Yusuf Yudhistira P - 18/430276/PA/18789

Poisson Process
A Poisson Process is a model for a series of discrete event where the average time between
events is known, but the exact timing of events is random. The arrival of an event is
independent of the event before (waiting time between events is memoryless). For example,
suppose we own a website which our content delivery network (CDN) tells us goes down on
average once per 60 days, but one failure doesn’t affect the probability of the next. All we
know is the average time between failures.

A Poisson Distribution is similar to the Normal but with an added factor of skewness. With a
low value for the skewness a poisson distribution will have relatively uniform spread in all
directions just like the Normal. But when the skewness value is high in magnitude then the
spread of our data will be different in different directions; in one direction it will be very
spread and in the other it will be highly concentrated.
When the Poisson Distribution is Valid
The Poisson Distribution is only a valid probability analysis tool under certain conditions. It
is a valid statistical model if all the following conditions exist:

 k is the number of times an event happens within a specified time period, and the
possible values for k are simple numbers such as 0, 1, 2, 3, 4, 5, etc.
 No occurrence of the event being analyzed affects the probability of the event re-
occurring (events occur independently).
 The event in question cannot occur twice at exactly the same time; there must be
some interval of time – even if just half a second – that separates occurrences of the
event.
 The probability of an event happening within a portion of the total time frame being
examined is proportional to the length of that smaller portion of the time frame.

 The number of trials (chances for the event to occur) is sufficiently greater than the
number of times the event does actually occur (in other words, the Poisson
Distribution is only designed to be applied to events that occur relatively rarely)
Given the above conditions, then k is a random variable, and the distribution of k is a Poisson
Distribution.

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 is 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.

Examples: 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 extra 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, plus provide 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.