Bayesian Decision Making

Bayesian decision-making is a decision-making process based on the probability of a successful outcome. The probability is informed by both prior information and new evidence that the decision-maker obtains.?Bayesian decision-making suggests that optimal?decision-making behavior should combine and weigh both pieces of information according to their relative?uncertainties.

Making decisions in the presence of these two types of uncertainty requires estimating outcomes in the presence of the risks created by the uncertainties.?

All decisions involve uncertainty, risk, and trade-offs. This is an immutable principle of all business and technical processes in the presence of uncertainty.

Successful management of software project cost within the limited budget is an important concern in any business.?Lack of information and reliable tools that support estimating process make it difficult to initiate estimating report during early project planning stages. To control the cost to an acceptable level,?requires appropriate and accurate measurement of various project-related variables and the understanding of the magnitude of their effects.

The importance of early estimating to those funding the project or those providing capital to fund products cannot be over emphasized.?

Making cost estimates with Bayesian decision processes is a well-developed discipline. Here's a recent paper from a NASA Jet Propulsion Laboratory colleague, Christian Smart.

The risks created by these uncertainties are always present. If unaddressed, our project is at risk of failure. Several tools exist to perform this Bayesian analysis of program performance probabilities. Here's one example:

In the end risk management is about?estimating?the impacts of reducible and irreducible uncertainty.

As Tim Lister says -?Risk Management is How Adults Manage Projects

Some More Resources of Bayesian Decision Making

• Decision support software for probabilistic risk assessment using Bayesian networks, Norman Fenton and Martin Neil
• Managerial Decision Making Under Risk and Uncertainty, Ari Riabacke,?IAENG International Journal of Computer Science, 32:4, IJCS_32_4_12
• Supporting Early Decision-Making in the Presence of Uncertainty, Jennifer Horkoff, Rick Salay, Marsha Chechik, and Alessio Di Sandro
• Risk-informed decision-making in the presence of epistemic uncertainty, Didier Dubois, Dominique Guyonnet,??International Journal of General Systems, Taylor & Francis, 2011, 40 (2), pp.145-167.

A Compendium of Risk Management Resources

Risk Management is essential for development and production programs. Information about key project costs, (technical) performance, and schedule attributes is often uncertain or unknown until late in the program.

Risk issues that can be identified early in the program, which will impact the program later, termed Known Unknowns and can be alleviated with good risk management.

??Effective Risk Management 2nd?Edition, Edmund Conrow, AIAA, 2003