Decision making tools and techniques
Probability laws and concepts are the basis to solve most decision-requiring cost engineering situations.
Probability can be defined in many ways, but probably the simplex of them all is that establishing probability as the quantification of uncertainty.
Probability of an event ranges from impossibility or zero probability to total certainty or probability 1 so, the probability of an event P happening can be mathematically expressed as:
0 <= P <= 1
Probability of an event happening is said to be objective if it is based on past data, but past data is not always available and the subjective probabilities based on personal judgment and/or experience can be adopted.
The best way to deal with uncertainty is to measure it. This sounds ominous, but it is not. We can learn to measure personal judgment and experience statements and to use them to our benefit.
Subject Matter Experts (SME) usually come up with statements like:
- Highly Unlikely;
- Likely; and
- Highly likely.
Since Probability of an event happening is always between 0 and 1, we can translate the above statements to the following measuring system: