See the sidebar on a decision tree example for mars

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Unformatted text preview: stimates am needed. 4.6.3 Risk Analysis Techniques The tools and techniques of risk analysis rely heavily on the concept and "laws" (actually, axioms and theorems) of probability. The system engineer needs to be familiar with these in order to appreciate the full power and limitations of these techniques. The products of risk analyses are generally quantitative probability and consequence estimates for various outcomes, more detailed understanding of the dominant risks, and improved capability for allocating risk reduction resources. Decision Analysis. Decision analysis is one technique to help the individual decision maker deal with a complex set of uncertainties. Using the divide-and-conquer approach common to much of systems engineering, a complex uncertainty is decomposed into simpler ones, which are then treated separately. The decomposition continues until it reaches a level at which either hard information can be brought to bear, or intuition can function effectively. The decomposition can be graphically represented as a decision tree. The branch points, called nodes, in a decision tree represent either decision points or chance events. Endpoints of the tree are the potential outcomes. (See the sidebar on a decision tree example for Mars exploration.) In most applications of decision analysis, these outcomes are generally assigned dollar values. From the probabilities assigned at each chance node and the dollar value of each outcome, the distribution of dollar values (i.e., consequences) can be derived for each set of decisions. Even large complex decision trees can be represented in currently available decision analysis software. This software can also calculate a variety of risk measures. In brief, decision analysis is a technique that allows: • • • • A systematic enumeration of uncertainties and encoding of their probabilities and outcomes An explicit characterization of the decision maker's attitude toward risk, expressed in terms of his, her risk aversion A calculation of the value of "perfect information," thus setting a normative upper bound on information-gathering expenditures Sensitivity testing on probabili...
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This document was uploaded on 02/26/2014 for the course E 515 at University of Louisiana at Lafayette.

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