QUANTITIATIVE ANALYSIS

ACKNOWLWDGEMENT
In performing this assignment, I had to take the help and guideline of some respected
persons, who deserve our greatest gratitude. The completion of this assignment gives me
much pleasure. I would like to show my gratitude Miss Nur Asyillah course Quantitative
Analysis, Kolej Masa for giving me good guideline for assignment throughout numerous
consultation. I would like also like to expand my deepest gratitude to all those who have
directly and indirectly guided me in writing this assignment.
Many people especially my classmate has made valuable comment suggestion on this
assignment which give me an inspiration to improve my assignment. Thanks to all people for
their help directly and indirectly to complete my assignment.

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1.0 INTRODUCTION OF PROBABILITY
Concepts of probability have been around for thousands of years, but probability theory did
not arise as a branch of mathematics until the mid-seventeenth century. During the fifteenth
century several probability works emerged. Calculations of probabilities became more
noticeable during this time period even though mathematicians in Italy and France remained
unfamiliar with these calculation methods
Probability theory is an important part of statistical theory that bridges descriptive and
inferential statistics. It is the science of uncertainty or chance, or likelihood. A probability
value ranges between 0 and 1 inclusive and represents the likelihood that a particular event
will happen. A probability value of 0 means there is no chance that will happen and a value of
1 means there is 100 percent chance that the event will happen. Conducting an experiment or
sample test provides an outcome that can be used to compute the chance of events occurring
in the future. An experiment is the observation of some activity or the act of taking some
measurement. Whereas, an outcome is a particular result of an experiment. The collection of
one or more outcomes of an experiment is known as an event.
.It is not possible to predict precisely results of random events. However, if a sequence of
individual events, such as coin flipping or the roll of dice, is influenced by other factors, such
as friction, it will exhibit certain patterns, which can be studied and predicted. Two
representative mathematical results describing such patterns are the law of large numbers and
the central limit theorem.
As a mathematical foundation for statistics, probability theory is essential to many human
activities that involve quantitative analysis of large sets of data. Methods of probability
theory also apply to descriptions of complex systems given only partial knowledge of their
state, as in statistical mechanics. A great discovery of twentieth century physics was the
probabilistic nature of physical phenomena at atomic scales, described in quantum mechanics

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2.0 TYPES OF PROBABILITY DISTRIBUTIONS
There are two types of probability distributions:
Discrete probability distributions
The probability distribution of a discrete random variable is a list of probabilities associated
with each of its possible values. It is also sometimes called the probability function or the
probability mass function. More formally, the probability distribution of a discrete random
variable X is a function which gives the probability f(x) that the random variable equals x, for
each value x: f(x) = P(X=x)
It satisfies the following conditions:
a. 0 f(x) 1
b. f(x) = 1
Continuous probability distributions
Describe an unbroken continuum of possible occurrences. A random variable is continuous
if it can take any value in an interval. The number of possible values in a range is infinite, so
the Probability(of a single value) = 0

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3.0 PROBABILITY DISTRIBUTION FORMULA
A probability distribution is an equation or a table that assigns a probability to each of the
possible outcome of a random experiment. In simple words, a probability distribution gives
the probability for each value of the random variable.
There are two types of probability distribution:
1. Normal Probability Distribution . It is also called as Gaussian distribution and it refers to
the equation or graphs which are bell shaped.
The formula for normal probability distribution is as stated

Where,
= Mean

= Standard Distribution.
If mean() = 0 and standard deviation() = 1, then this distribution is known to be normal
distribution.
x = Normal random variable.

2. Binomial Probability Distribution. These are the probability occurred when the event
consists of n repeated trials and the outcome of each trail may or may not occur.
The formula for binomial probability is as stated below:

n = Total number of events

r = Total number of successful events.
p = Probability of success on a single trial.

Cr = n!r!(nr)!n!r!(nr)!

1 - p = Probability of failure.

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4.0 THE ROLE OF PROBABILITY DISTRIBUTION IN BUSINESS MANAGEMENT
A probability distribution is a statistical function that identifies all the conceivable outcomes
and odds that a random variable will have within a specific range. This range is determined
by the lowest and highest potential values for that variable. For instance, if
a company expects to bring in between $100,000 and $500,000 in monthly revenue, the graph
will start with $100,000 at the low end and $500,000 at the high end. The graph for a typical
probability distribution resembles a bell curve, where the least likely events fall closest to the
extreme ends of the range and the most likely events occur closer to the midpoint of the
extremes.

Sales Predictions

A major application for probability distributions lies in anticipating future sales incomes.
Companies of all sizes rely on sales forecasts to predict revenues, so the probability
distribution of how many units the firm expects to sell in a given period can help it anticipate
revenues for that period. The distribution also allows a company to see the worst and best
possible outcomes and plan for both. The worst outcome could be 100 units sold in a month,
while the best result could be 1,000 units sold in that month.

Risk Assessments

Probability distributions can help companies avoid negative outcomes just as they help
predict positive results. Statistical analysis can also be useful in analysing outcomes of
ventures that involve substantial risks. The distribution shows which outcomes are most
likely in a risky proposition and whether the rewards for taking specific actions compensate
for those risks. For instance, if the probability analysis shows that the costs of launching a
new project are likely to be $350,000, the company must determine whether the potential
revenues will exceed that amount to make it a profitable venture.

Scenario Analysis

Probability distributions are highly useful in producing tools to evaluate various business
scenarios. Scenario analysis employs probability distributions to show numerous distinct
possible outcomes stemming from a specific action or consequence. This analysis often

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involves examining the worst-case, best-case and most likely scenarios given the probability
distribution for that action. For instance, the probability distribution can show that the most
likely scenario for a new product launch will cost $250,000, while the best possible scenario
shows it will cost $150,000 and the worst possible scenario shows it will cost $500,000.
Businesses can work toward the best possible outcome while preparing for the worst.
5.0 ROLE OF PROBABILITY CONCEPTS IN BUSINESS DECISION-MAKING
Probability concepts are abstract ideas used to identify the degree of risk a business decision
involves. In determining probability, risk is the degree to which a potential outcome differs
from a benchmark expectation. You can base probability calculations on a random or full data
sample. For example, consumer demand forecasts commonly use a random sampling from
the target market population. However, when youre making a purchasing decision based
solely on cost, the full cost of each item determines which comes the closest to matching your
cost expectation.

Mutual Exclusivity

The concept of mutually exclusivity applies if the occurrence of one event prohibits the
occurrence of another event. For example, assume you have two tasks on your to-do list. Both
tasks are due today and both will take the entire day to complete. Whichever task you choose
to complete means the other will remain incomplete. These two tasks cant have the same
outcome. Thus, these tasks are mutually exclusive.

Dependent Events

A second concept refers to the impact two separate events have on each other. Dependent
events are those in which the occurrence of one event affects but doesn't prevent the
probability of the other occurring. For example, assume a five-year goal is to purchase a new
building and pay the full purchase price in cash. The expected funding source is investment
returns from excess sales revenue investments. The probability of the purchase happening
within the five-year period depends on whether sales revenues meet projected expectations.
This makes these dependent events.

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Interdependent Events

Interdependent events are those in which the occurrence of one event has no effect of the
probability of another event. For example, assume consumer demand for hairbrushes is
falling to an all-time low. The concept of interdependence says that declining demand for
hairbrushes and the probability that demand for shampoo will also decline share no
relationship. In the same way, if you intend to purchase a new building by investing personal
funds instead of relying on investment returns from excess sales revenues, the purchase of a
new building and sales revenues share no relationship. Thus, these are now interdependent
events.

6.0 IMPORTANCE OF PROBABILITIES IN BUSINESS

Many businesses apply the understanding of uncertainty and probability in their business
decision practices. Probability models can greatly help businesses in optimizing their policies
and making safe decisions. Though complex, these probability methods can increase the
profitability and success of a business.

Investment

The optimization of a business's profit relies on how a business invests its resources. One
important part of investing knows the risks involved with each type of investment. The only
way a business can take these risks into account when making investment decisions is to use
probability as a calculation method. After analysing the probabilities of gain and loss
associated with each investment decision, a business can apply probability models to
calculate which investment or investment combinations yield the greatest expected profit.

Customer Service

Customer service may be physical customer service, such as bank window service, or virtual
customer service, such as an Internet system. In either case, probability models can help a
company in creating policy related to customer service. For such policies, the models of
queuing theory are integral. These models allow companies to understand the efficiency
related to their current system of customer service and make changes to optimize the system.
If a company encounters problems with long lines or long online wait times, this may cause

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the company to lose customers. In this situation, queuing models become an important part of
problem solving.

Competitive Strategy

Although game theory is an important part of determining company strategy, game theory
lacks the inclusion of uncertainty in its models. Such a deterministic model can't allow a
company to truly optimize its strategy in terms of risk. Probability models such as Markov
chains allow companies to design a set of strategies that not only account for risk but are selfaltering in the face of new information regarding competing companies. In addition, Markov
chains allow companies to mathematically analyze long-term strategies to find which ones
yield the best results.

Product Design

Product design, especially the design of complicated products such as computing devices,
includes the design and arrangement of multiple components in a system. Reliability theory
provides a probabilistic model that helps designers model their products in terms of the
probability of failure or breakdown. This model allows for more efficient design and allows
businesses to optimally draft warranties and return policies.

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7.0 ROLE OF PROBABILITY CONCEPTS IN BUSINESS DECISION MAKING

Decision making is the process where owners and managers review information relating to
new opportunities. This function relies on different approaches for evaluating information.
Using probability concepts is a statistical approach for making decisions.
Business statistics apply mathematical formulas or models to business information in an
attempt to determine the probability of success relating to an opportunity. This information
can be internal or external, depending on the decision at hand. Accountants or financial
analysts may play a role in analyzing this information.
Probability concepts typically include an objective, statistical model, observations or
constraints, analysis and a conclusion. This process represents a quantitative approach to
making business decisions. Removing the personal judgment or inference of owners and
managers can help companies make better and more reliable decisions.
Benchmarking is a process where companies can compare their information to the industry
standard or a competitor. Probability concepts can help business owners and managers
develop a process where they can measure their performance rather than just make decisions.

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8.0 USEFULNESS OF PROBABILITY DISTRIBUTIONS IN BUSINESS DECISIONMAKING

Managers of business firms use probability distributions through the application of statistical
analysis to data. The three principal ways in which probability distributions are used in
business through the application of statistical analysis are as follows
1. To describe events. Descriptive statistics describe the performance or activity of one group
or class, without attempting to make generalizations about other groups or classes. The use of
probability distributions in this context allows business managers to define and understand
markets, as well as to define and understand operational functions of the business firm.
2. To infer causes of events or infer the nature of future events. Inferential statistics permit the
findings with respect to one set of relationships to be extended to other relationships and to
generalize findings and conclusions on the basis of statistical inference. Probability
distributions are at the heart of inferential statistics. Thus, managers of business firms, by
carefully selecting a randomized sample that is representative of a wider population, can
make reliable and valid inferences concerning behaviours in the wider population.
3. To enhance the decision making process. Decision theory provides managers of business
firms with knowledge about events and relationships that reduce the level of uncertainty in
the data upon which decisions for a firm are based. Probability distributions underlying
quantitative statistical procedures allow managers of business firms to assess the strengths of

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relationships in a data set at specified levels of probability. In this way, business managers
specify the degree of uncertainty upon which they base decisions.

CONCLUSION
Probability theory originated from games and gambles of soldiers in the 16th and 17th
centuries. The age of this theory notwithstanding, there are only two known approaches
objective and subjective to its study. The experience one has determines to a large extent the
approach adopted. Experts and new product developers adopt subjective approach while
managers who have record of events or understand the nature of events adopt objective
approach. Probability theory can be applied in areas of new product development, production
planning and control, quality control, insurance and actuarial practices, games and gambling,
stock analysis or inventory control and investment analysis, and business forecasting.
Probability theory shows much specificity as the nature of event determines the type of
probability approach to employ. It would be wrong to adopt a relative frequency approach
when the event can be estimated a priori. Quality decisions will also be assured if the
appropriate approach is utilized to estimate the probability of an event. Small businesses are
prone to chance occurrences. Also changes affect small businesses quickly. The fashion
business is more likely to be affected by changes and their probability of success more
difficult to estimate. Information and communication technology has affected small business
adversely as information overload has afforded many small business operators little chance to
adjust between changes.
It is recommended that probability theory be applied in sales forecasting, production
planning, inventory control, resource scheduling, medicine, quality control, research,
estimation of life of an asset, shutdown decisions, new product development, acquisition and
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replacement of assets and production control. It is recommended that subjective approach be
avoided as much as possible, especially where records are kept. It is recommended that small
businesses should keep records. Small businesses especially those in the fashion industry,
should utilize probability theory as their businesses were more prone to chance occurrences.
There should be access by small businesses to internet facility to improve on information
gathering. It is recommended that adequate knowledge of probability be amassed to ensure
that business decisions are not left to chance.
Finally, it is recommended that knowledge of probability theory be made compulsory to
students of business to improve its application in a business situation.

REFERENCE

Anderson, A. (n.d.). Dummies . Retrieved 29 november, 2016, from prbability distribution:

http://www.dummies.com/education/math/business-statistics/random-variables-andprobability-distributions-in-business-statistics/
techtarget.com. (2004). Retrieved 29 november, 2016, from whatis.techtarget:
http://whatis.techtarget.com/definition/probability
osmond vitez. (2005). ehow.com. Retrieved 30 november, 2016, from
http://www.ehow.com/facts_6852684_role-concepts-business-decision-making.html
wordpress.com. (n.d.). Retrieved 28 november, 2016, from
https://probsta.wordpress.com/lessons/probability-distribution/types-of-probabilitydistribution/
Easton, V. J. & McColl, J. H. Statistics Glossary. Retrieved December 1, 2016 from
http://www.stats.gla.ac.uk/steps/glossary/probability_distributions.html
Gerstman, B. B. (2003). StatPrimer. Retrieved December 1, 2016 from
http://www.sjsu.edu/faculty/gerstman/StatPrimer/

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