2)0.5
sM

Probability Density Function

Probability Density Function

Probability of Failure

mQ

Reliability Index = mM/sM

= (mQ-mF)/(sQ2+sF2)0.5
sM

pf
mM
Safety Margin, M = Q - F

Probability of Failure (2)

59

C: C = 30 C = 6
D:D = 20 D = 6
M=CD
M = 10

M = 8.49

= M / M = 10 / 8.49
= 1.18 probability of failure = 0.1193

0.863247
0.03238
0.285043
0.371838
600.42616
0.991241
0.705039
0.300211
0.074343
0.487045
0.040712
0.100314
0.809107
0.382
0.756157
0.88461
0.552324
0.863247
0.970275
0.03238
0.805658
0.285043
0.114841
0.371838
0.986297
0.42616
0.500778
0.991241
0.037965
0.705039

0.138585
0.164129
0.343089
0.355602
0.303903
0.256264
0.816523
0.750206
0.198431
0.511216
0.23072
0.256691
0.724326
0.100681
0.626514
0.958464
0.711509
0.138585
0.686941
0.164129
0.262215
0.343089
0.059511
0.355602
0.925596
0.303903
0.674978
0.256264
0.796258
0.816523

36.57014
18.91853
26.59245
C28.03806
30
28.88305
6
44.25393
0.2
33.23369
26.85723
30.09954
21.33488
6.015097
29.80512
0.19984
19.5451
22.32142
35.24765
28.19861
34.16397
37.1901
30.78921
36.57014
41.30908
18.91853
35.17205
26.59245
22.79293
28.03806
43.23413
28.88305
30.01171
44.25393
19.35116
33.23369

13.4798
14.13422
17.57571
D17.77856
20
16.92076
6
16.07056
0.3
25.41315
24.05083
19.78092
14.91657
6.007956
20.1687
0.303725
15.58114
16.07852
23.57445
12.3339
21.93582
30.3988
23.34679
13.4798
22.92319
14.13422
16.18081
17.57571
10.64665
17.77856
28.66253
16.92076
22.72221
16.07056
24.96999
25.41315

Probability of Failure (3)

mean
stdev
COV
mean
stdev
COV

23.09034
4.784312
9.016736
M 10.2595
=C-D
10
11.9623
8.485281
28.18337
0.848528
7.820541
2.806399
10.31861
6.418305
8.722103
9.636423
0.845279
3.963966
6.242898
11.6732
15.86471
12.22815
6.791303
7.442428
23.09034
18.38589
4.784312
18.99124
9.016736
12.14628
10.2595
14.5716
11.9623
7.289497
28.18337
-5.618825
7.820541

0
0
0
0
0
0
0
0
0.115
0
0
1.20036
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
0

Probability of Failure (line1)

61

RV1 = 0.382 C = NORMINV(RV1,meanC,stdev-C) = 28.19861

RV2 = 0.100681 D = NORMINV(RV2,meanD,stdev-D) = 12.3339
M = C D = 15.86471 > 0 M NOT fails
=0

Probability of Failure (line?)

62

RV1 = 0.038965 C = NORMINV(RV1,meanC,stdev-C) = 19.35116

RV2 = 0.796258 D = NORMINV(RV2,meanD,stdev-D) = 24.96999
M = C D = -5.618825 < 0 M fails = 1

Probability of Failure (4)

63

Same process repeated for 1000 times

C: C = 30
C = 6
(theoretical)
C: C = 30.1 C = 6.0
(simulation)
D: D = 20
D = 6
(theoretical)
D: D = 19.8 D = 6.0
(simulation)
M: M = 10
M = 8.49
(theoretical)
M: M = 10.3 M = 8.72
(simulation)

Probability of Failure (5)

64

Same process repeated for 1000 times

Theoretical: 0.1193 = 1.18
Simulation: From 1000 samples 115 samples
fail probability of failure = 115 / 1000 =
0.115 = 1.20036

Probability of Failure (6)

300

300

250

250
Frequency

350

200
150

200
150

100

100

50

50

0
5

15

25

35
C

45

55

65

15

250

200

Frequency

Frequency

65

350

150

100

50

0
-20

-10

10

20

M=D-C

30

40

50

25

35
D

45

55

65

Risk Calculation
Risk Calculation (B)
Pipeline:
PDF

uniform distribution w. range between 22 and 34

PDF Max value = 1 / (34 22) = 0.0833
Total area of PDF = total prob = 1

Risk Calculation (B)

18

20

22

24

26

28

30

32

34

36

38 t

12,000,000

t > 28
penalty
1,000,000
per day

10,000,000

8,000,000

Penalty

Prob. t > 28 = p(t > 28) = 1/2

6,000,000

4,000,000

2,000,000

18

20

22

24

26

28

30

Duration (day)

32

34

36

38

Risk Calculation
67

f(t) = 0.0833
C(t) = 1,000,000 (t-28)
34
Risk = 28 f(t) C(t) dt
34
Risk = 28 (0.0833)[1,000,000 (t-28)] dt
2
34
Risk = (41,667 t 2,333,333 t) |28
Risk = -31,166,667 -32,666,667
Risk = 1,500,000

SIMULATIONS: RISK ASSESSMENT

SIMULATIONS

No. Samples =
Total Samples =
p=

THEORETICAL

p=

RISK

Average =

Fail?
1482
3000
0.494

Penalty

0.5
1469726.9

Min = 22.01941
Max = 33.99854
Mean = 27.96697

RV1A
0.148473
0.037507
0.300363
0.074923

Days
23.78167
22.45009
25.60436
22.89908

Fail?
0
0
0
0

Penalty
0.0
0.0
0.0
0.0

SIMULATIONS: RISK ASSESSMENT

SIMULATIONS

Fail?
No. Samples =
1559
Total Samples =
3000
p = 0.519667

THEORETICAL

p=

RISK

Average =

Penalty

0.5
1522088.3

Min = 22.00183
Max = 33.99268
Mean = 28.11062

RV1B
Days
0.352824 26.23389
0.974761 33.69713
0.949675 33.3961
0.908567 32.9028

Fail?
0
1
1
1

Penalty
0.0
5697134.3
5396099.7
4902798.5

RV1A

RV1B

1003427
1233486
1323745
1448791
1440903
1444841
1468108
1478144
1469727

1818366
1782784
1629570
1545574
1508369
1545439
1555730
1523507
1522088

2000000

1500000

Risk

No.
Samples
50
100
250
500
1000
1500
2000
2500
3000

1000000

500000

0
0

1000

2000

No. Samples

3000

EFFECT OF R.V. SETS

71

2000000

1500000

Risk

Small number
RV RV1B
No. of RV1A
Samples
effect of
RV
sets may be
50 1003427 1818366
significant100 1233486 1782784
250 1323745 1629570
Large number
RV 1545574
500of1448791
1440903 1508369
effect of 1000
RV
sets
not
1500 1444841 1545439
significant2000 1468108 1555730
2500 1478144 1523507
3000 1469727 1522088

Number of RV should
sufficient to ensure the
effect of RV sets
insignificant

1000000

500000

0
0

1000

2000

No. Samples

3000

DECISION MAKING

DECISION MAKING (1)

73

Tornado Diagram
Cost of CM1
Cost of CM2
Probability of Successful CM2
Cost of Unsuccessful CM2
Decision to Make:
Constr. Method 1 or
Constr. Method 2

= -75 -125
= -50 -110
= 0.5 0.7
= -20 -50

Method 1; -100m

Method 2;
-80m

A = Constr.Method 1
= Constr.Method 2
E = Successful; = Unsuccessful
L = Cost

Successful; 0
p = 0.6

[-100]
[-80]
[0.6]
[-35]
-100m
-80m
[= (-80m)
+ 0]

Unsuccessful; -35m
-115m
p = 0.4
[= (-80m)
+ (-35m)]

DECISION MAKING (2)

74

Choose Branch with Highest Value at a Decision Node:

CM1: E(LA) = -100m CM2: E(L) = -94m
E(LA) < E(L) Do Constr. Method 2
Decision to Make:
Constr. Method 1 or
Constr. Method 2

CM1: E(LA) = -100m

CM2: E(L) = -94m

A = Constr.Method 1
= Constr.Method 2
E = Successful; = Unsuccessful
L = Cost

DECISION MAKING (3)

Tornado Diagram

75

Decision to Make:
Constr. Method 1 or
Constr. Method 2

Method 1; -100m

Method 2;
-80m

A = Constr.Method 1
= Constr.Method 2
E = Successful; = Unsuccessful
L = Cost

Successful; 0
p = 0.6

-100m
-80m
[= (-80m)
+ 0]

Unsuccessful; -35m
-115m
p = 0.4
[= (-80m)
+ (-35m)]

DECISION MAKING (4)

Simulations

76

UPPER BRANCH Cost of CM2 Prob of Successful

MINIMUM
Cost of CM1
Losses When Unsucc. LOWER BRANCH
Min =
75
50
20
0.5
Max =
125
110
50
0.7
Average = 100.95
Min = 76.506
Max = 124.89

0.382
0.885
0.863
0.032
0.285
0.372
0.426
0.991
0.705
0.3
0.074
0.487
0.041
0.1

0.101
0.958
0.139
0.164
0.343
0.356
0.304
0.256
0.817
0.75
0.198
0.511
0.231
0.257

0.596
0.014
0.245
0.22
0.554
0.91
0.976
0.952
0.973
0.351
0.064
0.373
0.005
0.776

0.899
0.407
0.045
0.017
0.357
0.466
0.807
0.053
0.466
0.776
0.358
0.986
0.926
0.68

94.1
119.23
118.16
76.619
89.252
93.592
96.308
124.56
110.25
90.011
78.717
99.352
77.036
80.016

81.657 35.546 0.6032 95.725

51.54 20.149 0.5006 64.038
109.41 49.713 0.6972 127.67

89.05
64.038
123.96

56.041
107.51
58.315
59.848
70.585
71.336
68.234
65.376
98.991
95.012
61.906
80.673
63.843
65.401

68.174
116.06
71.742
73.051
86.273
90.581
84.921
89.132
110.25
90.011
71.296
90.122
70.186
80.016

37.895
20.435
27.351
26.588
36.609
47.309
49.271
48.551
49.175
30.544
21.922
31.204
20.149
43.271

0.6798
0.5815
0.5091
0.5034
0.5715
0.5932
0.6613
0.5107
0.5933
0.6551
0.5717
0.6972
0.6852
0.6359

68.174
116.06
71.742
73.051
86.273
90.581
84.921
89.132
118.99
105.55
71.296
90.122
70.186
81.155

Prob of "CM2" =
0.62

CM2
CM2
CM2
CM2
CM2
CM2
CM2
CM2
CM1
CM1
CM2
CM2
CM2
CM1

1
1
1
1
1
1
1
1
0
0
1
1
1
0

DECISION MAKING (line1)

77

RV1 = 0.382 Cost CM1 = 75 + 50*RV1 =

94.1 A = 94.1
RV2 = 0.101 Cost CM2 = 50 + 60*RV2 =
56.0
RV3 = 0.596 Cost Unscful.CM2 = 20 + 30*RV3
= 37.9
RV4 = 0.899 Prob.Scful.CM2 = 0.5 + 0.2*RV4
= 0.68
= Cost CM2*Prob.Scful.CM2 + (1Prob.Scful.CM2)*(Cost CM2+ Cost Unscful.CM2) =
68.2
A greater than choose CM2

DECISION MAKING (5)

Frequency

18
16

12
10
8
6
4
2

95
10
0
10
5
11
0
11
5
12
0
12
5

90

85

80

75

70

65

No. Samples

14

Minimum Cost

DECISION MAKING (6)

79

Same process repeated for 100 times

From 100 samples 62 samples result in CM2
probability of CM2 is better option = 62 /
100 = 0.62

ETC.