# Probability, Uncertainty - Analysis and assessment of risks in business

## Probability

The term probability is fundamental to the theory of probability and allows quantitative comparison of events according to the degree of their possibility. The probability of the event is a certain number from the interval [0; 1], which is the greater, the more possible the event. Probability characterizes the possibility of obtaining a specific concrete result. Obviously, the event that happens more often is more likely. Thus, first of all the concept of probability is associated with the experimental, practical concept of "event frequency".

The probability of a reliable event is taken as the unit of measurement, i.e. such an event, which as a result of any experience, process of activity must necessarily occur. An example of such an event is the fact of receiving income from the sale of products, since it is impossible for a company to sell products without having a price on it (which can be zero, in which case income will be zero).

## Uncertainty

It assumes the existence of factors in which the results of actions are not deterministic, and the degree of possible influence of these factors on the results is unknown. For example, it is incomplete or inaccurate information about the conditions of the project.

Uncertainties are divided into external and internal factors. External factors - legislation, the reaction of the market to the products manufactured, the actions of competitors, etc. Internal - the competence of the firm's personnel, the inaccuracy in determining the characteristics of the project, etc.

Uncertainty conditions that occur in any type of entrepreneurial activity are explained by the fact that economic systems, in the course of their functioning, experience dependence on a number of reasons that can be systematized in the form of an uncertainty scheme (Figure 1.1).

Fig. 1.1. Uncertainty scheme

By the time of uncertainty are divided into retrospective, current and prospective. The need to take into account the time factor in assessing the economic efficiency of decisions is due to the fact that both the effect and costs can be distributed over time. Equal-in-magnitude costs, differently distributed over time, give a different useful result of one kind or another (economic, social, etc.).

Considering uncertainty as the most characteristic cause of risk in economic, commercial, managerial, financial and other activities, it should be noted that identifying and studying it is extremely necessary, since in practice one has to deal with situations whose conditions can not be uniquely determined .

There are various formulations of the term "uncertainty" in the literature. The most complete wording, in our opinion, is: uncertainty - this is an incomplete or inaccurate representation of the meaning of various parameters in the future, generated by various causes, primarily incompleteness or inaccuracy of information on the conditions for implementing the solution, including related ones with them costs and results.

From the point of view of the probability of event realization, the uncertainty can be divided into three types: total uncertainty, complete certainty, partial uncertainty.

The total uncertainty is characterized by a near-zero predictability P t of the occurrence of the event, which is mathematically expressed by the relation

where t is the time; t k - the final time of the prediction of the event.

Complete definiteness corresponds to a predictability of events close to unity, i.e.

This is possible first of all in cases when, when solving a problem under uncertainty, it is determined with what probability the optimal solution is in the confidential predicted interval, which allows the business owner not only to implement his strategy in the market, but also to predict his own behavior, market trends, etc.

Partial uncertainty corresponds to such events, the predictability of which lies in the range from 0 to 1, which is determined by the inequality

In conditions of objective existence of risk and the associated financial, moral and other losses, there is a need for a certain mechanism that would allow the best possible way from the point of view of the goals set by the entrepreneur (firm) to take risks into account when making decisions and realizing economic activities.

The risk of an economic category is also characterized by such a characteristic as inconsistency.

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