The Concept of Uncertainty Analysis

Access your KPIs online;
Measure your success;

Navigation: All Balanced Scorecard Articles > General

The uncertainty analysis is a part of the risk assessment process which evaluates the improbability or the vagueness of a particular measurement. Understand the concept better through this article. Check additional information about uncertainty analysis.

Uncertainty analysis or sometimes called experimental uncertainty assessment is the task of dealing with the vagueness of a particular measurement. The main idea here is that an experiment which has been done to specify an impact, to show or reveal a law or to get the ballpark figure on the numerical value of a certain physical variable will be impacted by mistakes or errors because of instrumentation. Other factors that may have an effect here are methodology and the presence of perplexing results. With uncertainty analysis, you will be able to get the estimates which you can use to assess the credibility of the outcome. The concept of uncertainty analysis has always been a part of risk management, which is seen as a structured approach in the development of a system in assuring the elimination or the minimization of the risks in the business.

The uncertainty analysis is commonly used in estimating the inventory ambiguity of a company. The requirements of this approach include a methodology for determining the hesitations in different terms used in the inventory system, the aggregation of the uncertainties in the total inventory and the year to year differences as well as the long term movements in inventory systems taking into account the information regarding the uncertainty of the said division.

In the statistical concept of risk management uncertainty analysis, there is a great number of fundamental statistical concepts that are the center of understanding the uncertainty of inventories. The procedure of estimating the uncertainties in inventories particularly in greenhouse gas is based upon specific characteristics of the input quantity or commonly known as the variable of interest. Such is estimated from the corresponding set of data. The ideal information involves the arithmetic mean of the set of data, the data set's standard deviation or the variance's square root, the standard error or deviation of the mean, the co-variances of the quantity of the input with the other quantities utilized in the calculation of the inventory and the probability of the data distribution.

One of the major concerns in uncertainty analysis is the method of expressing the variances associated with the entity estimates or the total inventory itself. According to a popular revised guideline on how to express uncertainty in the businesses' inventory system, it is said that where there is enough information in defining the underlying probability of inventory distribution for typical or standard statistical analysis, a confidence interval of 95 percent should be measured and will be considered as the range definition. The uncertainty range is estimated through the use of traditional analysis. If not, the range can be evaluated by the national experts.

When it comes to selecting the probability density function, which pertains to the criteria of consistency, comparability and transparency, you are required to meet different conditions including the use of the minimum number of the functions of probability and that such functions should be well based and well known. The criteria of accuracy can be acquired through the use of the default probability functions which will provide a good data fit or that there is a more suitable probability function that is utilized in the event that the default functions fail to offer a good data fit or that there is compelling evidence scientifically in using another function.

If you are interested in uncertainty analysis, check this link to find out more about Uncertainty analysis. Also, you can check other articles in General category.

Balanced Scorecard Toolkit includes step-by-step manuals, documents, presentations, check lists designed to help business professionals with successful development and implementation of Balanced Scorecard. Learn more about BSC Toolkit.