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Importance of Probability

Investment decisions involve weighing risks and using probability to calculate expected profits. A business analyzes the probabilities of gain and loss for each investment option to determine which will yield the greatest expected return. Customer service policies can also utilize probability models to understand system efficiency and optimize customer wait times. These models help companies prevent losing customers due to long lines or delays. Competitive strategies require probability models like Markov chains that account for risk and allow strategies to change based on new information about competitors. Markov chains can also analyze long-term strategy outcomes.

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Shadab Hasan
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178 views5 pages

Importance of Probability

Investment decisions involve weighing risks and using probability to calculate expected profits. A business analyzes the probabilities of gain and loss for each investment option to determine which will yield the greatest expected return. Customer service policies can also utilize probability models to understand system efficiency and optimize customer wait times. These models help companies prevent losing customers due to long lines or delays. Competitive strategies require probability models like Markov chains that account for risk and allow strategies to change based on new information about competitors. Markov chains can also analyze long-term strategy outcomes.

Uploaded by

Shadab Hasan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1

Investment
The optimization of a business’s profit relies on how a
business invests its resources. One important part of
investing is knowing 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 analyzing 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
2

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 the company to lose customers. In this
situation, queuing models become an important part of
problem solving.
3

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 self-altering 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.
4

Finding Business Niches

A major part of starting a successful data mining business


lies in finding businesses and industries that lack the internal
resources to do their own data tracking. Many small
businesses fail to implement data mining techniques, which
can leave them vulnerable to changes in customer taste,
market economics or technological innovation. Data mining
businesses are especially well-equipped to find and exploit
under-served business niches, as they have techniques to
examine data and spot trends in industries where they can
leverage their knowledge for increased growth and
profitability.
5

Evaluate Your Business Strategy for


Feasibility

The final Rumelt criteria is to evaluate your business


strategy as a whole to assess its long-term feasibility. For
example, examine the strategy from a financial perspective
and identify its limitations. Assess staffing in terms of
requirements, knowledge and the skill set required to
achieve long-term strategy goals. Also, consider whether
core personnel, including both managers and employees,
are willing to contribute to and support the business strategy
and the direction in which it’s taking your company.

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