Business and Legal Decisionmaking with

Quantitative Methods

By

Anthony J. Fejfar, B.A., J.D., M.B.A., Phd .

(C)Perpetual Copyright (2011) by Anthony J. Fejfar and Neothomism, P.C. (PA)

Quantitative Methods is the method of using inductive probability or

statistical analysis to evaluate and make business and legal decisions. The basic

starting point for quantitative methods is the equation: 1/pfe, where pfe stands for

a possible future event. So, for example, if you were about to roll a six sided

dice, there are 6 possible future events which could take place. In analyzing the

probability of any one of the six possibilities taking place, using the equation

1/pfe, you get the equation 1/6, or .167, or put another way, there is 16.7%

probability of any one of the 6 possible future events taking place, such as, for

example, rolling a 5 on the real dice roll.

Now, if business or legal decision involved 6 possible future events, then the

above formula will give you the probability of percentage possibility for each

possible outcome. Of course, the dice roll is just a simple model. In the real

world of business, a business might be doing strategic planning, considering

several different management moves in terms of developing new products, etc.

So, for example, the following possible future events might be considered by XYZ
Corporation:

Possible Event Sales of Pies at various Prices

A B C D E F

# of Pies 10,000 20,000 30,000 40,000 50,000 70,000

Cost per Pie $5 $4.5 $4 $3.5 $3 $2.5

Tot. $ Cost $50,000 $90,000 $120,000 $140,000 $150,000 $175,000

Sale Price $7.5 $7.25 $7 $6.75 $6.50 $6.25

50 % markup

======

Total $75,000 $144,000 $210,000 $270,000 $337,000 $437,500

Gross Sales

Probability 99% 95% 90% 85% 80% 75%

Quotient

Probable $74,250 $136,800 $189,000 $229,500 $269,600 $327,750

Gross

Sales

Since each event is of equal probability, and since once one scenario has been

chosen, the chosen scenario has a 100% probability of occurring, all other things
being equal. However, in the case that the event probabilities are unequal based on

production factors, for example, then each scenario of gross sales must be adjusted

by a probability quotient. Thus, let us assume that actual production is somewhat

less probable because of facility limitations and labor availability, then another

scenario can take place .

Given the foregoing, we can see that Scenario 6, even though there is a

probability discount for increased production complications, still brings in the

highest gross profit for XYZ Corporation at 70,000 pies, $2.25 cost per pie, $6.25

sale price per pie, gross sales of $437,000, and a discounted probable total gross

profits per pie of $327,750. Thus, Scenario 6, with 70,000 pies produced and sold

is the most profitable, even though the sale price per pie is lower than the other

scenarios considered.