Probility Case

Suppose it is known that a particular machine used in the manufacture of a part produces with a particular distribution of sizes. Say 85% of the parts are between 49 and 51 mm in diameter. By studying the distribution of sizes, the manufacturer, can then use this information to decide which orders to accept. For example, if the client won't buy a part that is more than 51.5 mm diameter, then the manufacturer can determine the probability of producing a part with diameter greater than 51.5 mm. In this way, the manufacturer can determine the number of defective or unacceptable parts that are likely result if they take the job. If, for example, they discover that there's a 35% chance of making a defective part, then the manufacturer probably wouldn't want to accept that job, but if only 10% of the product are likely to be turned out defective, then the manufacturer may go in for the order. In this way, they can cut down losses by being able to quantify the likelihood of a particular outcome.

Since things like cost of fuel and other raw materials and demand for products are uncertain, managers need to plan for different possible scenarios, and it is important to have some idea about the probability of how situations might turn out.

A shop manager can observe the preferences of the customers who come into the shop on several days to gather useful information about what to expect tomorrow- which goods are likely to be in more demand, or which goods customers are feeling over-priced etc. At a casino, 5 successes in a row may not give much reason to believe that the sixth will as well be a hit. But in practical business situations, a businessman's gut feeling together with a basic knowledge of how probability concepts can be applied to a situation can help managers in drawing inferences and take sound practical decisions.