Assignment – 1

Name : Mohamed Rilwan Hasan U.M.

RRN : 200292601101

Class : I-M.B.A

Section : B

Subject : Quantitative Techniques and Applied

Operations Research

Date : 19.01.2021
 I.Importance of Normal
Distribution

Normal Distribution:-
The normal distribution is the most important
probability distribution in statistics because it fits many natural phenomena. For
example, heights, blood pressure, measurement error, and IQ scores follow the
normal distribution. It is also known as the Gaussian distribution and the bell
curve.

History of Normal Distribution:-

Most statisticians give credit to French scientist Abraham de Moivre for the
discovery of normal distributions. In the second edition of “The Doctrine of
Chances,” Moivre noted that probabilities associated with discreetly generated
random variables could be approximated by measuring the area under the graph
of an exponential function.

Moivre’s theory was expanded by another French scientist, Pierre-Simon Laplace,

in “Analytic Theory of Probability.” Laplace’s work introduced the central limit
theorem that proved that probabilities of independent random variables
converge rapidly to the areas under an exponential function.
Example of Normally Distributed Data: Heights
Height data are normally distributed. The distribution in this example fits real data
that I collected from 14-year-old girls during a study.

As you can see, the distribution of heights follows the typical pattern for all
normal distributions. Most girls are close to the average (1.512 meters). Small
differences between an individual’s height and the mean occur more frequently
than substantial deviations from the mean. The standard deviation is 0.0741m,
which indicates the typical distance that individual girls tend to fall from mean
height.

The distribution is symmetric. The number of girls shorter than average equals the
number of girls taller than average. In both tails of the distribution, extremely
short girls occur as infrequently as extremely tall girls.
Parameters of the Normal Distribution:-
As with any probability distribution, the parameters for the normal distribution
define its shape and probabilities entirely. The normal distribution has two
parameters, the mean and standard deviation. The normal distribution does not
have just one form. Instead, the shape changes based on the parameter values, as
shown in the graphs below.

Mean:-
The mean is the central tendency of the distribution. It defines the location of the
peak for normal distributions. Most values cluster around the mean. On a graph,
changing the mean shifts the entire curve left or right on the X-axis.

Standard Deviation:-
The standard deviation is a measure of variability. It defines the width of the
normal distribution. The standard deviation determines how far away from the
mean the values tend to fall. It represents the typical distance between the
observations and the average.
On a graph, changing the standard deviation either tightens or spreads out the
width of the distribution along the X-axis. Larger standard deviations produce

When you have narrow distributions, the probabilities are higher

that values won’t fall far from the mean. As you increase the spread of the
distribution, the likelihood that observations will be further away from the mean
also increases.

The Empirical Rule for the Normal Distribution

When you have normally distributed data, the standard deviation becomes
particularly valuable. You can use it to determine the proportion of the values
that fall within a specified number of standard deviations from the mean. For
example, in a normal distribution, 68% of the observations fall within +/- 1
standard deviation from the mean. This property is part of the Empirical Rule,
which describes the percentage of the data that fall within specific numbers of
standard deviations from the mean for bell-shaped curves.

Mean +/- Percentage of

standard
data contained
deviations

1 68%

2 95%

3 99.7%

Let’s look at a pizza delivery example. Assume that a pizza restaurant has a mean
delivery time of 30 minutes and a standard deviation of 5 minutes. Using the Empirical
Rule, we can determine that 68% of the delivery times are between 25-35 minutes (30
+/- 5), 95% are between 20-40 minutes (30 +/- 2*5), and 99.7% are between 15-45
minutes (30 +/-3*5). The chart below illustrates this property graphically.

Standard Normal Distribution and Standard Scores

As we’ve seen above, the normal distribution has many different shapes
depending on the parameter values. However, the standard normal distribution is
a special case of the normal distribution where the mean is zero and the standard
deviation is 1. This distribution is also known as the Z-distribution.
A value on the standard normal distribution is known as a standard score or a Z-
score. A standard score represents the number of standard deviations above or
below the mean that a specific observation falls. For example, a standard score of
1.5 indicates that the observation is 1.5 standard deviations above the mean. On
the other hand, a negative score represents a value below the average. The mean
has a Z-score of 0.

Suppose you weigh an apple and it weighs 110 grams. There’s no way to tell from
the weight alone how this apple compares to other apples. However, as you’ll
see, after you calculate its Z-score, you know where it falls relative to other
apples.
Other Reasons Why the Normal Distribution is
Important
In addition to all of the above, there are several other reasons why the normal
distribution is crucial in statistics.

o Some statistical hypothesis tests assume that the data follow a normal
distribution. However, as I explain in my post about parametric and
nonparametric tests, there’s more to it than only whether the data are
normally distributed.
o Linear and nonlinear regression both assume that the residuals follow a
normal distribution. Learn more in my post about assessing residual plots.
o The central limit theorem states that as the sample size increases, the
sampling distribution of the mean follows a normal distribution even when
the underlying distribution of the original variable is non-normal.

Finding Areas Under the Curve of a Normal

Distribution
The normal distribution is a probability distribution. As with any probability
distribution, the proportion of the area that falls under the curve between two
points on a probability distribution plot indicates the probability that a value will
fall within that interval. To learn more about this property, read my post
about Understanding Probability Distributions.

Typically, I use statistical software to find areas under the curve. However, when
you’re working with the normal distribution and convert values to standard
scores, you can calculate areas by looking up Z-scores in a Standard Normal
Distribution Table.

Because there are an infinite number of different normal distributions, publishers

can’t print a table for each distribution. However, you can transform the values
from any normal distribution into Z-scores, and then use a table of standard
scores to calculate probabilities.

II. Comparison between Binomial,

Poisson and Normal Distribution
Distribution is an important part of analyzing data sets which indicates all the
potential outcomes of the data, and how frequently they occur. In a business
context, forecasting the happenings of events, understanding the success or
failure of outcomes, and predicting the probability of outcomes is essential to
business development and interpreting data sets.

The following types of distribution are used in analytics:

 Normal Distribution

 Binomial Distribution

 Poisson Distribution

In a modern digital workplace, businesses need to rely on more than just

pure instincts and experience, and instead utilize analytics to derive value
from data sets.

Normal Distribution
Normal Distribution is often called a bell curve and is broadly utilized in statistics,
business settings, and government entities such as the FDA. It's widely recognized
as being a grading system for tests such as the SAT and ACT in high school or GRE
for graduate students.
Normal Distribution contains the following characteristics:
 It occurs naturally in numerous situations.

 Data points are similar and occur within a small range.

 Much fewer outliers on the low and high ends of data range.
Example:

Formula Values:
X = Value that is being standardized
μ = Mean of the distribution
σ = Standard deviation of the distribution

 Use the following formula to convert a raw data value, X to a standard score, Z.

 Assuming a specific population has μ = 4, and σ = 2. For example, finding the

probability of the randomly selected value being greater than 6 would resemble
the following formula:

 The Z score corresponding to X = 6 will be:

 Z = 1 means that the value of X = 6 which is 1 standard deviation above the

mean.

Business Applications:
 Can be utilized to model risks and following the distribution of likely
outcomes for certain events, like the amount of next month's revenue
from a specific service.
  Process variations in operations management are sometimes normally
distributed, as is employee performance in Human Resource
Management.

 Human Resource management applies Normal Distribution to employee

performance.

Binomial Distribution:-
Binomial Distribution is considered the likelihood of a pass or fail outcome in a
survey or experiment that is replicated numerous times. There are only two
potential outcomes for this type of distribution, like a True or False, or Heads or
Tails, for example.

Characteristics of Binomial Distribution:-

 First variable: The number of times an experiment is conducted

 Second variable: Probability of a single, particular outcome

 The probability of an occurrence can only be determined if it's done a number of

times

 None of the performed trials have any effect on the probability of the following
trial

 Likelihood of success is the same from one trial to the following trial
 Formula Values:
x: Number of successes
X: Random variable
C: Combination of x successes from n trials
p: Probability of success
(n - x): Number of failures
(1 - p): Probability of failure

 Assuming that 15% of changing street lights records a car running a red light,
and the data has a binomial distribution.

 The formula used to determine the probability that exactly 3 cars will run a red
light in 20 light changes would be as follows: P = 0.15, n = 20, x = 3

 Apply the formula, substituting these values:

 Therefore, the probability of 3 cars running a red light in 20 light changes would
be 0.24, or 24%.
 Business Applications:-
Banks and other financial institutions use Binomial Distribution to
determine the likelihood of borrowers defaulting, and apply the
number towards pricing insurance, and figuring out how much money
to keep in reserve, or how much to loan.

Poisson Distribution:-
The probability of events occurring at a specific time is Poisson Distribution. In
other words, when you are aware of how often the event happened, Poisson
Distribution can be used to predict how often that event will occur.It provides the
likelihood of a given number of events occurring in a set period.

Poisson Distribution Characteristics:-

 An event can happen any amount of times throughout a period.

 Events occurring don't affect the probability of another event occurring within
the same period.

 Occurrence rate is constant and doesn't change based on time.

 The likelihood of an occurring event corresponds to the time length.

Formula Values:
x: Actual number of occurring successes
e: 2.71828 (e = mathematical constant
 λ: Average number of successes with a specified region

 For example, the average number of yearly accidents at a traffic intersection is

5. To determine the probability that there are exactly three accidents at the
same intersection this year, apply the following formula:
Here, λ = 5, and x = 3.

 Therefore there's a 14% chance that there will be exactly three accidents there
this year.

Business Applications:-
 Predicting customer sales on particular days/times of the year.

 Supply and demand estimations to help with stocking products.

 Service industries can prepare for an influx of customers, hire temporary help,
order additional supplies, and make alternative plans to reroute customers if
needed.