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Probability for Managers - Essay Example

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Probability for Managers

The growing uncertainties under which managers must function, is a feature of the conventional environment (Daum, 2004). The aspect of uncertainty is exacerbated by information overload. Studies confirm that the information available to managers exceeds human capacity to process and to use such information. This makes for very difficult operating systems for managers. A third aspect of management practice is that most processes involve groups and teams. Even where final authority rests with an individual, the varying capabilities of managers to focus and to absorb information, requires that a common platform is created, so that each participant can express his or her views. Dissent is often the result of opposing parties basing their opinions on different scenarios, which they think is probable. Scientific application of probability theories has therefore a watershed role in building common understanding, if not consensus in teams that run firms.
Formal probability techniques have been used in research functions of firms for a long time. Market Research, Clinical Trials and all other experiments to study the safety and efficacy performances of new products, use probability methodology. Random number generation and use, sampling, determination of significance and confidence levels all depend on probability science. Managers who are not formally trained in mathematics, or who do not remember their academics, may use outputs stated in qualitative terms for their decisions. This can lead to critical matters being effectively delegated to specialists who understand mathematics. Many examples of such distortion can be found in the high-profile pharmaceutical industry. Products have been released for the market, though research showed the probabilities of side-effects and adverse events. Managers in the concerned firms, regulators and doctors have all been victims of their ignorance of probability science, in taking decisions that were to subsequently cost consumers dearly! This trend will continue as technology takes us in to fields with multiple outcomes. It highlights the need for modern managements to fully understand the conclusions of formal probability methods.
Insurance is another traditional field for the use of probability (Matthew & Stewart, 1999, p 2). The industry that provides cover against premiums depends on probability theories in large measure for their sustained probability, as indeed do all bookmakers involved in structured and informal gambling operations of all kinds. Firms with large capital assets often invest in internal positions, using specialists to determine their insurance policies and practices. Product liability is often determined in companies by people without adequate grounding in the mathematics of probability: under provision for related claims is often the result. All products and services that have potential implications for human safety and in terms of environmental impacts need the systematic and continuous application of established and proven probability techniques, for appropriate decision making.
Stock valuation and its future course have emerged as industries in their own rights with the development of bourses world wide and the spread of the financial services and merchant banking sectors. Mutual funds also depend almost entirely on future estimates of market capitalization. Forecasts of scrip values started with simple regression and ...Show more


Probability is inherent in all management action, though more often in intuitive form than as a formal and conscious method. The essence of management is to take decisions for the development and deployment of human, material, financial and intangible resources…
Author : cierrakiehn
Probability for Managers
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