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The beta-PERT Distribution

The document discusses the beta-PERT distribution and how it can be used to model expert estimates in project planning. The beta-PERT distribution is similar to a normal distribution and places more emphasis on values near the most likely estimate than the minimum and maximum. It can be used in Monte Carlo simulations to identify risks. The document provides examples of how to generate the beta-PERT distribution in Excel using the RiskAMP add-in.

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Tanada Nidaul Fitriya
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23 views

The beta-PERT Distribution

The document discusses the beta-PERT distribution and how it can be used to model expert estimates in project planning. The beta-PERT distribution is similar to a normal distribution and places more emphasis on values near the most likely estimate than the minimum and maximum. It can be used in Monte Carlo simulations to identify risks. The document provides examples of how to generate the beta-PERT distribution in Excel using the RiskAMP add-in.

Uploaded by

Tanada Nidaul Fitriya
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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The beta-PERT Distribution

The beta-PERT distribution (from here on, I’ll refer to it as just the PERT
distribution) is a useful tool for modeling expert data. When used in a
Monte Carlo simulation, the PERT distribution can be used to identify risks
in project and cost models based on the likelihood of meeting targets and
goals across any number of project components.
As with any probability distribution, the usefulness of the PERT
distribution is limited by the quality of the inputs: the better your expert
estimates, the better results you can derive from a simulation.
This article describes the PERT distribution, how to use it, and its use
within a Monte Carlo simulation. An additional discussion at the end
describes the mathematical basis for the distribution, but an understanding
of the math is not required to use the PERT distribution in your models.

 Modeling Expert Data


In project or cost planning, you often receive estimates of expected time,
cost, or other variables. To construct probability models (like Monte Carlo
simulations), you will need a range of estimates – a minimum and
maximum value, and if possible, a “most likely” value as well. These
estimates are used to construct a probability distribution, and then a Monte
Carlo simulation can be run based on samples from that distribution. (For a
more general overview of Monte Carlo and probability simulations, see the
whitepapers available on our library page).
When you have a range of estimates available, there are several different
ways you can model the distribution to generate sample values. The three
we discuss below are the uniform distribution, the triangular distribution,
and the PERT distribution.
 The Uniform Distribution
The uniform distribution is the simplest possible distribution for sampling a
range of estimates. In this model, every value – from the minimum to the
maximum – is equally likely.
Using the uniform distribution is useful in situations in which you have a
minimum and maximum estimate available, but no other information. It’s
easy to see that most real-world situations don’t fall into this model, and in
many cases it’s possible to get an additional estimate of the expected, or
most likely, value. If you can get a most likely estimate in addition to the
minimum and maximum, you can use the additional information to create a
more realistic probability model.

 The Triangular Distribution


If you have a “most likely” estimate in addition to the minimum and
maximum estimates, you can use this additional information to construct a
probability distribution that favors the most likely value. The simplest
distribution taking this into account is the triangular distribution – simply
put, the distribution resembles a triangle with the most likely value (referred
to as the mode) at the point of the triangle.

Examples of the triangular distribution: symmetrical and asymmetrical. The


triangular distribution emphasizes the most likely result.
Unlike a uniform distribution, the triangular distribution emphasizes the
most likely value, which should theoretically provide a better estimate of
the probabilities of reaching other values. There is no requirement that the
distribution be symmetrical about the mean; depending on the estimates you
have for minimum, maximum, and most likely, the shape of the triangle
may be skewed to the left (minimum) or right (maximum) values. In this
way, the triangular distribution can model a variety of different
circumstances.
However, by using a strict triangular shape about the mode, the triangular
distribution may place too much emphasis on the most likely value, at the
expense of the values to either side. The triangular distribution is useful in
that it is easy to calculate and generate, but it is limited in its ability to
model real-world estimates.

 The PERT Distribution


The PERT distribution also uses the most likely value, but it is designed to
generate a distribution that more closely resembles realistic probability
distribution. Depending on the values provided, the PERT distribution can
provide a close fit to the normal or lognormal distributions.
Like the triangular distribution, the PERT distribution emphasizes the
“most likely” value over the minimum and maximum estimates. However,
unlike the triangular distribution the PERT distribution constructs a smooth
curve which places progressively more emphasis on values around (near)
the most likely value, in favor of values around the edges. In practice, this
means that we “trust” the estimate for the most likely value, and we believe
that even if it is not exactly accurate (as estimates seldom are), we have an
expectation that the resulting value will be close to that estimate.
Examples of the PERT distribution: compare the smooth curves to the
triangular distribution, above. Values near the peak are more likely than
values near the edges.
Assuming that many real-world phenomena are normally distributed, the
appeal of the PERT distribution is that it produces a curve similar to the
normal curve in shape, without knowing the precise parameters of the
related normal curve.
Visual Example
The histograms below demonstrate the PERT distribution and how it
compares to a triangular distribution with the same parameters. The λ
(lambda) parameter controls the scale of the distribution (the peakedness).
Change the values to see the effect on the generated distributions.

Compare the PERT distribution to the much sharper Triangular distribution.


The triangular distribution is more precise, but the PERT distribution may
better reflect real-world phenomena. When the distribution is symmetrical
— when the mode is half-way between the minimum and maximum — it
looks like a normal distribution (try 0, 10 and 20). Moving the mode skews
the distribution (try 0, 10, and 40).
Using the PERT Distribution in Excel with the RiskAMP Add-in
The RiskAMP function PERTValue samples from the beta-PERT
distribution. Here’s an example of the PERTValue function, compared to
the Triangular distribution (if you change the values, click the “play” button
to run a simulation and update the charts):

The simple case of the PERT distribution takes a minimum, maximum, and
most likely value. The RiskAMP function PERTValue uses these inputs to
generate a random sample from the distribution:

=PERTValue( Minimum, MostLikely, Maximum )

The scale, or λ (lambda) parameter, can also be used to modify the


distribution:

=PERTValue( Minimum, MostLikely, Maximum, Lambda )

But use of the scale parameter is optional. If omitted, the default scale value
is 4, which produces a curve that reasonably approximates the normal
distribution.
A second function, PERTValue.P, uses the same distribution but takes as
parameters the 10th and 90th percentile values. You would ordinarily use
this function if your estimates exclude the tail (or most unlikely)
probabilities.
The sample spreadsheets that are installed with the RiskAMP Add-in
include a project/task model using the PERT distribution. That model
demonstrates how to use the PERTValue function and how to display and
chart probabilities based on a PERT distribution.
The Mathematical Model
The PERT distribution is a special case of the beta distribution that takes
three parameters: a minimum, maximum, and most likely (mode). Unlike
the triangular distribution, the PERT distribution uses these parameters to
create a smooth curve that fits well to the normal or lognormal distributions.
The beta distribution is characterized by the density function

Sampling from the beta distribution requires minimum and maximum


values (scale) and two shape parameters, v and w.
The PERT distribution uses the mode or most likely parameter to generate
the shape parameters v and w. An additional scale parameter λ scales the
height of the distribution; the default value for this parameter is 4.
In the PERT distribution, the mean μ is calculated

which are used, with the minimum and maximum scale parameters, to
sample the beta distribution.

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