Probability Theory and Decision-Making in Business

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Probability is that part of the statistical sciences that deals with uncertainty and chance. As a branch of statistics, probability theory and applications are used to develop a future projection of the likelihood of happening (or not happening) of an event.

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Understanding probability is helpful for decision-making in business as well. This is especially true when the business owner or management is dealing with uncertainty or wants to make an evaluation of potential financial risk. In these cases conducting an experiment or sample test provides an outcome that can be used to compute the chance of events occurring in the future. As defined in the scholarly literature “an experiment is the observation of some activity or the act of taking some measurement. Whereas, an outcome is a particular result of an experiment. The collection of one or more outcomes of an experiment is known as an event” (Galloway, 2003).

But for business purposes the probability theory can also be used by looking at the past financial performance data, taking out the statistical trend, and building projections of the possible future events. This way business owners and managers can find out the trend.

Every organization, be that for-profit or not-for-profit, has an operations function, whether or not they call it ‘operations’. To achieve these results, companies have to find the necessary resources, transform them into outputs and distribute them to the market for customers to use. The term operations “embraces all the activities required to create and deliver an organization’s goods or services to its customers or clients” (Galloway, 1998, p. 53). The duty of an operations manager of a company is to assess the operational health of that business and make the necessary changes and regulations in order to avoid future problems of correct existing ones.

Operations management is “concerned with the design, management, and improvement of the systems that create the company’s goods or services” (Galloway, 1998, p. 55). The majority of most companies’ financial and human resources are invested in the activities involved in making products or delivering services. Operations management is therefore critical to organizational success. In this report, we will discuss the situation of our company, Impressive Burgers, and the possible ways out of the present bad situation and the actions that should follow. We will try to do this by discussing some of the latest development in operations management theory. This discussion will be done in an effort to apply the tools, techniques and practical models of this science to the present situation of Impressive Burgers. After assessing the company’s background and history and the ongoing operations in the current situation, we will attempt to explain the transformation model of operational management and how it can be of use for our company.

The background of a company is necessary in order to properly understand the present trends which it is undergoing. Many times, the background is essential for a manager in the sense it reveals the foundations upon which the company was founded and built. Here one can find some of the major strengths or weaknesses for that company and assess what should be changed and what should not. From the point of view of an operations manager, this historical background is quite essential. The historical way operations were conceived and conducted may be the key to the understanding of the problems that the company is facing today. Future solutions also must be based on the background. Furthermore, the most important thing is that the repeating of the operation processes year after year has formed and consolidated a certain working culture among the company’s staff.

Our company, Impressive Burgers was established 10 years ago with the goal of providing fast take away food to their customers quickly and of a higher quality to that of their rivals. In the beginning, the idea was that each restaurant should offer a simple menu structure with a choice of six set meal options. This was the industry standard but the company tried to distinguish itself from the beginning. The size of the chips and drinks portions varied but the burger size remained the same. This mode of conducting operations made it possible that by using this format they were able to serve each customer their order within 4 minutes from ordering at the till to receive their complete order to take away. Each restaurant places their orders with the suppliers directly based on the manager’s prediction for demand based on the reports generated by the restaurant’s own till system. These orders arrive in one shipment once every other week.

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Throughout the years, our company has grown into a chain of restaurant operations. In order to keep up with the expansion and the rivalry, the management introduced a number of changes to the format 12 months ago in an effort to increase each business at each restaurant. The number of set meal options available on the menu was increased and enriched to offer more options to the customer and to attract customers seeking healthier options. In addition to these set menu additions the company also offered the option of changing the chips option on the set meals for either a Side Salad or for Potato Wedges. The restaurants themselves have not changed and the number of staff and machinery has remained at the same levels before the menu changes. That is one of the big mistakes that our company has done. In order to properly respond to this operations enlargement, the staff workload and number should also be the concern of the top management board. By failing to provide better treatment for the workforce, ultimately the company will damage itself and the ongoing of its operations (Gomez-Mejia et al, 2008). We will discuss this issue in detail later on in this paper.

References

Galloway, L. 1998. Principles of Operations Management, New York: ITP Press.

Gomez-Mejia, R. 2008. Principles of Management. New York: Macmillan.

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BusinessEssay. (2022) 'Probability Theory and Decision-Making in Business'. 23 February.

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BusinessEssay. 2022. "Probability Theory and Decision-Making in Business." February 23, 2022. https://business-essay.com/probability-theory-and-decision-making-in-business/.

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