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Governance, Risk, Audit & Privacy · Advanced

Monte Carlo Simulation

Statistical technique that runs many randomized iterations over input ranges to produce a probability distribution of outcomes.

Definition

In risk analysis, Monte Carlo simulation samples from distributions for frequency and impact thousands of times to estimate the range and likelihood of losses. It reveals tail risk that single-point estimates miss. It is used in FAIR, project schedule risk, and cost risk analysis.

Example

Running 10,000 iterations shows a 10 percent chance that annual breach losses exceed $5 million.

Exam tip

Choose Monte Carlo when the question asks about modeling uncertainty or producing a range of outcomes.

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