Estimating the “Acts of God”
Introduction
Acts of God are occurrences that are beyond the control of human beings; however, sometimes, human beings can minimize their impacts. The common “acts of God” that mainly affect business operations are hurricanes, floods, and earthquakes. The conventional ways of reducing the effect of “acts of God” in business by putting in place preventive measures to minimize the effect of occurrence and taking insurance cover for business to be compensated against loss to continues with operations (Graham& Kaye,2015).Therefore, as a risk manager, it will be essential to estimate the chances for occurrences of “acts of God” in the coming year and in the next year when securing the insurance. This discussion aims to examine the sources of valid data for analysis and how the concept of conditional probability can be used in this case.
Sources of Valid Data for Analysis
The “acts of God” occur irregularly, and therefore, various sources of data may need to compare to come up with an accurate estimate. The sources that will be used as sources of data to carry out this analysis. First is to conduct a random sample to establish the “acts of God” that have happened in the last few years, the frequency of occurrence and the month in which they occurred, and, if possible, the specific date and time they occurred. In this case, the binomial distribution (Newbold,Carlson& Thorne,2013). could be used to analyze the chances of the “act of God” occurring or not in the near future. There are different types of “acts of God” that can occur, and to estimate with accuracy the specific type of natural disaster that may arise, the Poisson distribution may be used. The second source of data will be visiting local weather stations and discussing with the metrological experts on the possible occurrences of natural disasters in the near future. The source of data is visiting the local community and gathering opinions on the possible occurrence of “acts of God,” based on the previous history. The last source of data will be analyzing secondary sources such as weather reports and forecasts to estimate the frequency of occurrence. The final step will be comparing the various sources of data, and the measures of central tendency will be used to establish the average occurrence of “acts of God” in the region.. Don't use plagiarised sources.Get your custom essay just from $11/page
The Use of Conditional Probability
Conditional probability estimates the occurrence of one event when given the probability of occurrence of other events that are related (Black,2019).In this case, it is possible to estimate the occurrence of the “act of God” using conditional probability in this way. Costal states and towns like Florida are prone to natural disasters such as hurricanes and regular floods. Let’s say the occurrence of hurricanes is event A, and the occurrence of floods is event B. If the analysis of previous events shows that the occurrence of the two events, A and B are related. It is possible to estimate the occurrence of one event given the probability of the other.
For instance, if the probability of Event A occurring given B is 0.2, and the probability of B occurring is 0.5. It is possible to estimate the occurrence of event A and B using the concept of conditional probability as follows;
P(A|B) = P(A and B) / P(B) (Black, 2019).
0.2 = x/0.5
P(A and B)= (0.2*0.5)= 0.10
Conclusion
In summary, random sampling, discussion with the local metrological experts, visiting the local community, and analysis of weather reports and forecast can be used to gather data to estimate the occurrence of “Acts of God.” The conditional probability can also be used to estimate the occurrence of “acts of God” if the probability of occurrence one event is known.
References
Newbold, P., Carlson, W. L., & Thorne, B. (2013). Statistics for business and economics. Boston, MA: Pearson.
Graham, J., & Kaye, D. (2015). A Risk Management Approach to Business Continuity: Aligning Business Continuity and Corporate Governance. Rothstein Publishing.
Black, K. (2019). Business statistics: for contemporary decision making. John Wiley & Sons.