Capterra Glossary
Probability
Probability is the branch of mathematics that deals with numerical descriptions of the likelihood that an event will occur, or how likely it is that a proposition is truthful. The probability of an event is a number between zero and one. Zero indicates the impossibility that an event will occur and one indicates certainty that the event will occur. The formula used to calculate the probability of a single event occurring is (P = n / N), which means the probability (P) of an event occurring equals the number of ways an event can occur (n) divided by the total number of possible outcomes (N). The formula used to calculate the probability of multiple events occurring is P(A and B) = P(A) x P(B),which means the probability of both A and B events occurring (P(A and B)) is equal to the probability of event A occurring (P(A)) multiplied by the probability of event B occurring (P(B)).
What Small and Midsize Businesses Need to Know About Probability
Small to midsize insurance companies use theoretical probability to assign particular insurance policies to customers based on their likelihood of cashing in on their insurance agreement. Probability is also the backbone of small to midsize sports betting organizations. This type of business turns a profit by allowing customers to predict the probability of a certain sports team winning and place monetary bets that support their predictions. If the customer’s predictions turn out to be false, the betting organization keeps the entirety of the monetary bet. If the customer’s prediction is true, the customer gets to keep the entirety monetary bet. Other industries will use the theory of probability to determine the likelihood of particular outcomes for their business.
Related Terms
- Compound Annual Growth Rate (CAGR)
- Financial Planning and Analysis (FP&A)
- Selling General and Administrative (SG&A) Expenses
- Hedge Fund
- Gateway
- Record to Report (R2R)
- ROIT (Return on Information Technology)
- Chief Revenue Officer (CRO)
- SAC (Subscriber Acquisition Cost)
- ROE (Return on Equity)
- Tokenization
- Net Present Value
- Fintech
- Financial Management System (FMS)
- Business Capability Modeling