Using dynamic Bayesian networks to model technical risk management efficiency

Abstract

AbstractThe objective of this paper is to present a mathematical model helping decision makers achieve optimum efficiency in risk management of product development. The optimum we are seeking considers qualitative data derived from expert opinions and quantitative information on project characteristics. The mathematical model proposed here aims at integrating data from these sources to identify opportunities for decreasing product risk. Reduction of overall product risk, before product release to production, is an indicator of the efficiency of the risk management intervention. Acceptable risk targets vary according to industry type, organization characteristics, regulations, etc. In general, the risk management process consists of identification of risks, analysis of risks, risk control, and feedback. Here, we propose a mathematical approach to risk management by using dynamic Bayesian networks for evaluation of product risks during the development period. The properties of the model are assessed by using 2 validation methods:k‐fold cross validation and leave‐one‐out techniques. Mathematical imputation methods, like multivariate normal imputation, are invoked to deal with missing data. In addition, sensitivity analysis is performed to assess the uncertainty embedded in the parameters derived from the dynamic Bayesian network.Decision makers should consider the overall risk in product development estimated by this mathematical model. It may help to determine whether to release a product for Beta testing or to conduct additional activities to reduce the overall risk level before customer shipment. In addition, the model may be used for prediction purposes as it provides an estimate of the expected risk at timet + 1 based on the level of risk at timet.