Project Management Institute

Estimating to minimize loss

Project managers need tools to improve their ability to make and communicate project estimates, while at the same time minimizing loss.Bayesian probability theory, and specifically its approach to parameter estimation, has been used successfully in many fields of science, and is a tool that project managers can use to deal with uncertainty when estimating costs on a project.The article describes Bayesian theory, shows how it can be utilized for a particular project to calculate the loss function (the difference between the actual outcome and the estimate), and then used to arrive at the best estimate which minimizes that loss.
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