Stochastic modelling is a mathematical approach to representing data or predicting outcomes in situations where there is randomness or unpredictability to some extent.
For example, in a production unit, the manufacturing process generally has some unknown parameters like quality of the input materials, a reliability of the machines and competence within the employees. These parameters have an impact on the outcome of the manufacturing process but it is impossible to measure them with absolute values.
In these types of cases, where we need to find the absolute value of unknown parameters, which cannot be measured exactly, we use Stochastic modelling approach. This modelling strategy helps in predicting the result of this process with some defined error rate by considering the unpredictability of these factors.