Truncated normal distribution

A distribution may be approximately normal but truncated at a minimum and maximum value.

Consider the following cost values:

Mean:

$20 million

Standard deviation:

$3 million

Upper limit:

$25 million

Lower limit:

$15 million

Again using a utility such @Risk, a sampling of the truncated distribution would take the following form:

Figure 4 Truncated distribution

The mean of $20 million is recorded as the expected cost. A conservative approach may be to include the possibility of a cost outcome at the 80th percentile or around $22 million. The base PSC cost would therefore be the mean of $20 million, with a risk adjustment of $2.0 million.