Probability helps us plan and measure in the face of uncertainty. Give one examp

Question

Probability helps us plan and measure in the face of uncertainty. Give one example where probability helps a business or industry function. I will start with an example: life insurance is a business which relies of probabilities to help adequately price premiums based on the characteristics of policyholders. It is imperative that the premiums of the policy be adequate to cover the expenses of policies that must be paid, but cannot be extraordinarily high either. The actual life of each policy holder is unknown, so probabilities are used to help quantify this risk.

Explanation / Answer

One practical use for probability distributions and scenario analysis in business is to predict future levels of sales. It is essentially impossible to predict the precise value of a future sales level; however, businesses still need to be able to plan for future events. Using a scenario analysis based on a probability distribution can help a company frame its possible future values in terms of a likely sales level and a worst-case and best-case scenario. By doing so, the company can base its business plans on the likely scenario but still be aware of the alternative possibilities.

These forecasting methods take into account seasonality, significant festivals and events etc. to give an accruate forecast, which can certainly reduce the level of uncertaininty in the predictions. and be better off in understanding the future sales.

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