Estimation - Uses of Estimation

Uses of Estimation

In mathematics, approximation describes the process of finding estimates in the form of upper or lower bounds for a quantity that cannot readily be evaluated precisely, and approximation theory deals with finding simpler functions that are close to some complicated function and that can provide useful estimates. In statistics, an estimator is the formal name for the rule by which an estimate is calculated from data, and estimation theory deals with finding estimates with good properties. This process is used in signal processing, for approximating an unobserved signal on the basis of an observed signal containing noise. For estimation of yet-to-be observed quantities, forecasting and prediction are applied. A Fermi problem, in physics, is one concerning estimation in problems which typically involve making justified guesses about quantities that seem impossible to compute given limited available information.

Estimation is important in business and economics, because too many variables exist to determine how large-scale activities will develop. Estimation in project planning can be particularly significant, because plans for the distribution of labor and for purchases of raw materials must be made, despite the inability to know every possible problem that may come up. Furthermore, such plans must not underestimate the needs of the project, which can result in delays while unmet needs are fulfilled, nor must they greatly overestimate the needs of the project, or else the unneeded resources may go to waste.

An informal estimate when little information is available is called a guesstimate, because the inquiry becomes closer to purely guessing the answer. The "estimated" sign is used to designate that package contents are close to the nominal contents.