Monte Carlo simulation and Social Cost Benefit Analysis

How to Use

SCBA’s are to be made by trained specialists, as they are susceptible to mistakes. Although most people understand the concept of costs and benefits, carrying out a thorough SCBA for a large project is not a simple task. SCBA in combination with Monte Carlo simulation makes the analysis even more complex, because it also requires statistical expertise. This tool may be used by SCBA-specialists with statistical skills or an SCBA-specialist and a statistician working together.

Phased plan process

Performing a Monte Carlo simulation on an existing model or calculation procedure requires the following steps:

  1. Define the uncertainties in the input variables (probability distribution and parameters);
  2. Generate a number of sets of input variables randomly drawn from the predefined probability distributions;
  3. Perform a simulation (model run, calculation) with each of the datasets;
  4. Send the outputs of each simulation to a dataset;
  5. Statistically analyse all outputs in the dataset.

Requirements

The reliability of the results improves with the number of simulations performed. In the example presented in the practical application 10.000 simulations were done. Monte Carlo simulations can be performed with a number of mathematical software packages. Here MatLab was used in combination with an Excel spreadsheet for the SCBA-computations. Other software packages have not been tested when developing this tool description.