The project sponsor has asked the project manager how much more a P90 will cost. The sponsor has budgeted for a P40. The project values are in thousands. How much additional funding would the sponsor

The correct answer is C. US$913,000. P40 and P90 are percentile values derived from a quantitative risk analysis probability distribution (typically generated by Monte Carlo simulation). P40 means there is a 40% probability the project will be completed at or below that cost; P90 means a 90% probability. The sponsor

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Question

The project sponsor has asked the project manager how much more a P90 will cost. The sponsor has budgeted for a P40. The project values are in thousands. How much additional funding would the sponsor need to budget for a P90?

Exhibit

Options

AUS$9,408,000
BUS$8,495,000
CUS$913,000
DUS$794,000

How the community answered

(26 responses)

A
12% (3)
B
8% (2)
C
77% (20)
D
4% (1)

Explanation

P40 and P90 are percentile values derived from a quantitative risk analysis probability distribution (typically generated by Monte Carlo simulation). P40 means there is a 40% probability the project will be completed at or below that cost; P90 means a 90% probability. The sponsor budgeted at the P40 confidence level and wants to know the additional cost to reach P90 confidence. Reading from the probability distribution curve (with project values in thousands), the P90 value minus the P40 value equals $913 thousand, or US$913,000. The other options represent the actual P40 and P90 values themselves (approximately US$8,495,000 and US$9,408,000), not the difference between them. US$794,000 is a distractor.

Topics

#Probabilistic Cost Estimation#Contingency Reserve#Funding Requirements#Quantitative Risk Analysis

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