Bayes Theorem

"In its simplest algebraic form, Bayes' theorem is concerned with determining the conditional probability of event A given that event B. has occurred." (Kazmier, Staton & Fulks, 2003; p. 43). In this case, the event A is the increase in sales through the e-commerce site while event B. is the implementing of the decision to create a site. The probability for the sales to increase, according to the marketing team data analysis, is 54.2% and the probability for the site to be created is 58.6%. So, the probability for event B. To not happen is 41.4% and the possibility for sales to improve without the e-commerce site is 45.8%.

The general form of Bayes theorem is:

P (A

B) = P (A and B)/P (B).

P (A1B1)= P (A1 and B1 ) / P (B1 ) and P (A2B2) = P (A2 and B2) / P (B2).

When substituted, P (A1B1) is 0.5477 while P (A2B2) is 0.4523.

Based on this formula, the overall probability that the company will make good profits from the e-commerce site is 54.77% while the probability that the company will make profits without the e-commerce site is 45.23%. Using Bayes Theorem, the uncertainty was eliminated and the management has a good idea of the probability of making profits with or without the site. There is more than...

This was exactly what the company was looking and it made its decision easy.
Therefore, the management of the company decided to go ahead with the e-commerce site because it believed that the cost of creating the site will be offset over a period of five years and the running costs will be less than the increase in sales. Also, the company's management felt that using Internet was the way forward and this 55% probability can go up even higher in future. The Managing Director of the company felt that the business could expand its operations and cater to customers living in different geographical region across different timezones through an e-commerce site. Due to these reasons and the high probability to increase its sales led the company to make the right decision which is going for the e-commerce site.

References

Kazmier, Leonard. J; Staton, Michael.K; Fulks, Daniel.L.(2003). Business Statistics. Publication:London, McGraw-Hill.

Lind, Douglas, A; Mason, Robert. D; Gupta, Satya Dev. (2004). Statistical Techniques in Business and Economics. Publication: New York, McGraw-Hill.

Lind, Douglas. A;Marchal, William. G; Wathen, Samuel Adam. (2006). Basic Statistics for Business…