Question

In: Statistics and Probability

Provide an example of how a business you know (large or small) would have benefited from...

Provide an example of how a business you know (large or small) would have benefited from a better knowledge of probability.

Solutions

Expert Solution

Let us consider a large Business company, an auto-parts ( Components of a tractor , truck etc ), wants to plan the demands of the their auto-parts for a particular quarter.

Demand planning is an important aspect only If a business has a good demand plan they achieve sales and thus the revenues of the company. so before really starting the production of the auto-parts the company can go for a scenario analysis

A scenario analysis uses probability distributions to create several, theoretically distinct possibilities for the outcome of a particular course of action or future event. For example, the auto-parts business may consider creating three scenarios: worst-case, likely and best-case. The worst-case scenario would contain some value from the lower end of the probability distribution; the likely scenario would contain a value towards the middle of the distribution; and the best-case scenario would contain a value in the upper end of the scenario.

Having the demand being segregated now the business would consider a lot of other factors which might influence and increase/decrease the probability of a certain scenario, like for instance if the sales in previous quarter are high it will likely shift the balance towards the best case and if its low it can shift towards the worst case. It could also consider the performance of competitors or possibility of a new entrant. Thus it would help the Business prepare much better and further analysis can improve the accuracy.


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