Difference between Normal,

Binomial, and Poisson

Distribution
www.researchoptimus.com
3 mins read

D
istribution is an important part of analyzing data sets
which indicates all the potential outcomes of the data, and
how frequently they occur. In a business context,
forecasting the happenings of events, understanding the success or
failure of outcomes, and predicting the probability of outcomes is
essential to business development and interpreting data sets.

The following types of distribution are used in analytics:

• Normal Distribution
• Binomial Distribution
• Poisson Distribution

In a modern digital workplace, businesses need to rely on more than

just pure instincts and experience, and instead utilize analytics to
derive value from data sets.

Normal Distribution
Normal Distribution is often called a bell curve and is broadly utilized
in statistics, business settings, and government entities such as the
FDA. It's widely recognized as being a grading system for tests such
as the SAT and ACT in high school or GRE for graduate students.

Normal Distribution contains the following characteristics:

• It occurs naturally in numerous situations.

• Data points are similar and occur within a small range.
• Much fewer outliers on the low and high ends of data range.

Example:

Formula Values:

X = Value that is being standardized

μ = Mean of the distribution

σ = Standard deviation of the distribution

• Use the following formula to convert a raw data value, X to

a standard score, Z.
• Assuming a specific population has μ = 4, and σ = 2. For
example, finding the probability of the randomly selected
value being greater than 6 would resemble the following
formula:
• The Z score corresponding to X = 6 will be:
• Z = 1 means that the value of X = 6 which is 1 standard
deviation above the mean.

Business Applications:

• Can be utilized to model risks and following the distribution

of likely outcomes for certain events, like the amount of
next month's revenue from a specific service.
• Process variations in operations management are sometimes
normally distributed, as is employee performance in Human
Resource Management.
• Human Resource management applies Normal Distribution
to employee performance.
Binomial Distribution
Binomial Distribution is considered the likelihood of a pass or fail
outcome in a survey or experiment that is replicated numerous times.
There are only two potential outcomes for this type of distribution,
like a True or False, or Heads or Tails, for example.

Characteristics of Binomial Distribution:

• First variable: The number of times an experiment is
conducted
• Second variable: Probability of a single, particular outcome
• The probability of an occurrence can only be determined if
it's done a number of times
• None of the performed trials have any effect on the
probability of the following trial
• Likelihood of success is the same from one trial to the
following trial

Formula Values:

x: Number of successes

X: Random variable

C: Combination of x successes from n trials

p: Probability of success

(n - x): Number of failures

(1 - p): Probability of failure

 • Assuming that 15% of changing street lights records a car
running a red light, and the data has a binomial
distribution.
• The formula used to determine the probability that exactly 3
cars will run a red light in 20 light changes would be as
follows: P = 0.15, n = 20, x = 3
• Apply the formula, substituting these values:

• Therefore, the probability of 3 cars running a red light in 20

light changes would be 0.24, or 24%.

Business Applications:

• Banks and other financial institutions use Binomial

Distribution to determine the likelihood of borrowers
defaulting, and apply the number towards pricing
insurance, and figuring out how much money to keep in
reserve, or how much to loan.

Poisson Distribution
The probability of events occurring at a specific time is Poisson
Distribution.In other words, when you are aware of how often the
event happened, Poisson Distribution can be used to predict how
often that event will occur.It provides the likelihood of a given
number of events occurring in a set period.

Poisson Distribution Characteristics:

• An event can happen any amount of times throughout a
period.
• Events occurring don't affect the probability of another
event occurring within the same period.
• Occurrence rate is constant and doesn't change based on
time.
• The likelihood of an occurring event corresponds to the time
length.
Formula Values:

x: Actual number of occurring successes

e: 2.71828 (e = mathematical constant

λ: Average number of successes with a specified region

• For example, the average number of yearly accidents at a

traffic intersection is 5. To determine the probability that
there are exactly three accidents at the same intersection
this year, apply the following formula:
Here, λ = 5, and x = 3.

• Therefore there's a 14% chance that there will be exactly

three accidents there this year.

Business Applications:

• Predicting customer sales on particular days/times of the

year.
• Supply and demand estimations to help with stocking
products.
• Service industries can prepare for an influx of customers,
hire temporary help, order additional supplies, and make
alternative plans to reroute customers if needed.

Support Business Objectives through

Distribution Analytics
Businesses analyze data sets to apply valuable insights into their
strategies. Distribution helps businesses to better understand the
choices they make, whether or not these choices will be successful,
and gain further insight predicting the outcomes of their business
decisions. The experts at Research Optimus (ROP) have been working
with distribution analytics for over a decade.

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