What are some of the risks associated with estimation Why is

What are some of the risks associated with estimation? Why is important to know what is meant by a confidence interval?

Solution

The magnitude of the risk associated with estimation depends on the strategy or the method adopted to deal with the risk and to find the most closest approximation for the same.

1) Most of the people estimate the risk evaluated in the sub-parts and they forget the big picture hence it is necessary to see the risks involved in overall estimation rather than concentrating on one path.

2) The project must be built on the decision trees rather than making inappropiate assumptions of diving the available amount in the sub-parts.

The confidence interval is based on few parameters

a) Point estimate or the sampled mean of the set

b) The desired level of confidence or the risk estimation

c) The sampling variability or variance value, i.e. the difference between the respective values of the observation