What is Probability?
Probability can be defined as the measurement of how possible it is for an action or event to occur. Probability is a part of statistics that informs about a random experiment. It defines the possibility of said experiment.
Probability has various real-life applications which include but are not limited to the following:
- Weather Forecasting
- Rolling a six-sided dice
- Managerial Decisions
Finance: In finance, probability can be applied to calculate investors return on investment (ROI) on assets such as stocks. A financial analyst is able to calculate returns based on historical data collected on said assets. An individual could buy assets such as stocks but might not be able to apply probability to calculate the risks or ROI due to lack of data / information.
Predicting Forecasting: In weather forecasting, probability is the most binding. Meteorologists predict future weather conditions like the percentage of rain in an area, height of rain in any area, or many more. However, the whole weather forecast is dependent on probability.
These predictions may be accurate sometimes and sometimes entirely contradictory. Danger of natural disasters can also be predicted.
Marketing: Probability can be applied in marketing to calculate sales forecast of new products or existing products of different brands.
For example, if company A has a product that already has similar products in the market, probability based on the data collated can be applied to predict the volume of sales of said product and / or possible sales volume of Company A’s product.
Probability can be used in marketing to see if a particular product is doing well in sales or not.
Rolling Six-Sided Dice: A normal six-sided die has a one-in-six chance of rolling a one any time you roll it.
If the odds of rolling a one on a six-sided die are one in six, then what are the odds of doing that twice in a row? Or three times? To figure this out, we multiply our probabilities. The odds of rolling a one on a six-sided die are one in six. This is true no matter how many times we roll that dice or how many times we have already rolled a one.
The past rolls of the dice will not have any direct impact on the next roll we make.
Operations: In operations management, probability can be used to save cost from the entire delivery process time of the project. For example, a company that applies probable time estimates can calculate possible project completions dates.
Logistics: Probability in logistics can be used to calculate a list of variables that might occur during the logistics operation process. These include but are not limited to the following: capacity to pay (demand), sales volume, implementation period, consumers etc.
Managerial Decisions: Probability applied in making managerial decisions can be used in sales forecasting, scenario analysis and risk evaluation. For example, a company is able to create different possible scenarios and timelines for a project. These probabilities can be put in sections of ‘good, better, best’ due to available data, in order to make the best decision for the company.
- Decision Trees: Harvard Business School. March 27, 2006