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Mb0040 Statistics for Management

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You are on page 1of 14

Program

Semester

Subject code &

name

Book ID

Q

1

Fall 2014

MBAFLEX

1

MB0040 STATISTICS FOR MANAGEMENT

B1731

Statistics plays a vital role in almost every facet of human life. Describe the

functions

of Statistics. Explain the applications of statistics.

Meaning of statistics

Functions of statistics

Applications of statistics

An

s.

collecting , classifing , presenting , comparing, and interpretting the numerical

data to throw light on enquiry.

According to Horace Secrist, Statistics may be defined as an aggregate of

facts effected to a marked extent by multiplicity of causes, numerically

expressed, enumerated or estimated according to a reasonable standard of

accuracy, collected in a systematic manner for a predetermined purpose and

placed in relation to each other. This definition is both comprehensive and

exhaustive.

Prof. Boddington on the other hand defind stastics asthe science of estimates

and probabilities.

According to Croxton and cowden,statistics is the science of

collection,presentation,analysis and interpretation of numerical datafrom

logical anlysis.

Functions of statistics

Statistics is used for various purposes. It is used tosimplify mass data and to

make comparison easier. It is also used to bring out trends and tendencies in

the data, and the hidden relations between variables.All these help in easy

decision making. Let us look at each function of Statistics in detail.

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 in the understanding of any huge mass of data.

2. 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.

Statistical anlysis helpin drawing inferences on the data. Statistical

analysis brings out the hidden relations between variables.

4. 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.

5. Statistics make comparison easier

Without using statistical methods and concepts, collection of data and

comparison would be difficult. Statistics helps us to compare data

collected from various sources. Grand totals, measures of central

tendency and measures of dispersion, graphs and diagrams and

coefficient of correlation all provide ample scope for comparison.

Application of statistics

Statistical methods are applied to specific problems in various fields such as

Biology, Medicine Agriculture, Commerce, Business, E conomics, Industry,

Insurance, Sociology and Psychology.

In the field of medicine, statistical tools like t-tests are used to test the

efficiency of the new drug or medicine. In the field of economics, statistical

tools such as index numbers, estimation theory and time series analysis are

used in solving economic problems related to wages, price, production and

distribution of income. In the field of agriculture, an important concept

statistics such as analysis of variance (ANOVA) is used in experiments related

to agriculture, to test the significance between two sample means.

In Biology, Medicine and Agriculture, Statistical methods are applied in the

following:

Study of the growth of plants

Movement of fish population in the ocean

Migration pattern of birds

Analysis of the effect of newly invented medicines

Theories of heredity

Estimation of yield of crop

Study of the effect of fertilizers on yield

Birth rate

Death rate

Population growth

Growth of bacteria

Q

2

b) State the addition and multiplication rules of probability giving an example

of each

case.

a) Explanation of the approaches to define probability

b) Addition and multiplication rules of probability giving an

example of each

An

s

There

1)

2)

3)

4)

Classical/ Mathematical/ Priori approach

Statistical/ relative frequency/ empirical/ posteriori approach

Subjective approach

Axiomatic approach

Under this approach the probability of an event is known before conducting the

experiment, In this case, each of possible outcome is associated with equal

probability of occurrence and number of outcomes favourable to the

concerned event is known.

Let a random experiment have n equally likely, mutually exclusive and

exhaustive outcomes. Let m of these outcomes be favourable to an event A.

Then, probability of A isP(A)=Number of favourable outcomes Total number of

outcomes

P(A)=m/n

Where, m is the number of favourable outcomes, n is the total number of

outcomes of the experiments.

2)Statistical/ relative frequency/ empirical/ posteriori approach

Under this approach the probability of an event is arrived at after conducting

an experiment. If we want to know the probabililty that a particular household

in an area and then arrive at the probability. Greater the number of households

suveyed, greater will be the accuracy in the probability, arrived.

The probability of an event A in this case is defind as,

P(A)=Lim m/n

n

In real life it is not possible to conduct experiments because of high cost or of

destructive type experiments or of vast area to be covered.

3)Subjective approach

Under this approach the investigator or researcher assigns probability to the

events either from his experience or from past records. It is more suitable

when a sample size is ten or less than ten. The investigator has full knowledge

above the characteristics of each and every individual. However there is a

chance of personal bias being introduced in such probability.

4) Axiomatic approach

Let S be a sample space consisiting of all events of a random experiment and

AS, then the probability of an event A is a set function satisfying following

axioms:

i)

Axioms of positivity, P(A)0

ii)

Axiom of cetainity, P(S)=1

iii)

Axiom of addition,

n

i=1 Ai

P ( ) = P ( Ai )

where

A1 ,

A 2 ,... A n

are

i=1

Addition rule

The addition ruleof probability states that:

i) If A and B are any two events then the probability of the occurence of

either A or B is given by:

P(AB)=P(A)+P(B)-P(AB)

ii) If A and B are two mutually exclusive events then the probability of

occurance of either A or B is given by:

P(AB)=P(A)+P(B)

iii) If A, B and C are any three events then the probability of occurence of

either A or B or C is given by:

P(ABC)=P(A)+P(B)+P(C)-P(AB)-P(BC)-P(AC)+P(ABC)

In terms of Venn diagram, from the 5.3, we can calculate the probability of

occurence of either event A or event B, given that event A and event B

are dependent events. From the figure 5.4, we can calculate the probability of

occurence of either A or B, given that, events A and B are independent

events. From the figure 5.5, we can calculate the probability of occurence of

either A or B or C, given that, events A,B and C are dependent events.

Independent

Events A and B

Events A or B

Events A,B and C

ABC

AC

BC

AB

iv) If A , A, A .............,

An

P(A A ..............

Multiplication rule

A and B is given by:

P(AB)=P(A)P(B)

Q3

steps.

Describe in brief all such steps.

b) Explain the components of time series.

a) Hypothesis testing procedure

b) Components of time series

An

s

Having calculated appropriate z-statistic or t-statistic, to reject or accept the

null hyypothesis, it is necessary to identify the rejection regionwith reference

to the given level of sigfinance. If the calculated statistic is in the rejection

region, we accept the alternative hypothesis against the null hypothesis at

that level of significance. Otherwise, we accept null hypothesis at given level

of sigfinance. Table 9.4 depicts the rejection region, normally denoted by R.

Table 9.4: Kinds of Tests

Kind of test

Two tail test

Lower tail

test

Upper tail

test

z-statistic

R:|z|>|

t-statistic

R:|t|>|

R:z<

R:t<

R:z>

R:t>

z table |

z table

z table

t table |

t table

t table

Step 1-State null hypotesis (H) and alternate hypothesis (H)

Step2-State the level of significance. This gives you the tabulated normal tvalue

Step3-Select the appropriate test

Step4-Calculate the required values for the test

Step5-Conduct the test

Step6-Draw conclusion. If calculated value is < tabulated value, accept H. If

calculated value is > tabulated value, reject H.

The behaviour of a time series over periods of time is called the movement of

the time series. The time series is classified into the following 4 components:

i)Long term trend or secular trend

ii)Seasonal variations

iii)Cyclic variations

iv)Random variations

i)Long term trend or secular trend

This refers to the smooth or regular long term growth or decline of the series.

This movement can be characterised by a trend curve. If this curve is a

straight line, then it is called a trend line. If the variable increases over a long

period of time, then it is called an upwardtrend. If the variable decreases over

a long period of time, then it is called an downward trend. If the variable

moves upward or downward along a straight line the the trend is called a

linear trend, otherwise it is called a non-linear trend.

ii)Seasonal variations

Variations in a time series that are periodic in nature and occur regularly over

short periods of time during a year are called seasonal variations. These

variations are precise and can be forecasted.

The following are examples of seasonal variations in a time series.

i.The prices of vegetables dop down after rainy season or in winter months and

they go up during summer, every year.

ii. The prices of cokking oils reduce after the harvesting of oil seeds and go up

after some time.

iii)Cyclic variations

The long-term oscillations that represent consistent ris and decline in the

values of the vriable are called cyclic variations. Since these are long-term

oscillations in the time series, the period of oscillation is usually greater than

one year. The oscillations are either a trend curve or a trend line. The period of

one cycle is the time-distance between two successive peaks or two

successive troughs.

iv)Random variations

Random variations are called irregular movements. Movements that occur

usually in brief periods of time, without any pattern and which are

unpredictable in nature are called irregular movements.these movements do

not have any regular period or time of occurences. For example, the effect of

national strikes, floods, earthquakes, etc. it is very difficult to study the

behaviour of such a time series.

Q4

a) What is a Chi-square test? Point out its applications. Under what conditions

is this

test applicable?

b) Discuss the types of measurement scales with examples

An

s

Chi-square test

The Chi-square testvis one of the most commonly used non-parametric tests in

statistical work. The Greek Letter is used to denote ths test. describe the

magnitude of discrepancy between the observed and the expected

frequencies. The value of is calculated as:

OiE

O1E

where, O, O, O....

On

O2E

O3E

+.........+

OnE

En

Conditions for applying the Chi-Square test

The following are the Conditions for using 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 th sample of this test must be

independent of each other.

4.As test is based wholly on sample data, no assumption is made

concerning the population distrbution. In other words, it s a non parametrictest.

5. 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 polledtogether in order to

make it more than 5.

7.The data should be expressed in original units for convenience of comparison

and the given distrbution should not be replaced by relative frequencies or

proportions.

8.This test is used only for drawing inferences through test of the hypothesis,

so it cannot be used for estimation of parameter value.

Types of measurement scales with examples

Q5

Explain the objectives and theories of Business forecasting.

Meaning of Business forecasting

Objectives of Business forecasting

Theories of Business forecasting

An

s

Business forecastingrefers to the analysis of past and present economic

conditions with the object of drawing inferences about probable future

businees conditions. The process of making definite estimates of future course

of events is referred to as forecasting and the figure or statements obtained

known. In order to be assured of the coming course of events, an organised

system of forecasting helps.

Objectives of Business forecasting

Forecasting is a part of human nature. Businessmen also need to look to the

future. Success in business in depends on correct predictions. In fact when a

man enters business, he automatically takes with it the responsibility for

attempting to forecast the future.

To a very large extent, success or failure would dependupon the ability to

successfully forecast the future course of events. Without some element of

continuity between past, present and future, there would be little possibility of

successful prediction. But history is not likely to repeat itself and we would

hardly expect economic conditions next year or over the next ten years to

follow a clear cut prediction. Yet, past patterns prevail sufficiently to justify

using the past as a basis for predicting the future.

A businessman cannot afford to base his decisions on guesses. Forecasting

helps a businessman in reducing the areas of uncertainty that surround

management decision making with respect to costs, sales, production, profits,

capital investment, pricing, expansion of production, extension of credit

developments of markets, increase of inventories and curtailment of loans.

These decisions are to be based on present indications of future conditions.

However, we know that it is impossible to forecast the future precisely. There is

a possibility of occurence of some range of error in the forecast. Statistical

forecasts are the methods in which we can use the mathematical theory of

probability to measure the risks of errors in predictons.

Theories of Business forecasting

There are a few theories that are followed while making business forecasts.

Some of them are:

1. Sequence or time-lag theory

2. Action and reaction theory

3. Economic rhythm theory

4. Specific historical analogy

5. Cross-cut analysis theory

1. Sequence or time-lag theory

This is the important theory of business forecasting. It is based on the

assumption that most of the business data have tha lag and lead relationships,

that is, changes in business are successive and not simultaneous. There is

time-lag between different movements.

This theory based on the following two assumptions.

a.Every action has a reaction

b.Magnitude of the original action influences the reaction

When the price of rice goes above a certain level of business activity is normal

or abnormal; conditions cannot remain so for ever. Thus, we find out four

phases of a business cycle. They are:

1.Prosperity

2.Decline

3.Depression

4.Improvement

3. Economic rhythm theory

The basic assumption of this theory is that history repeats itself and hence

assumes that all economic and business events behave in a rhythmic order.

According to this theory, the speed and time of all business cycles are more or

less the same and by using statistical and mathematical methods, a trend is

obtained which will represent a long term tendency of growth or decline. It is

done on the basis of the assumption that the trend line denotes the normal

growth or decline of business events.

4. Specific historical analogy

History repeats itself is the main foundation of this theory. If conditions are the

same, whatever happened in the past under a set of circumstances is likely to

happen in future also. A time series relating to the data in question is

throughly scrutinised such a period is selected in which conditions were similar

to those prevailing at the time of making the forecast. However , this theory

depends largely on past data.

5. Cross-cut analysis theory

This theory proceeds on the analysis of interplay of current economic forces. In

this method, the combined effects of various factors are not studied. The effect

of each factor is studied independently. Under this theory, forecasting is made

on the basis of analysis and interpretation of present conditions because the

past events have no relevance with present conditions.

Q6

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.

An

s

Analysis of variance (ANOVA) is useful in such situations as comparing the

mileage archieved by five different brands of gasoline, testing which of four

different training methods produce the fastest learning record, or comparing

the first year earnings of the graduates of half a dozen different business

schools. In each of these cases, we would compare the means of more than

two samples. Hence , in most of the fields, such as agriculture, medical,

finance, banking, insurance, education, etc., the concept of ANOVA is used. In

statistical terms, the difference between two statistical data is known as

variance. When two data are compared for any practical purpose, their

difference is studied through the techniques of ANOVA. With the analysis of

variance technique, we can test the null hypothesis and the alternative

hypothesis.

Null hypothesis, H: All sample means are equal.

Alternate Hypothesis, H: All sample means are not equal or at least one of

the samples means differ.

Assumptions of this technique

i)Each of samples is a simple random samples

ii)Population from which the samples are selected are normally distributed

iii) Each of samples is independent of the other samples

iv)Each of the population has the same variation and identical means

v)The effect of various components are additive

Test the hypothesis at 5% level that the population means are equal.

Let H: There is no significant difference in the meansof three samples

X

8

10

7

14

11

7

5

10

9

9

12

9

13

12

14

X = 50

X = 40

X =

60

Correction factor =

T

150

N = 15 = 1500

T

N

Sum of the Squares of Error between the columns (samples):

( X )

SSC = [

n

( Xn)

nn

50

= 5

( X )

n

( X )

n

( X )

n

+ ,,,,,,,, +

T

N ]

+

40

5

60

5

SSE = SST SSC = 100 40 = 60

Variance within the samples:

MSE =

SSE

(n k)

60

(15 3)

=5

[k is the number of columns and n is the total number of observations]

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