Probability is one of the famous mathematical concepts studied in high school. The applications of probability transcend academia. Probability is a simple tool utilized for business decisions. Probability is the likelihood of a specific event or a specific outcome occurring. It can also measure the chances of an event or outcome not occurring. Probabilities are estimated from 0% to 100%, or between 0 and 1. An event or outcome certain to occur has a probability of one, while an event or outcome certain not to occur has a probability of zero.
Probability can be objective or subjective. Objective probability is not based on sentiments, opinions, or personal beliefs; it is based on equally likely events. In contrast, subjective probability is premised on personal beliefs, individual experiences, and personal judgment. This kind of probability will be different for different observers.
Probability is used in making data-driven business decisions rather than just depending on guesses. Let us assume that the success of an ice cream shop depends on pleasant weather and the availability of people. Suppose the probability of having many people in a community come out for a festival is 70% and the chance of having clear weather is 70%. In that case, the business owner can figure out the possibility of making good sales during the festival.
Probability of good sales = probability of having a crowd x probability of having pleasant weather
0.7 x 0.7 = 0.49 (49%).
With almost 50% certainty, the ice cream shop owner can make plans for the festival and be ready to make sales. The decision to prepare ahead and get enough ice cream ahead of the festival can be made with quality information derived from applying the principle of probability.
Companies analyze the potential risks associated with an investment by using probability as a calculation approach in making business investments. With probability, the possibilities of gain and loss are examined before deciding.
The design of complicated products like computer gadgets typically requires an assembly of different components. The reliability theory often finds application in such processes as it adopts a probabilistic model that product designers use to predict the chances of product breakdown or failure. This model is then used to determine product return policies by manufacturers.
Probability can survey the degree of customer satisfaction with a product. Suppose you conduct a simple survey for your customers on a given product. In that case, the survey’s feedback can be used to improve the product and determine an average customer’s attitude and satisfaction. Assuming out of one hundred customers, seventy-five say they are satisfied with the product. From that data, you can conclude a 75% satisfaction rate. This data can be used to measure the behavior of every customer towards the development and, consequently, the company.
Insurance companies use probabilities to determine the likelihood of insurance claims. Life insurance companies use probabilities to evaluate the associated risks before deciding how much of a premium each client will pay. Insurers employ probability information to categorize their customers and use that understanding to determine how much premium is suitable for each client based on the odds.
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