Confidence Intervals

Confidence Intervals and Levels:

• A confidence interval gives the percentage probability that an estimated range of possible values in fact includes the actual value being estimated

Confidence Intervals in Business:

• Businesses benefit from the use of statistics in estimating or predicting future events

• A confidence interval helps a business evaluate the reliability of a particular estimate

• Because no estimate can be 100% reliable, businesses need to know how confident they should be in their estimates and whether or not to act on them

Examples of Confidence Intervals:

• Quality management:

  • Percentage reliability of machines

  • The chance that quality control samples will detect issues

• Market research:

  • Statistical estimates for sales forecasting

  • Reliability of data from customer surveys

• Risk management and contingency planning:

  • Risks of sales forecasts not being achieved

  • Scenario planning for competitor actions

• Budgeting and forecasting:

  • Likely range of revenues and costs based on key assumptions

  • Sales forecasts to support new product launches