Probability in Managerial Decision-Making

Probability in Managerial Decision-Making

It is generally agreed that values calculated in probability influence various managerial decisions. For instance, it is used to establish product guarantees. One area in management where probability is often applied is risk management (Huang et al., 2021). Probabilistic values are used to represent a risk, and their calculation is a management practice that informs numerous decisions. Garg (2018) notes that different decision-making models are based on probability. The example given below illustrates the use of probability in risk management:

Assume an investor is investing $500 million in a product, and then he desires to know how much gain is due to him at the completion of the project. Assume a probability of 5% to determine the percentage risk involved in the product and compare in a marketing language; how much subjection might be lost per day that is of 5%?

In handling the above scenario, a normal distribution will be assumed for the product in the market. Further, the value of the project can be stated as ‘A’/USD. Thus, the investor may hold the ‘A’ product at a sale of 10 million. The illustration of the study chat will be given by:

S.D of ‘A’ is given by 0.56%.

Presenting it using a graph, the following will be obtained:

For USD:

= (1.05*0.565%)

= 0.932

Therefore, the conclusion regarding a 5% loss given the probability will be given as:

= (50*0.932)/100

= $0.47 million

References

Garg, H. (2018). Some methods for strategic decision‐making problems with immediate probabilities in a Pythagorean fuzzy environment. International Journal of Intelligent Systems, 33(4), 687-712.

Huang, C., Mi, X., & Kang, B. (2021). Basic probability assignment to probability distribution function based on the Shapley value approach. International Journal of Intelligent Systems, 36(8), 4210-4236.

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Probability in Managerial Decision-Making

Please respond to one of the following two items for your Discussions Forum activity in this unit.
1. After reading the example above, where one can see how probability values can be used in managerial decision-making to establish a product guarantee, post a comment where you think probability could be used to help solve other management-type questions/problems. Think of something at work, past or present, where you could apply the techniques in the example to assist in making the best decision. If you can’t draw on a life experience, then think of a product/issue where this process could be applied. Please explain your answer. Remember to cite your resources and use your own words in your explanation.
2. What method of assigning probability (relative frequency, classical, or subjective) discussed in MAT220.31 do you feel is the most appropriate to use and why? To demonstrate your understanding, please provide an example that is not found in your text.