MBA Semester I

Statistics for Management

MB0040

Q-1 Statistics plays a vital role in almost every facet of human life. Describe the functions of
Statistics. Explain the applications of statistics.

Statistics are usually defined as:

1. A collection of numerical data that measure something.
2. The science of recording, organising, analysing and reporting quantitative
information.
Functions of Statistics
1. Statistics simplifies mass data
The use of statistical concepts helps in simplification of complex data. Using statistical
concepts, the managers can make decisions more easily. The statistical methods help in
reducing the complexity of the data and consequently in the understanding of any huge mass
of data.
2. Statistics makes comparison easier
Without using statistical methods and concepts, collection of data and comparison cannot be
done easily. Statistics helps us to compare data collected from different sources.
3. Statistics brings out trends and tendencies in the data
After data is collected, it is easy to analyse the trend and tendencies in the data by using the
various concepts of Statistics.
4. Statistics brings out the hidden relations between variables
Statistical analysis helps in drawing inferences on data. Statistical analysis brings out the
hidden relations between variables.
5. Decision making power becomes easier
With the proper application of Statistics and statistical software packages on the collected
data, managers can take effective decisions, which can increase the profits in a business.

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Applications of Statistics
Marketing: Statistical analysis are frequently used in providing information for making
decision in the field of marketing it is necessary first to find out what can be sold and the to
evolve suitable strategy, so that the goods which to the ultimate consumer.
Production: In the field of production statistical data and method play a very important role.
The decision about; what to produce? How to produce? When to produce? For whom to
produce is based largely on statistical analysis.
Finance: The financial organization discharging their finance function effectively depend
very heavily on statistical analysis of peat and tigers.
Banking: Banking institute have found if increasingly to establish research department within
their organization for the purpose of gathering and analysis information, not only regarding
their own business but also regarding general economic situation and every segment of
business in which they may have interest.
Investment: Statistics greatly assists investors in making clear and valued judgment in his
investment decision in selecting securities which are safe and have the best prospects of
yielding a good income.
Purchase: the purchase department in discharging their function makes use of statistical data
to frame suitable purchase policies such as what to buy? What quantity to buy? What time to
buy? Where to buy? Whom to buy?
Accounting: statistical data are also employer in accounting particularly in auditing function,
the technique of sampling and destination is frequently used.
Control: the management control process combines statistical and accounting method in
making the overall budget for the coming year including sales, materials, labour and other
costs and net profits and capital requirement.

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Statistics for Management

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Q-2.
A) Explain the approaches to define probability.
Approaches of Defining Probabilities
There are three approaches of defining probabilities:
1. The classical approach
2. The relative frequency approach
3. The subjective approach
The Classical Approach
This approach applies when the events have equally likely outcomes. Games of chance such
as tossing a coin or rolling a die are based on the classical approach. Lets take the example
of rolling a die. Since a die has six possible outcomes, the probability of any outcome on a
fair die based on a classical approach is 1/6. Likewise, the probability of head on a toss of a
fair coin is .
The Relative Frequency Approach
The classical approach to assignment of probabilities involves situations in which outcomes
are equally likely. As you might guess the probability of outcomes are not equally likely in
many circumstances. Hence according to the relative frequency approach, we have the
following definition:
P( A)

number of times A occured

total number of observations

The Subjective Approach

Subjective probability is defined as follows:
Subjective Probability is a personal assessment of the likelihood of an event. Therefore
subjective probability involves our efforts to quantify our feeling or beliefs about something,
such as the chance of success of a new product. Disadvantages of subjective probability are:

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1. Difficult to support if questioned

2. Biases can be a factor. Preconceived notions about what should happen can distort
objectivity. It is often difficult to eliminate biases because they are often
subconscious.
B) State the addition and multiplication rules of probability giving an example of each
case.
1. The addition law of Probability
If two events A and B are mutually exclusive then
P(A B) = P(A) + P(B)
This is the simplified version of the Addition Law. However, when A and B are not mutually
exclusive, A B _= , it can be shown that a more general law applies:
P(A B) = P(A) + P(B) P(A B)
Of course if A B = then, since P( ) = 0 this general expression reduces to the simpler
version.
Example:
A single 6-sided die is rolled. What is the probability of rolling a 2 or a 5?
P(2)

P(5)

1
6
1
6

P(2 or 5) = P(2) + P(5)

=

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1
6

1
6

2
6

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1
3

2. The multiplication law of Probability

If A and B are independent events then
P(A B) = P(A)P(B)
In words
The probability of independent events A and B occurring is the product of the probabilities
of the events occurring separately.
Example:
Suppose you have a box with 3 blue marbles, 2 red marbles, and 4 yellow marbles. You are
going to pull out one marble, record its colour, put it back in the box and draw another
marble. What is the probability of pulling out a red marble followed by a blue marble?
The multiplication rule says we need to find P(red)

P(blue)

P(red) = 2/9
P(blue) = 3/9
P(red

blue) = (2/9)(3/9) = 6/81 = 2/27

Q-3
A) The procedure of testing hypothesis requires a researcher to adopt several steps.
Describe in brief all such steps.
A hypothesis is a tentative statement about the relationship between two or more variables. A
hypothesis is a specific, testable prediction about what you expect to happen in your study.
Steps for procedure of testing hypothesis:

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Five Steps in Hypothesis Testing:

1. Specify the Null Hypothesis
The null hypothesis (H0) is a statement of no effect, relationship, or difference between two
or more groups or factors. In research studies, a researcher is usually interested in disproving
the null hypothesis.
2. Specify the Alternative Hypothesis
The alternative hypothesis (H1) is the statement that there is an effect or difference. This is
usually the hypothesis the researcher is interested in proving. The alternative hypothesis can
be one-sided (only provides one direction, e.g., lower) or two-sided.
3. Set the Significance Level (a)
The significance level (denoted by the Greek letter alpha a) is generally set at 0.05. This
means that there is a 5% chance that you will accept your alternative hypothesis when your
null hypothesis is actually true. The smaller the significance level, the greater the burden of
proof needed to reject the null hypothesis, or in other words, to support the alternative
hypothesis.
4. Calculate the Test Statistic and Corresponding P-Value
In another section we present some basic test statistics to evaluate a hypothesis. Hypothesis
testing generally uses a test statistic that compares groups or examines associations between
variables.
5. Drawing a Conclusion
1. P-value <= significance level (a) => Reject your null hypothesis in favour of your
alternative hypothesis. Your result is statistically significant.
2. P-value > significance level (a) => Fail to reject your null hypothesis. Your result
is not statistically significant.
B) Explain the components of time series
Any time series can contain some or all of the following components:

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1. Trend (T)
2. Cyclical (C)
3. Seasonal (S)
4. Irregular (I)
Trend component
The trend is the long term pattern of a time series. A trend can be positive or negative
depending on whether the time series exhibits an increasing long term pattern or a decreasing
long term pattern.
Cyclical component
Any pattern showing an up and down movement around a given trend is identified as a
cyclical pattern. The duration of a cycle depends on the type of business or industry being
analyzed.
Seasonal component
Seasonality occurs when the time series exhibits regular fluctuations during the same month
every year, or during the same quarter every year. For instance, retail sales peak during the
month of December.
Irregular component
This component is unpredictable. Every time series has some unpredictable component that
makes it a random variable. In prediction, the objective is to \model" all the components to
the point that the only component that remains unexplained is the random component.

Q-4
A) What is a Chi-square test? Point out its applications. Under what conditions is this test
applicable?

The Chi-square test is one of the most commonly used non-parametric tests in statistical
work. The Greek Letter 2 is used to denote this test. 2 describe the magnitude of discrepancy
between the observed and the expected frequencies. The value of 2 is calculated as:

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Where, O1, O2, O3.On are the observed frequencies and E1, E2, E3En are the
corresponding expected or theoretical frequencies.
Practical applications of Chi-Square test
In inferential statistics, the Chi-Square test can also be applied for the discrete distributions.
The applications of Chi-Square test include testing: the significance of sample variances the
goodness of fit of a theoretical distribution the independence in a contingency table whether
the observed results are consistent with the expected segregations in breeding experiments of
genetics, where the first is a parametric test and the other two are nonparametric test.
Uses of Chi-Square test
The 2 test is used broadly to:
Test goodness of fit for one way classification or for one variable only.
Test independence or interaction for more than one row or column in the form of a
contingency table concerning several attributes
Test population variance 2 through confidence intervals suggested by 2 test
Conditions for applying the Chi-Square test
1. The frequencies used in Chi-Square test must be absolute and not in relative terms.
2. The total number of observations collected for this test must be large.
3. Each of the observations which make up the sample of this test must be independent of
each other.
4. As 2 test is based wholly on sample data, no assumption is made concerning the
population distribution. In other words, it is a non parametric-test.
5. CHI2 test is wholly dependent on degrees of freedom. As the degrees of freedom increase,
the Chi-Square distribution curve becomes symmetrical.
6. The expected frequency of any item or cell must not be less than 5, the frequencies of
adjacent items or cells should be polled together in order to make it more than 5.

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Statistics for Management

MB0040

b) Discuss the types of measurement scales with examples.

There are four measurement scales (or types of data): nominal, ordinal, interval and ratio.
These are simply ways to categorize different types of variables.
Nominal
lets start with the easiest one to understand. Nominal scales are used for labelling variables,
without any quantitative value. Nominal scales could simply be called labels. Here are
some examples, below. Notice that all of these scales are mutually exclusive (no overlap)
and none of them has any numerical significance.
Example:
What is your gender?
o Male
o Female
Ordinal
With ordinal scales, it is the order of the values is whats important and significant, but the
differences between each one is not really known. Take a look at the example below. In
each case, we know that#4 is better than#3 or #2, but we dont knowand cannot quantify
how much better it is.
Example:
Difference between OK and Unhappy the same as the difference between Very
Happy and Happy? We cant say.
Interval
Interval scales are numeric scales in which we know not only the order, but also the exact
differences

between

the

values.

The

classic

example

of

an

interval

scale

is Celsius temperature because the difference between each value is the same.
Example:

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The difference between 60 and 50 degrees is a measurable 10 degrees, as is the

difference between 80 and 70 degrees.
Ratio
Ratio scales are the ultimate nirvana when it comes to measurement scales because they tell
us about the order, they tell us the exact value between units, AND they also have an absolute
zerowhich allows for a wide range of both descriptive and inferential statistics to be applied.
At the risk of repeating myself, everything above about interval data applies to ratio scales +
ratio scales have a clear definition of zero.
Example:
Height & Weight

4. Business forecasting acquires an important place in every field of the economy.

Explain the objectives and theories of Business forecasting.
Business forecasting refers to the analysis to the past and present economic conditions with
the object of drawing inferences about probable future business condition. The process of
making definite estimates of future course of event is referred to as forecasting and the figure
or statements obtained from the process is known as forecast. The following are the two
aspects of scientific business forecasting.
1. Analysis of past economic conditions
2. Analysis of present economic conditions
Objectives of forecasting in business
Forecasting is a part of human nature. Businessman also needs to look to the future.
Success in business depends on correct predictions. In fact when a man enters business, he
automatically takes with it the responsibility for attempting to forecast the future. In the
narrow sense, the objective of forecasting is to produce better forecasts. But in the broader
sense, the objective is to improve organizational performancemore revenue, more profit,
increased customer satisfaction. Better forecasts, by themselves, are of no inherent value if

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those forecasts are ignored by management or otherwise not used to improve organizational
performance.
Forecasting helps a businessman in reducing the areas of uncertainty that surround
management decision making with respect to costs, sales, production, extension of credit,
profits, capital investment, pricing, expansion of production, development of markets,
inventories and curtailment of loans. These decisions are to be based on present indications of
future conditions.
Theories of Business Forecasting
Sequence or time-lag theory:- is the most important theory of business forecasting. It is
based on the assumption that most of the business data have the lead relationship changes in
business are successive and not simultaneous. There is time-lag between different
movements, for example, expenditure on advertisement may not at once lead to increase in
sales.

2.

Action and reaction theory: - this theory is based on two assumptions (1) every action

has a reaction and (2) magnitude of the original action influences the reaction. Thus if the
price of wheat has gone up above a certain level in a certain period, there is likelihood that
after some time it will go down below the normal level, thus, according to this theory a
certain level of business activity is normal-sub normal or abnormal conditions cannot
reaming so for ever- there is bound to be reaction to them. Thus, we find four phases of a
business cycle:
o Prosperity
o Decline.
o Depression
o Improvement
3. Economic rhythm theory:- the basic assumption of this theory is that history repeats itself
and hence the exponents of this theory believe that economic phenomena behave in a
rhythmic order. Cycles of early the same intensity and duration tend to recur. Thus, the
available historical data have to be analyzed into their component parts and different types of
fluctuations. Influencing them has to be segregated.

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4. specific historical analogy:- this theory is hazed on a more realistic assumption, that all
business cycles are not uniform in amplitude or duration and as such the use of history is
made not by projecting any fancied economic rhythm into the future, but by selecting some
specific previous situation which has many of the earmarks of the present and concluding that
what happened in the previous situation will happen in the present one also.
5. Cross-section analysis:- this theory is based on the knowledge and interpretation of
current forces rather than projection of past trends. The theory assumes that no two cycles are
alike. By the like causes always produce like results. All the factors bearing upon a given
situation are assembled and relying upon the knowledge of economic processes.

Q-5
A) What is analysis of variance? What are the assumptions of this technique?
ANOVA models are parametric, relying on assumptions about the distribution of
the dependent variables for each level of the independent variables.
Initially the array of assumptions for various types of ANOVA may seem bewildering. In
practice, the first two assumptions here are the main ones to check. Note that the larger the
sample

size,

the

more

robust

ANOVA

is

to

violation

of

the

first

two

assumptions: normality and homoscedasticity.

1. Normality of the DV distribution: The data in each cell should be approximately
normally distributed. Check via histograms, skewness and kurtosis overall and for
each cell.
2. Homogeneity of variance: The variance in each cell should be similar. Check
via Levene's test or other homogeneity of variance tests which are generally produced
as part of the ANOVA statistical output.
3. Sample size: per cell > 20 is preferred; aids robustness to violation of the first two
assumptions, and a larger sample size increases power
4. Independent observations: scores on one variable or for one group should not be
dependent on another variable or group (usually guaranteed by the design of the
study)

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b) Three samples below have been obtained from normal populations with equal variances.
Test the hypothesis at 5% level that the population means are equal
A
8
10
7
14
11

B
7
5
10
9
9

C
12
9
13
12
14

[The table value of F at 5% level of significance for V1 = 2 and V2 = 12 is 3.88]

X1

X2

X3

12

10

10

13

14

12

11

14

Total 50

40

60

X 10

12

X=

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Variance between samples

(

20

20

Sum of squares between samples = 0+20+20=40

Variance within samples

)

12

10

10

13

14

16

13

11

14

30

16

14

Sum of squares between samples = 30+16+14=60

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ANOVA table
Source of Variation

Sum of Squares

Mean Square

Between

40

20

Within

60

12

Total

100

14
F=

The calculated value of F is greater than the table value. The hypothesis is rejected. Hence
there is significant difference in the sample means.

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