PROBABILITY-

BINOMIAL AND
POISSONS DISTRIBUTION
Submitted By- Laksh Preet Singh (23025) (Retail Management-1st Sem)
Mahak Sharma(23027)
Rtik Goyal(23016)
Ashish Kumar Dewak(23038)
Jawadrahman(23051)
Wahidullah Karimi(23056)
PROBABILITY
Probability means possibility. It is a branch of mathematics that deals with the occurrence of
a random event. The value is expressed from zero to one. Probability has been introduced in
Maths to predict how likely events are to happen.
The meaning of probability is basically the extent to which something is likely to happen.
This is the basic probability theory, which is also used in the probability distribution, where
you will learn the possibility of outcomes for a random experiment. To find the probability of
a single event to occur, first, we should know the total number of possible outcomes.
For example, when we toss a coin, either we get Head OR Tail, only two possible outcomes
are possible (H, T). But if we toss two coins in the air, there could be three possibilities of
events to occur, such as both the coins show heads or both shows tails or one shows heads and
one tail, i.e.(H, H), (H, T),(T, T)
 FORMULA FOR PROBABILITY

• The probability formula is defined as the possibility of an event to happen is equal to the
ratio of the number of favourable outcomes and the total number of outcomes.
Probability of event to happen P(E) = Number of favourable outcomes/Total Number of
outcomes
EXAMPLE :
1) There are 6 pillows in a bed, 3 are red, 2 are yellow and 1 is blue. What is the
probability of picking a yellow pillow?
Ans: The probability is equal to the number of yellow pillows in the bed divided by the total
number of pillows, i.e. 2/6 = 1/3.
 PROBABILITY TREE
• The tree diagram helps to organize and visualize the different possible outcomes.
Branches and ends of the tree are two main positions. Probability of each branch is written
on the branch, whereas the ends are containing the final outcome. Tree diagram is used to
figure out when to multiply and when to add. You can see below a tree diagram for the
coin:
 TYPES OF PROBABILITY

• Theoretical Probability
It is based on the possible chances of something to happen. The theoretical probability is mainly based on
the reasoning behind probability. For example, if a coin is tossed, the theoretical probability of getting a
head will be ½.
• Experimental Probability
It is based on the basis of the observations of an experiment. The experimental probability can be calculated
based on the number of possible outcomes by the total number of trials. For example, if a coin is tossed 10
times and heads is recorded 6 times then, the experimental probability for heads is 6/10 or, 3/5.
• Axiomatic Probability
In axiomatic probability, a set of rules or axioms are set which applies to all types. These axioms are set by
Kolmogorov and are known as Kolmogorov’s three axioms. With the axiomatic approach to probability,
the chances of occurrence or non-occurrence of the events can be quantified.
 Binomial Distribution
• A trial with only two possible outcomes is used so
frequently as a building block of a random experiment
that it is called a Bernoulli trial.

• It is usually assumed that the trials that constitute the

random experiment are independent. This implies that
the outcome from one trial has no effect on the
outcome to be obtained from any other trial.

• Furthermore, it is often reasonable to assume that the

probability of a success on each trial is constant.
Binomial Distribution
 Binomial Distribution

CHARACTERSTICS

 It is a discrete distribution which gives the theoretical probabilities

 It depends on the parameter p or q, the probability of success or failure
and n(i.e. The number of trials). The parameter n is always a positive
integer
 The distribution will be symmetrical if p=q. It is skew symmetric or
asymmetric if p is not equal to q.
 The statistics of the Binomial Distribution are: Mean = np , Variance =
npq , and Standard Deviation = square root of (npq)
 The mode of the binomial distribution is equal to that value of x which
has longer frequency
 Binomial Distribution

ASSUMPTIONS

 For each trial there are only two possible outcomes on each
trial, S (success) & F (failure).
 The number of trials ‘ n’ is finite.
 For each trial, the two outcomes are mutually exclusive .
 P(S) = p is constant. P(F) = q = 1-p.
 The trials are independent, the outcome of a trial is not
affected by the outcome of any other trial.
 The probability of success, p, is constant from trial to trial.
 CRITERIA;

• Binomial distributions must also meet the following three criteria:

• 1. The number of observations or trials is fixed. In other words, you can only figure out
the probability of something happening if you do it a certain number of times. This is
common sense—if you toss a coin once, your probability of getting a tails is 50%. If you
toss a coin a 20 times, your probability of getting a tails is very, very close to 100%.
• 2. Each observation or trial is independent. In other words, none of your trials have an
effect on the probability of the next trial.
• 3. The probability of success (tails, heads, fail or pass) is exactly the same from one trial
to another.
• Once you know that your distribution is binomial, you can apply the binomial distribution
formula to calculate the probability.
• b(x; n, P) = nCx * Px * (1 – P)n – x THE BINOMIAL DISTRIBUTION FORMULA IS:
• Where:
• b = binomial probability
• x = total number of “successes” (pass or fail, heads or tails etc.)
• P = probability of a success on an individual trial
• n = number of trials
• Note: The binomial distribution formula can also be written in a slightly different way, because nCx
= n! / x!(n – x)! (this binomial distribution formula uses factorials (What is a factorial?). “q” in this
formula is just the probability of failure (subtract your probability of success from 1).
•
 USING BINOMIAL DISTRIBUTION FORMULA
•The binomial distribution formula can calculate the probability of success for binomial distributions. Often you’ll be
told to “plug in” the numbers to the formula and calculate. This is easy to say, but not so easy to do—unless you
are very careful with order of operations, you won’t get the right answer. If you have a Ti-83 or Ti-89, the calculator
can do much of the work for you. If not, here’s how to break down the problem into simple steps so you get the
answer right—every time.
•For Example:
•Q. A coin is tossed 10 times. What is the probability of getting exactly 6 heads?
•I’m going to use this formula: b(x; n, P) – nCx * Px * (1 – P)n – x
•The number of trials (n) is 10
•The odds of success (“tossing a heads”) is 0.5 (So 1-p = 0.5)
•x = 6
•P(x=6) = 10C6 * 0.5^6 * 0.5^4 = 210 * 0.015625 * 0.0625 = 0.205078125
•Tip: You can use the combinations calculator to figure out the value for nCx.
 REAL LIFE EXAMPLES;

• Many instances of binomial distributions can be found in real life. For example, if a new
drug is introduced to cure a disease, it either cures the disease (it’s successful) or it
doesn’t cure the disease (it’s a failure). If you purchase a lottery ticket, you’re either
going to win money, or you aren’t. Basically, anything you can think of that can only be
a success or a failure can be represented by a binomial distribution.
• Defective Items: Probability of finding the number of defective
items (0, 1, 2, 3…30) while examining 30 times; Here, the random
variable X is the number of “successes” that is the number of times
defective item is found out. The probability of finding a defective
item is p. Binomial distribution could be represented as B(30,p)
• A person suffering from a disease: Probability of finding 0 or
more number of people suffering from a particular disease while
examining 100 people; Here, the random variable X is the number
of “successes” that is the number of people found to be suffering
from a disease. The probability of finding a person suffering from a
disease says, p. The binomial distribution could be represented as
B(100,p)
• A number of voters voting for PM, Narendra Modi: Probability of finding
the number of voters for Prime minister, Narendra Modi while examining 500
voters. Here, the random variable X is the number of “successes” that is the
number of people found to be voting for prime minister, Narendra Modi. The
probability/proportion of voters who vote for Narendra Modi is, say, 0.7 or
70%. Binomial distribution could be represented as B(500,0.7)
• High-risk Drinking Example: Probability of finding high-risk drinkers when
examining 1000 persons. Here, the random variable X is the number of
“successes” that is the number of students who are the high-risk drinkers. We
can use the binomial probability distribution (i.e., binomial model), to describe
this particular variable. Let’s say, the probability/proportion of high-risk
drinkers is 0.35 or 35%. The binomial distribution could be represented as
B(1000,0.35)
• A number of female voters: Probability of finding female voters when
examining 100 voters. Here, the random variable X is the number of “successes”
that is the number of voters who are female. We can use the binomial probability
distribution (i.e., binomial model), to describe this particular variable. Let’s say,
the probability/proportion of voters who are female is 0.45 or 45%. The
binomial distribution could be represented as B(100,0.45)
• Students passing the exams: Probability of finding students who passed the
exams when examining 50 students. Here, the random variable X is the number
of “successes” that is the number of students who passed the exams. Let’s say,
the probability/proportion of students passing the exams is 0.78 or 78%. The
binomial distribution could be represented as B(50,0.78)
• Drivers having no car insurance: Probability of finding drivers who don’t possess car
insurance when examining 100 drivers. Here, the random variable X is the number of
“successes” that is the number of drivers who don’t possess the car insurance. Let’s say,
the probability/proportion of drivers do not possess car insurance is 0.2 or 20%. The
binomial distribution could be represented as B(100,0.20)
• No. of correct answers from multiple-choice questions: Probability of getting right
answers out of 20 multiple-choice questions when one out of 4 options were chosen
arbitrarily. Here, the random variable X is the number of “successes” that is the number
of right answers. Let’s say, the probability/proportion of an answer being right is 1/4 or
0.25 or 25%. The binomial distribution could be represented as B(20,0.25)
• Effects of Medication: Probability of the medication having severe effects when
examining 1000 patients. Here, the random variable X is the number of “successes”
which is the number of severe effects. Let’s say, the probability/proportion of having a
severe effect is 1/5 or 0.2 or 20%. The binomial distribution could be represented as
B(100,0.20)
 POISSON DISTRIBUTION

It was named after French

mathematician Siméon Denis Poisson.
Poisson distribution is a Probability Distribution that
can be used to show how many times an event is likely
to occur within a specified period of time.

It is a count distribution.
 
NEED FOR POISSON
DISTRIBUTION
Poisson Distribution used in cases where the chance of individual event
being is very small. The distribution is used to describe the behavior of
rare events.

EXAMPLES
1. The number of defective screws per box of 5000 screws.
2. The number of air accidents in India in one year.
3. Occurrence of number of scratches on a sheet of glass.
4. The number of printing mistakes in each page of the first proof of
the book.
CHARACTERICTICS OF POISSON
DISTRIBUTION
1. It is a discrete distribution
1. It depends mainly on the value of the mean m.
2. This distribution is positively skewed to the left. With the increase
in the value of the mean , the distribution shift to the right and the
skewness diminished.
3. If n is large and p is small, this distribution gives a close
approximation to binomial distribution. Since the arithmetic mean
of Poisson is same as that of binomial.
4. Poisson distribution has only one parameter i.e. m, the arithmetic
mean. Thus the entire distribution can be determined once the
arithmetic mean is known.
 THE DISTRIBUTION
FORMULA
Below is the Poisson Distribution formula, where the mean (average) number of
events within a specified time frame is designated by μ. The probability formula
is:
P(x; μ) = (e-μ) (μx) / x!
 
Where:
x = number of times and event occurs during the time period
e (Euler’s number = the base of natural logarithms) is approx. 2.72
x! = the factorial of x (for example, if x is 3 then x! = 3 x 2 x 1 = 6)
Let’s see the formula in action:
Say that, on average, the daily sales volume of 60-inch 4K-UHD TVs at XYZ
Electronics is five. Calculate the probability of XYZ Electronics selling nine TVs
today.
 μ = 5, since five 60-inch TVs is the daily sales average
 x = 9, because we want to solve for the probability of nine TVs being sold
 e = 2.71828
 
Insert the values into the distribution formula: P(x; μ) = (e-μ) (μx) / x!
= (2.71828-5) (59) / 9!
= (0.0067) (1953125) / (3262880)
= 0.036
3.6% is the probability of nine 60-inch TVs being sold today.
 BUSINESS USES OF THE POISSON
DISTRIBUTION
The Poisson Distribution can be practically applied to several business
operations that are common for companies to engage in. As noted above,
analyzing operations with the Poisson Distribution can provide company
management with insights into levels of operational efficiency and suggest
ways to increase efficiency and improve operations.
 HERE ARE SOME OF THE WAYS THAT A COMPANY
MIGHT UTILIZE ANALYSIS WITH THE POISSON
DISTRIBUTION

Check for adequate customer service staffing. Calculate the

average number of customer service calls per hour that require
more than 10 minutes to handle. Then, calculate the Poisson
Distribution to find the probable maximum number of calls per
hour that might come in requiring more than ten minutes to
handle. Assuming that the maximum number of 10+ minutes calls
occurs, evaluate whether customer service staffing is adequate to
handle all the calls without making customers wait on hold.
Use the Poisson formula to evaluate whether it is financially viable to keep a store
open 24 hours a day. Calculate the average number of sales made by the store during the
overnight shift – the period from midnight to 8 A.M. Using the distribution formula then,
calculate the probable lowest number of sales that might be made during the overnight
shift.
Finally, determine whether that lowest probable sales figure represents sufficient revenue to
cover all the costs (wages and salaries, electricity, etc.) of keeping the store open during that
time period, while also providing a reasonable profit.
Review and evaluate business insurance coverage. Determine the average number of
losses or claims that occur each year and that are covered by the company’s business
insurance. Then do a Poisson probability calculation to determine the maximum and
minimum numbers of claims that might reasonably be filed during any one year.
Review the cost of your insurance and the coverage it provides. Consider whether perhaps
you’re overpaying – that is, paying for a coverage level that you probably don’t need, given
the probable maximum number of claims.
Alternatively, you may find that you’re underinsured – that if what the Poisson distribution
shows as the probable highest number of claims actually occurred one year, your insurance
coverage would be inadequate to cover the losses.
 SUMMARY
The Poisson Distribution can be a
helpful statistical tool you can use
to evaluate and improve business
operations. Excel offers a Poisson
function that will handle all the
probability calculations for you –
just plug the figures in.
THANK YOU