Module 4 PDF

NATIONAL INSTITUTE OF TECHNOLOGY SIKKIM
Ravangla Campus
Barfung Block, Ravangla Sub Division, South Sikkim-737139
Department of Mechanical Engineering

Module - IV
Principles of Management (HS16101)
Module Outline
Lesson no. Topic

Entrepreneurship, Entrepreneurial Process,
25
Entrepreneur
Corporate Social Responsibility (CSR),

Principles of CSR, Sustainable
26
Development, The Pillars of Sustainable
Development
Introduction to Industrial Statistics, Types

27 and Sources of Data, Descriptive Statistics,
Inferential Statistics
Correlation, Scatter Graph, Correlation

28
Graph, Pearson’s Coefficient of Correlation
Linear Regression, Construction of Best Fit

29
Line, Calculation of Error of an Estimate
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Module: 4 Lecture No: 25
Learning Objectives
 To discuss the concept of entrepreneurship.

 To explain the important aspects of entrepreneurship.
 To explain the entrepreneurial process.
 To discuss the characteristics of entrepreneur.
Important & Relevant Questions
 Elaborate different phases of entrepreneurial process with a suitable example.

 Discuss the characteristics of an entrepreneur.
Evaluation Questions
 What is entrepreneurship?
 What are the important aspects of entrepreneurship?
 Who is called an entrepreneur?
 What are the characteristics of an entrepreneur?
 What is the process of entrepreneurship?
References
 Koontz H. and Weihrich H., Essentials of Management: An International, Innovation,

and Leadership Perspective, Ed. 3, McGraw Hill Education Private Limited, India.
 Bhat A. and Kumar A., Management: Principles, Processes, and Practices, Ed. 10,
Oxford University Press, India.
 Govindarajan M., Marketing Management: Concepts, Cases, Challenges and Trends,
Ed. 2, PHI Private Limited, India.
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Entrepreneurship and Entrepreneur

The word entrepreneur originates from the French word, entreprendre, which means "to
undertake" and was first defined by the Irish‐French economist Richard Cantillon. Jean
Baptiste Say, a French economist, is believed to have coined the word "entrepreneur" in the
19th century. He defined an entrepreneur as "one who undertakes an enterprise, especially a
contractor, acting as intermediary between capital and labour."
There has been a great deal of attention paid to the subject of entrepreneurship over the past
few years, as many people realised that small firms contribute considerably to the economic
growth of a country. Developing countries have established policies and tax incentives that
encourage the planning and implementation of small businesses with the belief that a small
business can potentially grow into a large business.
So now what is Entrepreneurship? A normal response to this question is that entrepreneurship
is about creating or establishing a business. Entrepreneurship, however, is more than simply
starting or operating a small business. It is true that entrepreneurship is both a science and an
art. The science lies in the proven process of planning and managing business. The art lies in
the innovative thought, implementation and growth of a business.
Let’s examine some different interpretations and definitions of entrepreneurship. From an
economic perspective we might use the following descriptions.
 Entrepreneurship is a dynamic, social process where individuals, alone or in
collaboration identify financial opportunities and act upon them by establishing new
enterprises.
 Entrepreneurship, however, involves much more than just for a business to be
successful and sustainable.
 Entrepreneurship is a dynamic, social process where individuals, alone or in
collaboration identify opportunities for innovation and act upon them by transforming
ideas into practical targeted activities whether in a social, cultural or financial context.
The above descriptions indicate that entrepreneurship:
 Has impact on individuals.
 Provides financial opportunities.
 Has an impact on the economic well‐being of a society.
 Requires innovation.
 Is dynamic.
The definitions explored so far imply that entrepreneurship is more than just about business
success and sustainability. The first explanation is based on making business by establishing
new enterprise, while in the second definition new dimensions are added, such as innovation
and other areas of the environment e.g. the social, cultural and financial context.
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 Important aspects of entrepreneurship

Entrepreneurship means that an individual must be able to:
 Identify an opportunity ‐ This means that there must be a real business
opportunity.
 Be innovation and creativity ‐ Something new and different is required that is
needed by a target audience.
 Gather resources ‐ Capital, labour and operating equipment must be found.
 Create and grow a business ‐ This means the start of a new business venture or
the conversion of an existing business.
 Take risk ‐ There will be both personal and financial risks.
 Create rewards ‐ Reward can be in the form of profit or increased value of the
business.
 Manage a business ‐ This means that there must be planning, organisation,
leadership and control of all the functions.
So if entrepreneurship is a process of starting a new business, generally there also needs
to be someone who undertakes such a process? That is the entrepreneur.
 The entrepreneurial process
The entrepreneurial process includes the systematic steps required to create and
implement a new business venture. This includes all the functions, activities, and
actions associated with perceiving opportunities and creating organisations to pursue
them. Entrepreneurs often discover this process through trial and error, but you can
shorten your learning curve by benefitting from the experiences of others.
Figure 1: The entrepreneurial process

 Identify and evaluate the opportunity
Opportunity identification and evaluation is a very difficult task. Most good
business opportunities do not suddenly appear, but rather result from an
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entrepreneur’s alertness to possibilities, or in some case, the establishment of

mechanisms that identify potential opportunities. Although most entrepreneurs
do not have formal mechanisms or identifying business opportunities, some
sources are often fruitful: consumers and business associates, members of the
distribution system, and technical people. Often, consumers are the best source
of ideas for a new venture.
Whether the opportunity is identified by using input from consumers, business
associates, channel members, or technical people, each opportunity must be
carefully screened and evaluated. This evaluation of the opportunity is perhaps
the most critical element of the entrepreneurial process, as it allows the
entrepreneur to assess whether the specific product or service has the returns
needed compared to the resources required. This evaluation process involves
looking at the length of the opportunity, its real and perceived value, its risks
and returns, its fit with the personal skills and goals of the entrepreneur, and its
uniqueness or differential advantage in its competitive environment.
The market size and the length of the window of opportunity are the primary
basis for determining the risks and rewards. The risks reflect the market,
competition, technology, and amount of capital involved. The amount of capital
needed provides the basis for the return and rewards. The methodology for
evaluating risks and rewards frequently indicates that an opportunity offers
neither a financial nor a personal reward commensurate with the risks involved.
An opportunity assessment plan includes the following: a description of the
product or service, an assessment of the opportunity, an assessment of the
entrepreneur and the team, specifications of all the activities and resources
needed to translate the opportunity into a viable business venture, and the source
of capital to finance the initial venture as well as its growth. The assessment of
the opportunity requires answering the following questions:
 What market need does it fill?
 What personal observations have you experienced or recorded with
regard to that market need?
 What social condition underlies this market need?
 What market research data can be marshalled to describe this market
need?
 What patents might be available to fulfill this need?
 What competition exists in this market? How would you describe the
behaviour of this competition? What does the international market look
like?
 What does the international competition look like?
 Where is the money to be made in this activity?
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 Developing a business plan

A good business plan must be developed in order to exploit the defined
opportunity. This is a very time‐consuming phase of the entrepreneurial process.
An entrepreneur usually has not prepared a business plan before and does not
have the resources available to do a good job. A good business plan is essential
to developing the opportunity and determining the resources required, obtaining
those resources, and successfully managing the resulting venture. A typical
business plan includes the following:
 Assessment of the business environment.
 A competitor’s analysis.
 Description of the business strategic direction.
 A detailed description of the potential business (i.e. the products and
services, legal structure, governance of the business, etc.).
 The management and decision making structure.
 The business organization and major appointments.
 Marketing and sales plan with multi‐year sales projections.
 A human resource management plan.
 A resource and infrastructure plan.
 A performance management plan.
 A detailed multi‐year financial plan.
 Timelines for implementation of the plan.
 Other issues important to business implementation and growth.
 Determine the resource required
The resources needed for addressing the opportunity must also be determined.
This process starts with an appraisal of the entrepreneur’s present resources.
Any resources that are critical need to be differentiated from those that are just
helpful. Care must be taken not to underestimate the amount of variety of
resources needed (including human resources). The downside risks associated
with insufficient or inappropriate resources should also be assessed. Acquiring
the needed resources in a timely manner while giving up as little control as
possible is the next step in the entrepreneurial process. An entrepreneur should
strive to maintain as large an ownership position as possible, particularly in the
start‐up stage. As the business develops, more funds will probably be needed to
finance the growth of the venture, which may require some portions of
ownership to be relinquished to the business investors. Alternative suppliers of
these resources, along with their needs and desires, need to be identified. By
understanding resource supplier needs, the entrepreneur can structure a deal that
enables the recourses to be acquired at the lowest possible cost and the least loss
of control.
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 Manage the enterprise

After resources are acquired, the entrepreneur must use them to implement the
business plan. The operational problems of the growing enterprise must also be
examined and effectively managed. This involves implementing a management
style and structure, as well as determining the key variables for success. A
control system must be established, so that any problem areas can be quickly
identified and resolved. Some entrepreneurs have difficulty managing and
growing the venture they created.
 The role of entrepreneurship in society
Entrepreneurship as a whole contributes to a society’s social wealth by creating new
markets, new industries, new technology, new institutional forms, new jobs and net
increases in real productivity. The jobs created by entrepreneurship in turn lead to
equitable distribution of income, which results in higher standards of living for the
population. In this way, the resources available to government also increases, the tax
base grows. Additional taxes enable governments to improve social services, like
hospitals and schools, to enhance infrastructure and to keep law and order.
The benefits that entrepreneurship can have for society, including individuals, families
and the community as follows.
 Employment opportunities
Entrepreneurship not only offers self‐employment opportunities, but also
creates employment for others, often better jobs. Self‐employment offers more
job satisfaction and flexibility of the work force. Such job creation initiatives
utilise the human resources of the particular country and helps the natural talent
materialise. Many people with disabilities, particularly those in rural areas
where jobs are often scarce, have already created opportunities for themselves
through entrepreneurship. We can thus say that entrepreneurship provides self
sufficiency.
 Income generation and fewer social problems
Successful entrepreneurship activities increase the income level of the average
person, and also the standard of living in the community. Individuals who search
for business opportunities usually create wealth through entrepreneurship. This
wealth plays a considerable role in the development of a nation.
If more people are employed more people pay taxes, which means more income
for the government. It also means that the crime rate will go down and the
country can become a safer location with more tourists willing to visit the
country. If tourism increases, more job opportunities will become available and
more people will be employed. Entrepreneurship can also attract more foreign
investment, which in return can also create more job opportunities.
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 Personal challenge
Entrepreneurship is a challenging task, but if successful the rewards are worth
the effort. Rewards for an entrepreneur can be both financial and personal. The
entrepreneur gains self‐satisfaction and confidence as he or she succeeds.
 Improvements in industry
Entrepreneurship leads to the development of more industries, especially in
rural areas or regions where there are very few economic activities. This does
not only mean more goods and services, but also higher quality products,
because of healthy competition between the different businesses.
 Higher productivity and economic growth
More industries can create higher production at lower prices. Entrepreneurship
encourages the use of local materials to produce finished goods for domestic
consumption, as well as for export. Entrepreneurship enables the country to
produce more and more goods locally and thereby build its capacity and
resources. If we change our raw materials into consumable goods we add value
to our products, which means that we can now receive a much higher price and
at the same time create more jobs. With the new inventions and development in
technology, a nation can use its resources more effectively.
 Increase in exports and less dependence on imports
Entrepreneurship leads to the development of new markets. If we produce more,
we can export products that are not sold locally. This means that a country’s
products can also enter foreign markets. From time to time a country’s
government officials sign agreements with other countries to promote trade.
These are opportunities that should be taken into account when we are planning
and growing our new business. Currently many developing countries (including
small states) rely heavily on imports, especially from the developed nations.
This means that money flows out of the country. Exports must exceed imports
in order to create an economic advantage. Earnings from exports inevitably
stimulate the economy.
From the above discussion, it is clear that entrepreneurship improves the economy and
creates a better place to live. Entrepreneurship definitely offers many advantages to
individuals, families and the general community. These advantages influence one
another and are interwoven to create a multiplier effect. When we become more
creative, we can develop new and unique products. As we succeed, we become proud
of our achievements, and we are motivated to increase our production. When we
produce more goods, we can lower our need for imports and have excess goods for
export, while simultaneously creating jobs.
 Characteristics of an entrepreneur
Being an entrepreneur is not easy. In order to succeed, entrepreneurs must demonstrate
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specific characteristics. The table below reflects on some of the qualities that help
people to better understand themselves as entrepreneurs.
Table 1: Characteristics of an entrepreneur
Entrepreneurs will view the business as a labour of love
instead of just "work". Further, successful entrepreneurs
Passionate about
have self‐determination. Thus, passion and self‐
their work
determination will drive entrepreneurs to be persistent in
building their organisation/company.
Having a clear vision of the goals to be achieved is
fundamental to drive entrepreneurs and extremely important
for the whole company. This vision must be flexible and
adjusted continuously as the company matures and new
Clear vision
opportunities arise. All of this requires entrepreneurs to have
a creative imagination in order to recognize business
opportunities and envision alternative scenarios as they face
the many challenges of starting up an enterprise.
S.M.A.R.T. goal setting guides successful entrepreneurs.
S.M.A.R.T. goal setting means that your goals are:
 Specific: Are your goals precise, detailed and
unambiguous?
 Measurable: How will you measure it? Goals can be
measurable by quality, quantity and cost.
 Achievable: Is it achievable? Although goals should be
S.M.A.R.T a stretch to the team’s capabilities, they must be within
reach and realistic.
 Relevant: Does it contribute to the goals and strategies
of the team? Goals should focus on practical results to
be achieved.
 Time‐bound: When will this goal be achieved? Is the
completion date realistic? Using the SMART acronym
in goal setting helps entrepreneurs think carefully
about the process of goal setting for their business.
Becoming an entrepreneur is not easy. There will be great,
exhilarating moments, but there will also be moments of
disappointment. Resilience is the capacity within self to
Resilient bounce back or recover after a disappointment.
Entrepreneurs must be resilient to stay their course if they
believe they are on track, and flexible to adapt to
environmental change.
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Entrepreneurs, especially the ones that go “solo”, are the

business. They must carry out a diversity of tasks while
Organised meeting deadlines. It is therefore extremely important for
entrepreneurs to have excellent organisation skills, so that
they are able to manage their time and tasks effectively.
Entrepreneurs must be able to inspire their employees to
Competent in work towards their vision and achieve common goals, while
human relations nurturing creative spirit among them.
Self‐awareness will help entrepreneurs to understand their

personality traits and how these traits will affect decision
making or other people. For example, self‐awareness is
useful when the company’s growth forces entrepreneurs to
change their management style from hands‐on management
to professional management, where the entrepreneur is not
Self-aware involved in the day to day decision making anymore. It is so
valuable for entrepreneurs to recognise when it is no longer
feasible for them to continue to do everything by themselves
‐ this is self‐awareness in action. Many entrepreneurs have
admitted that shifting to a different way of leading is the
most challenging change they have had to undergo in order
to sustain their companies’ growth.
Excellent technical knowledge, whether it concerns
producing goods or services, is very important for
entrepreneurs in order to influence and engage other
Technical stakeholders in leading the business in its start‐up stages.
knowledge The entrepreneur is the business in the start‐up stage and
their technical know‐how will influence and excite others to
get involved.
Entrepreneurs must have a deep knowledge about the market
Market knowledge and the industry in which they wish to start a company.
Successful entrepreneurs make customer satisfaction the

Superior customer company’s central focus without limiting their imagination
service on how or how much to satisfy their customers.
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Learning Objectives
 To discuss the concept of Corporate Social Responsibility (CSR).

 To explain the principles of CSR: Sustainability, Accountability, and Transparency.
 To discuss the concept of Sustainable Development.
 To explain the three pillars of sustainability: Social, Environmental, and Economical.
 Why CSR is important for a business organisation.

 Explain the principles of CSR with suitable example.
 What do you mean by Sustainable Development?
 How an organistaion can move towards sustainable development? Explain with
suitable example.
 What is CSR?
 What are the principles of CSR?
 What is sustainability?
 What are the pillars of sustainable development?
References
 Koontz H. and Weihrich H., Essentials of Management: An International, Innovation,

and Leadership Perspective, Ed. 3, McGraw Hill Education Private Limited, India.
 Bhat A. and Kumar A., Management: Principles, Processes, and Practices, Ed. 10,
Oxford University Press, India.
 Govindarajan M., Marketing Management: Concepts, Cases, Challenges and Trends,
Ed. 2, PHI Private Limited, India.
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Corporate Social Responsibility (CSR)

Corporate social responsibility (CSR) is a concept whih has become dominant in business
reporting. Every corporation has a policy concerning CSR and produces a report annually
detailing its activity. And of course each of us claims to be able to recognise corporate activity
which is socially responsible and activity which is not socially responsible. There are two
interesting points about this: firstly, we do not agree with each other about what is socially
responsible; and although we claim to recognise what it is or is not when we are asked to define
it then we find this impossibly difficult.
 The principles of CSR
Because of uncertainity surrounding the nature of CSR activity it is difficult to define
CSR and to be certain about any such activity. It is, therefore, imperative to be able to
identify such activity and we take the view that there are three basic principles which
together comprise all CSR activity. These are:
 Sustainability
 Accountability
 Transparency
Sustainability
This is concerned with the effect which action taken in the present has upon the options
available in the future. If the resources are utilised in the present then they are no longer
available for use in the future, and this is of particular concern if the resources are finite
in quantity.
Thus raw materials of an extractive nature, such as coal, iron or oil are finite in quantity
and once used are not available for future use. At some point in the future, therefore,
alternatives will be needed to fulfil the functions currently provided by these resources.
This may be at some point in the relatively distant future but of more immediate concern
is the fact that as resources become depleted then the cost of acquiring the remaining
resources tends to increase, and hence the operational costs of organisations tend to
increase.
Sustainability, therefore, implies that society must use no more of a resource than can
be regenerated. This can be defined in terms of the carrying capacity of the ecosystem
and described with input – output models of resource consumption. Thus the paper
industry, for example, has a policy of replanting trees to replace those harvested and
this has the effect of retaining costs in the present rather than temporally externalising
them.
Viewing an organisation as part of a wider social and economic system implies that
these effects must be taken into account, not just for the measurement of the costs and
value created in the present but also for the future of the business itself. Measures of
sustainability would consider the rate at which resources are consumed by the
organisation in relation to the rate at which resources can be regenerated. Unsustainable
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operations can be accomodated for either by developing sustainable operations or by

planning for a future lacking in resources currently required. In practice, organisations
mostly tend to aim towards less unsustainability by increasing efficiency in the way in
which resources are utilised. An example would be an energy efficiency programme.
Accountability
This is concerned with an organisation recognising that its actions affect the external
environment, and therefore assuming responsibility for the effects of its actions. This
concept, therefore, implies a quantification of the effects of actions taken, both internal
to the organisation and externally. More specifically the concept implies a reporting of
those quantifications to all parties affected by those actions. This implies a reporting to
external stakeholders of the effects of the actions taken by the organisation and how
they are affecting those stakeholders.
This concept, therefore, implies a recognition that the organisation is part of a wider
societal network and has responsibilities to all of that network rather than just to the
owners of the organisation. Alongside this acceptance of the responsibilities, there must
be a recognition that those external stakeholders have the power to affect the way in
which those actions of the organisation are taken and a role in deciding whether or not
such actions can be justified, and if so at what cost to the organisation and to other
stakeholders.
Accountability, therefore, necessitates the development of appropriate measures of
environmental performance and the reporting of the actions of the firm. This
necessitates costs on the part of the organisation in developing, recording and reporting
of such performance and to be of value the benefits must exceeds the costs. Benefits
must be determined by the usefulness of the measures selected to the decision-making
process and by the way in which they facilitates resource allocation, both within the
organisation and between it and other stakeholders. Such reporting needs to be based
upon the following characteristics:
 Understandability to all parties concerned;
 Relevance to the users of the information provided;
 Reliability in term of accuracy of measurement, representation of impact and
freedom from bias;
 Comparability, which implies consistency, both over time and between different
organisations.
Inevitably, however, such reporting will involve qualitative facts and judgments as well
as quantifications. This qualitativeness will inhibit comparability over time and will
tend to mean that such impacts are assessed differently by different users of
information, reflecting their individual values and priorities.
A lack of precise understanding of effects, coupled with the necessarily judgmental
nature of relative impacts, means that few standard measures exist. This in itself
restricts the inter-organisation comparison of such information. Although this limitation
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is problematic for the development of environmental accounting, it is in fact useful to

the managers of the organisations as this limitation of comparability alleviates the need
to demonstrate good performance as anything other than a semiotic.
Transparency
Transparency, as a principle, means that the external impact of the actions of the
organisation can be ascertained from that organisation’s reporting pertinent facts are
not disguised within that reporting. Thus all the effects of the actions of the
organisation, including external impact should be apparent to all from using the
information provided by the organisation’s reporting mechanisms. Transparency is of
particular importance to esternal usrs of such information as these users lack the
background details and knowledge available to internal users of such information.
Transparency, therefore, can be seen to follow from the other two principles and equally
can be seen to be a part of the process of recognition of responsibility on the part of the
organisation for the external effects of its actions and equally part of the process of
transferring power to external stakeholders.
Sustainability and Sustainable Development

Sustainable development is a central concept for our age. It is both a way of understanding the
world and a method for solving global problems. Sustainable development is a way to
understand the world, as the complex interaction of economic, social, environmental, and
political systems. Yet is also a normative or ethical view of the world, a way to define the
objectives of a well-functioning society, one that delivers wellbeing for its citizens today and
in future generations. According to the Brundtland report, sustainable development is
development that meets the needs of the present without compromising the ability of future
generations to meet their own needs. In other words, in order to fulfill the human needs and to
ameliorate the quality of human life, development is of vital importance. That is the main
reason why it should be based on a more effective and environmental uses of all of the
insufficient resources of the society, such as, the natural, the human or the economic resources.
Thus, sustainability refers to a production model which aims at better economic results for
both humans and the natural environment, not only in the present but in the indefinite future as
well. Its main element is the balance between production of goods and raw materials which are
spent with regard to achieve production. Therefore, the objective of sustainable processes is to
achieve more production with lower cost of raw material, which is why sustainability is usually
mentioned with concepts like recycling, renewable energies and bioclimatic design.
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 The three pillars of sustainability
Figure 1: The three pillars of sustainability

The purpose of sustainable development is to meet the needs of the present without
compromising the ability of future generations to meet their own needs. In order to
perceive sustainability, someone has to take into account three main areas of influence,
the so called Three Pillars of Sustainability and the corresponding aspects which are
the Social, Economic and Environmental aspect.
This three aspects are interconnected and if they are combined and applied in real world
situations they can create a steady base for a sustainable world from which everybody
can benefit. Natural resources are preserved, the environment is protected, the economy
is not harmed and the quality of life for our people is improved or maintained.
I. Environmental sustainability
In order to achieve environmental sustainability, natural environment should
retain its total functionality and utility for a long period of time. It is preferable
that actions taken should encourage a balance in our natural environment while
simultaneously promote positive growth rates. Any actions that disrupt the
balance of the environment should be avoided but if they occur they should be
limited to a lesser extent. Environmental impacts of any action or decision
should be taken into account.
There is a variety of issues related with environmental sustainability from
pollution to the management of natural resources. The main purpose of
environmental sustainability is to minimize the impact of human activities to
the environment and furthermore encourage the restoration and preservation of
our natural habitat.
II. Economic sustainability
Economic sustainability is the ability of an economy to support a defined level
of economic production indefinitely. Economic value can be created out of
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every project or decision. Economic sustainability refers to decisions that are

made in the most prudent way possible with respect to the other aspects of
sustainability. True sustainability is not promoted when only the economic
aspects are considered. On the large scale the usual approach used to be business
as usual which meant than profit was the only concern and aim of firms.
However, when good business practices are incorporated with the social and
environmental aspects of sustainability, the result is significantly more positive.
Economic sustainability consists of many things. From smart growth to
subsidies or tax breaks for green development. It is important though to
reinforce and promote it with education programs, research and informing the
public. Also, much emphasis should be placed on other areas such as reducing
unnecessary spending.
III. Social sustainability
Social Sustainability relies on decisions and projects that promote the general
improvement of society. Generally, the social aspect of sustainability supports
the concept of intragenerational justice, which means that future generations are
entitled with the same or greater quality of life as current generations. This
concept also encloses many other socially related issues such as environmental
law, human and labor rights, health equity, community development via public
involvement and participation, social capital, support justice and responsibility,
cultural competence, community resilience, and human adaptation.
The social dimension of sustainability is equally important as the other two
pillars. If it is not taken into serious consideration it can lead to the collapse of
the whole process of sustainability as well as the society itself.
The followings are the dimensions of social sustainability:
 Equity - the community provides equitable opportunities and outcomes
for all its members, particularly the poorest and most vulnerable
members of the community.
 Diversity - the community promotes and encourages diversity.
 Interconnected/Social cohesion - the community provides processes,
systems and structures that promote
connectedness within and outside
the community at the formal,
informal and institutional level.
 Quality of life - the community ensures that basic needs are met and
fosters a good quality of life for all members at the
individual, group and community level (e.g. health,
housing, education, employment, safety).
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 Democracy and governance - the community provides democratic

processes and open and accountable
governance structures.
 Maturity - the individual accept the responsibility of consistent growth
and improvement through broader social attributes (e.g.
communication styles, behavioral patterns, indirect
education and philosophical explorations).
Sustainable development is a combination of these three pillars and it cannot be
achieved properly if any one of them is not functioning properly. If anyone pillar is
weak then the system as a whole is unsustainable.
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Learning Objectives
 To discuss the meaning and definitions of statistics.

 To explain the different types of data and data resources.
 To discuss the scope of statistics.
 To explain the importance and application of statistics in business.
 Distinguish between descriptive Statistics and inferential Statistics.

 Define Statistics. Explain its types, and importance to trade, commerce and business.
 “Statistics is all-pervading”. Elucidate this statement.
 What is statistics?
 What are the differences between quantitative and qualitative data?
 How continuous data is different from discrete data?
 What is descriptive statistics?
 What is inferential statistics?
References
 Amir D. Aczel and J. Sounderpandian, Business Statistics, Tata McGraw Hill

Publishing Company Ltd., New Delhi.
 Richard I. Levin and David S. Rubin, Statistics for Management, Prentice Hall of India
Pvt. Ltd., New Delhi.
 S.P. Gupta and M.P. Gupta, Business Statistics, Sultan Chand and Sons., New Delhi.
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Industrial Statistics
Statistics means numerical information expressed in quantitative terms. This information may
relate to objects, subjects, activities, phenomena, or regions of space. As a matter of fact, data
have no limits as to their reference, coverage, and scope. At the micro level, individual firms,
howsoever small or large, produce extensive statistics on their operations. The annual reports
of companies contain variety of data on sales, production, expenditure, inventories, capital
employed, and other activities. These data are often field data, collected by employing
scientific survey techniques. Unless regularly updated, such data are the product of a one-time
effort and have limited use beyond the situation that may have called for their collection.
The major characteristics of statistics as follows:
1) Statistics are the aggregates of facts. It means a single figure is not statistics. For
example, national income of a country for a single year is not statistics but the same for
two or more years is statistics.
2) Statistics are affected by a number of factors. For example, sale of a product depends
on a number of factors such as its price, quality, competition, the income of the
consumers, and so on.
3) Statistics must be reasonably accurate. Wrong figures, if analysed, will lead to
erroneous conclusions. Hence, it is necessary that conclusions must be based on
accurate figures.
4) Statistics must be collected in a systematic manner. If data are collected in a haphazard
manner, they will not be reliable and will lead to misleading conclusions.
5) Statistics should be placed in relation to each other. If one collects data unrelated to
each other, then such data will be confusing and will not lead to any logical conclusions.
Data should be comparable over time and over space.
 Types of data and data sources
Statistical data are the basic raw material of statistics. Data may relate to an activity of our
interest, a phenomenon, or a problem situation under study. They derive as a result of the
process of measuring, counting and/or observing. Statistical data, therefore, refer to those
aspects of a problem situation that can be measured, quantified, counted, or classified. Any
object subject phenomenon, or activity that generates data through this process is termed
as a variable. In other words, a variable is one that shows a degree of variability when
successive measurements are recorded. In statistics, data are classified into two broad
categories: quantitative data and qualitative data. This classification is based on the kind
of characteristics that are measured.
 Quantitative data
Quantitative data are those that can be quantified in definite units of measurement.
These refer to characteristics whose successive measurements yield quantifiable
observations. Depending on the nature of the variable observed for measurement,
quantitative data can be further categorized as continuous and discrete data.
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 Continuous data represent the numerical values of a continuous variable.

A continuous variable is the one that can assume any value between any two
points on a line segment, thus representing an interval of values. The values
are quite precise and close to each other, yet distinguishably different. All
characteristics such as weight, length, height, thickness, velocity,
temperature, tensile strength, etc., represent continuous variables. Thus, the
data recorded on these and similar other characteristics are called continuous
data. It may be noted that a continuous variable assumes the finest unit of
measurement. Finest in the sense that it enables measurements to the
maximum degree of precision.
 Discrete data are the values assumed by a discrete variable. A discrete
variable is the one whose outcomes are measured in fixed numbers. Such
data are essentially count data. These are derived from a process of counting,
such as the number of items possessing or not possessing a certain
characteristic. The number of customers visiting a departmental store
everyday, the incoming flights at an airport, and the defective items in a
consignment received for sale, are all examples of discrete data.
 Qualitative data
Qualitative data refer to qualitative characteristics of a subject or an object. A
characteristic is qualitative in nature when its observations are defined and noted in
terms of the presence or absence of a certain attribute in discrete numbers. These
data are further classified as nominal and rank data.
 Nominal data are the outcome of classification into two or more categories
of items or units comprising a sample or a population according to some
quality characteristic. Classification of students according to sex (as males
and females), of workers according to skill (as skilled, semi-skilled, and
unskilled), and of employees according to the level of education (as
matriculates, undergraduates, and post-graduates), all result into nominal
data. Given any such basis of classification, it is always possible to assign
each item to a particular class and make a summation of items belonging to
each class. The count data so obtained are called nominal data.
 Rank data, on the other hand, are the result of assigning ranks to specify
order in terms of the integers 1,2,3, ..., n. Ranks may be assigned according
to the level of performance in a test. a contest, a competition, an interview,
or a show. The candidates appearing in an interview, for example, may be
assigned ranks in integers ranging from I to n, depending on their
performance in the interview. Ranks so assigned can be viewed as the
continuous values of a variable involving performance as the quality
characteristic.
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Data sources could be seen as of two types, viz., secondary and primary. The two can be
defined as under:
1) Secondary data: They already exist in some form: published or unpublished - in
an identifiable secondary source. They are, generally, available from published
source(s), though not necessarily in the form actually required.
2) Primary data: Those data which do not already exist in any form, and thus have to
be collected for the first time from the primary source(s). By their very nature, these
data require fresh and first-time collection covering the whole population or a
sample drawn from it.
 Types of statistics
There are two major divisions of statistics such as descriptive statistics and inferential
statistics.
 Descriptive statistics
The term descriptive statistics deals with collecting, summarizing, and simplifying
data, which are otherwise quite unwieldy and voluminous. It seeks to achieve this
in a manner that meaningful conclusions can be readily drawn from the data.
Descriptive statistics may thus be seen as comprising methods of bringing out and
highlighting the latent characteristics present in a set of numerical data. It not only
facilitates an understanding of the data and systematic reporting thereof in a
manner; and also makes them amenable to further discussion, analysis, and
interpretations.
Figure 1: Descriptive statistics

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 Inferential statistics
Inferential statistics, also known as inductive statistics, goes beyond describing a
given problem situation by means of collecting, summarizing, and meaningfully
presenting the related data. Instead, it consists of methods that are used for drawing
inferences, or making broad generalizations, about a totality of observations on the
basis of knowledge about a part of that totality. The totality of observations about
which an inference may be drawn, or a generalization made, is called a population
or a universe. The part of totality, which is observed for data collection and analysis
to gain knowledge about the population, is called a sample.
Inferential statistics helps to evaluate the risks involved in reaching inferences or
generalizations about an unknown population on the basis of sample information.
For example, an inspection of a sample of five battery cells drawn from a given lot
may reveal that all the five cells are in perfectly good condition. This information
may be used to conclude that the entire lot is good enough to buy or not.
Figure 2: Inferential statistics

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 Importance of statistics in business management

There are three major functions in any business enterprise in which the statistical methods
are useful. These are as follows:
1. The planning of operations: This may relate to either special projects or to the
recurring activities of a firm over a specified period.
2. The setting up of standards: This may relate to the size of employment, volume of
sales, fixation of quality norms for the manufactured product, norms for the daily
output, and so forth.
3. The function of control: This involves comparison of actual production achieved
against the norm or target set earlier. In case the production has fallen short of the
target, it gives remedial measures so that such a deficiency does not occur again.
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Learning Objectives
 To discuss the concept of bivariate linear correlation.

 To explain Scatter diagram.
 To discusss correlation graph.
 To calculate Pearson’s coefficient of correlation.
 “Correlation and Regression are two sides of the same coin”. Explain.
 Explain the meaning and significance of the concept of correlation. Does correlation
always signify casual relationships between two variables? Explain with illustration on
what basis can the following correlation be criticized?
 Self-assesment questions (Numerical questions)
 What do you mean by correlation?

 What do you mean by positive and negative correlation?
 What do you mean by linear and non-linear correlation?
 What is scatter diagram?
 How does scatter diagram help in studying correlation between two variables, in respect
of both its nature and extent?
References

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Correlation Analysis and Linear Regression

In many business research situations, the key to decision making lies in understanding the
relationships between two or more variables. For example, in an effort to predict the behaviour
of the bond market, a broker might find it useful to know whether the interest rate of bonds is
related to the prime interest rate. While studying the effect of advertising on sales, an account
executive may find it useful to know whether there is a strong relationship between advertising
dollars and sales dollars for a company.
The statistical methods of Correlation and Regression are helpful in knowing the relationship
between two or more variables which may be related in same way, like interest rate of bonds
and prime interest rate; advertising expenditure and sales; income and consumption; crop-yield
and fertilizer used; height and weights and so on.
In all these cases involving two or more variables, we may be interested in seeing:
 if there is any association between the variables;
 if there is an association, is it strong enough to be useful;
 if so, what form the relationship between the two variables takes;
 how we can make use of that relationship for predictive purposes, that is, forecasting;
and
 how good such predictions will be.
Since these issues are inter related, correlation and regression analysis, as two sides of a single
process, consists of methods of examining the relationship between two or more variables. If
two (or more) variables are correlated, we can use information about one (or more) variable(s)
to predict the value of the other variable(s), and can measure the error of estimations - a job of
regression analysis.
 Correlation
Correlation is a measure of association between two or more variables. When two or
more variables very in sympathy so that movement in one tends to be accompanied by
corresponding movements in the other variable(s), they are said to be correlated. As a
measure of the degree of relatedness of two variables, correlation is widely used in
exploratory research when the objective is to locate variables that might be related in
some way to the variable of interest.
Correlation can be classified in several ways. The important ways of classifying
correlation are:
(i) Positive and negative,
(ii) Linear and non-linear (curvilinear), and
(iii) Simple, partial and multiple.
 Positive and negative correlation
If both the variables move in the same direction, we say that there is a positive
correlation, i.e., if one variable increases, the other variable also increases on an
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average or if one variable decreases, the other variable also decreases on an

average.
On the other hand, if the variables are varying in opposite direction, we say that
it is a case of negative correlation; e.g., movements of demand and supply.
 Linear and non-linear (curvilinear) correlation
If the change in one variable is accompanied by change in another variable in a
constant ratio, it is a case of linear correlation. Observe the following data:
X: 10 20 30 40 50
Y: 25 50 75 100 125
The ratio of change in the above example is the same. It is, thus, a case of linear
correlation. If we plot these variables on graph paper, all the points will fall on
the same straight line.
On the other hand, if the amount of change in one variable does not follow a
constant ratio with the change in another variable, it is a case of non-linear or
curvilinear correlation. If a couple of figures in either series X or series Y are
changed, it would give a non-linear correlation.
 Simple, partial and multiple correlation
The distinction amongst these three types of correlation depends upon the
number of variables involved in a study. If only two variables are involved in a
study, then the correlation is said to be simple correlation. When three or more
variables are involved in a study, then it is a problem of either partial or multiple
correlation. In multiple correlation, three or more variables are studied
simultaneously. But in partial correlation we consider only two variables
influencing each other while the effect of other variable(s) is held constant.
Suppose we have a problem comprising three variables X, Y and Z. X is the
number of hours studied, Y is I.Q. level and Z is the number of marks obtained
in the examination. In a multiple correlation, we will study the relationship
between the marks obtained (Z) and the two variables, number of hours studied
(X) and I.Q. level (Y). In contrast, when we study the relationship between X
and Z, keeping an average I.Q. level (Y) as constant, it is said to be a study
involving partial correlation.
 Correlation analysis
Correlation Analysis is a statistical technique used to indicate the nature and degree of
relationship existing between one variable and the other(s). It is also used along with
regression analysis to measure how well the regression line explains the variations of
the dependent variable with the independent variable.
The commonly used methods for studying linear relationship between two variables
involve both graphic and algebraic methods. Some of the widely used methods include:
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(i) Scatter diagram

(ii) Correlation graph
(iii) Pearson’s coefficient of correlation
 Scatter diagram
This method is also known as Dotogram or Dot diagram. Scatter diagram is one
of the simplest methods of diagrammatic representation of a bivariate
distribution. Under this method, both the variables are plotted on the graph
paper by putting dots. The diagram so obtained is called "Scatter Diagram". By
studying diagram, we can have rough idea about the nature and degree of
relationship between two variables. The term scatter refers to the spreading of
dots on the graph. We should keep the following points in mind while
interpreting correlation:
 if the plotted points are very close to each other, it indicates high degree
of correlation. If the plotted points are away from each other, it indicates
low degree of correlation.
The various diagrams of the scattered data in Figure 1 depict different
forms of correlation.
Figure 1: Scatter diagrams

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 if the points on the diagram reveal any trend (either upward or

downward), the variables are said to be correlated and if no trend is
revealed, the variables are uncorrelated.
 if there is an upward trend rising from lower left hand corner and going
upward to the upper right hand corner, the correlation is positive since
this reveals that the values of the two variables move in the same
direction. If, on the other hand, the points depict a downward trend from
the upper left hand corner to the lower right hand corner, the correlation
is negative since in this case the values of the two variables move in the
opposite directions.
 in particular, if all the points lie on a straight line starting from the left
bottom and going up towards the right top, the correlation is perfect and
positive, and if all the points like on a straight line starting from left top
and coming down to right bottom, the correlation is perfect and negative.
Example
Given the following data on sales (in thousand units) and expenses (in
thousand rupees) of a firm for 10 month:
Month: Jan Feb Mar Apr May Jun Jul Aug Sep Oct
Sales: 50 50 55 60 62 65 68 60 60 50
Expenses: 11 13 14 16 16 15 15 14 13 13
a) Make a Scatter Diagram
b) Do you think that there is a correlation between sales and
expenses of the firm? Is it positive or negative? Is it high or
low?
Solution
(a) The Scatter diagram of the given data is shown in Figure 2.
Figure 2: Scatter diagram

(b) Figure 2 shows that the plotted points are close to each other and
reveal an upward trend. So there is a high degree of positive
correlation between sales and expenses of the firm.
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 Correlation graph
This method, also known as Correlogram is very simple. The data pertaining to
two series are plotted on a graph sheet. We can find out the correlation by
examining the direction and closeness of two curves. If both the curves drawn
on the graph are moving in the same direction, it is a case of positive correlation.
On the other hand, if both the curves are moving in opposite direction,
correlation is said to be negative. If the graph does not show any definite pattern
on account of erratic fluctuations in the curves, then it shows an absence of
correlation.
Example
Find out graphically, if there is any correlation between price yield per plot (Rs.
in Million); denoted by Y and quantity of fertilizer used (kg); denote by X.
Plot No.: 1 2 3 4 5 6 7 8 9 10
Y: 3.5 4.3 5.2 5.8 6.4 7.3 7.2 7.5 7.8 8.3
X: 6 8 9 12 10 15 17 20 18 24
Solution
The Correlogram of the given data is shown in Figure 3.
Figure 3: Correlation graph

Figure 3 shows that the two curves move in the same direction and, moreover,
they are very close to each other, suggesting a close relationship between price
yield per plot (Rs. in Million) and quantity of fertilizer used (kg).
 Pearson’s coefficient of correlation
A mathematical method for measuring the intensity or the magnitude of linear
relationship between two variables was suggested by Karl Pearson (1867-
1936), a great British Biometrician and Statistician and, it is by far the most
widely used method in practice. Karl Pearson’s measure, known as Pearsonian
correlation coefficient between two variables X and Y, usually denoted by r(X,Y)
or rxy or simply r is a numerical measure of linear relationship between them
and is defined as the ratio of the covariance between X and Y, to the product of
the standard deviations of X and Y.
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Symbollicaly,
when, (X1 , Y1 ); (X2 , Y2); .................. (Xn , Yn) are N pairs of observations of the
variables X and Y in a bivariate distribution,
Thus by substituting these equations, we can write the Pearsonian correlation

coefficient as
Pearsonian correlation coefficient cannot exceed 1 numerically. In other words

it lies between –1 and +1. Symbolically,
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Learning Objectives
 To discuss linear regression.

 To plot scatter diagram.
 To construct the best fit line.
 To predict an estimate and preciseness.
 To calculate the error an estimate.
 Self-assesment questions (Numerical questions)
 What is meant by regression?

 What do you mean by linear regression?
 What is best fit line?
 Distinguish between correlation and regression.
References

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 Regression analysis
In business, several times it becomes necessary to have some forecast so that the
management can take a decision regarding a product or a particular course of action. In
order to make a forecast, one has to ascertain some relationship between two or more
variables relevant to a particular situation. For example, a company is interested to
know how far the demand for television sets will increase in the next five years, keeping
in mind the growth of population in a certain town. Here, it clearly assumes that the
increase in population will lead to an increased demand for television sets. Thus, to
determine the nature and extent of relationship between these two variables becomes
important for the company.
For this purpose, we have to use the technique - regression analysis - which forms the
subject-matter of this lesson.
 Independent and dependent variables
Simple regression involves only two variables; one variable is predicted by
another variable. The variable to be predicted is called the dependent variable.
The predictor is called the independent variable, or explanatory variable. For
example, when we are trying to predict the demand for television sets on the
basis of population growth, we are using the demand for television sets as the
dependent variable and the population growth as the independent or predictor
variable.
The decision, as to which variable is which sometimes, causes problems. Often
the choice is obvious, as in case of demand for television sets and population
growth because it would make no sense to suggest that population growth could
be dependent on TV demand! The population growth has to be the independent
variable and the TV demand the dependent variable.
 Linear regression
The task of bringing out linear relationship consists of developing methods of
fitting a straight line, or a regression line as is often called, to the data on two
variables.
The line of regression is the graphical or relationship representation of the best
estimate of one variable for any given value of the other variable. The
nomenclature of the line depends on the independent and dependent variables.
If X and Y are two variables of which relationship is to be indicated, a line that
gives best estimate of Y for any value of X, it is called Regression line of Y on
X. If the dependent variable changes to X, then best estimate of X by any value
of Y is called Regression line of X on Y.
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 Regression line
For purposes of illustration as to how a straight line relationship is
obtained, consider the sample paired data on sales of each of the N = 5
months of a year and the marketing expenditure incurred in each month,
as shown in the following table.
Marketing expenditures
Sales (Rs. in Lac)
Month (Rs. in Thousands)
Y X
Apr 14 10
May 17 12
Jun 23 15
Jul 24 20
Aug 25 23
Let Y, the sales, be the dependent variable and X, the marketing
expenditure, the independent variable. We note that for each value of
independent variable X, there is a specific value of the dependent
variable Y, so that each value of X and Y can be seen as paired
observations.
Scatter diagram
Before obtaining a straight-line relationship, it is necessary to discover
whether the relationship between the two variables is linear, that is, the
one which is best explained by a straight line. A good way of doing this
is to plot the data on X and Y on a graph so as to yield a Scatter diagram,
as may be seen in Figure 1. A careful reading of the Scatter diagram
reveals that:
 the overall tendency of the points is to move upward, so the
relationship is positive;
 the general course of movement of the various points on the
diagram can be best explained by a straight line;
 there is a high degree of correlation between the variables, as the
points are very close to each other.
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Figure 1: Scatter diagram with line of best fit

Fitting a straigt line on the Scatter diagram
If the movement of various points on the scatter diagram is best
described by a straight line, the next step is to fit a straight line
on the Scatter diagram. It has to be so fitted that on the whole it
lies as close as possible to every point on the Scatter diagram.
The necessary requirement for meeting this condition being that
the sum of the squares of the vertical deviations of the observed
Y values from the straight line is minimum.
As shown in Figure 1, if d1, d2,..., dN are the vertical deviations'
of observed Y values from the straight line, fitting a straight line
requires that
is the minimum. The deviations dj have to be squared to avoid

negative deviations cancelling out the positive deviations. Since
a straight line so fitted best approximates all the points on the
Scatter diagram, it is better known as the best approximating line
or the line of best fit. A line of best fit mostly fitted by means of
Least square method.
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The least square method of fitting a line of best fit requires

minimizing the sum of the squares of vertical deviations of each
observed Y value from the fitted line. These deviations, such as
d1 and d3, are shown in Figure 1 and are given by Y – Yc, where
Y is the observed value and Yc the corresponding computed value
given by the fitted line
for the ith value of X.

The straight line relationship stated above is derived in terms of
two constants a and b
 The constant a is the Y-intercept; it indicates the height
on the vertical axis from where the straight line
originates, representing the value of Y when X is zero.
 Constant b is a measure of the slope of the straight line;
it shows the absolute change in Y for a unit change in X.
As the slope may be positive or negative, it indicates the
nature of relationship between Y and X. Accordingly, b is
also known as the regression coefficient of Y on X.
Since a straight line is completely defined by its intercept a and
slope b, the task of fitting the same reduces only to the
computation of the values of these two constants. Once these two
values are known, the computed Yc values against each value of
X can be easily obtained by substituting X values in the linear
equation.
In the method of least squares the values of a and b are obtained
by solving simultaneously the following pair of normal
equations
Solving these equations we can easily get the values of a and b.

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Error of estimate
A measure of the error of estimate is given by the standard error
of estimate of Y on X, denoted as Syx and defined as
Syx measures the average absolute amount by which observed Y

values depart from the corresponding computed Yc values.
Computation of Syx becomes little cumbersome where the
number of observations N is large. In such cases Syx may be
computed directly by using the equation:

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NATIONAL INSTITUTE OF TECHNOLOGY SIKKIM

Department of Mechanical Engineering

Lesson no. Topic

Corporate Social Responsibility (CSR),

Introduction to Industrial Statistics, Types

Correlation, Scatter Graph, Correlation

Linear Regression, Construction of Best Fit

Module: 4 Lecture No: 25

 To discuss the concept of entrepreneurship.

Important & Relevant Questions

 Elaborate different phases of entrepreneurial process with a suitable example.

 Koontz H. and Weihrich H., Essentials of Management: An International, Innovation,

Entrepreneurship and Entrepreneur

 Important aspects of entrepreneurship

Figure 1: The entrepreneurial process

entrepreneur’s alertness to possibilities, or in some case, the establishment of

 Developing a business plan

 Manage the enterprise

Entrepreneurs, especially the ones that go “solo”, are the

Self‐awareness will help entrepreneurs to understand their

Successful entrepreneurs make customer satisfaction the

Module: 4 Lecture No: 26

 To discuss the concept of Corporate Social Responsibility (CSR).

Important & Relevant Questions

 Why CSR is important for a business organisation.

 Koontz H. and Weihrich H., Essentials of Management: An International, Innovation,

Corporate Social Responsibility (CSR)

operations can be accomodated for either by developing sustainable operations or by

is problematic for the development of environmental accounting, it is in fact useful to

Sustainability and Sustainable Development

 The three pillars of sustainability

Figure 1: The three pillars of sustainability

every project or decision. Economic sustainability refers to decisions that are

 Democracy and governance - the community provides democratic

Module: 4 Lecture No: 27

 To discuss the meaning and definitions of statistics.

Important & Relevant Questions

 Distinguish between descriptive Statistics and inferential Statistics.

 Amir D. Aczel and J. Sounderpandian, Business Statistics, Tata McGraw Hill

 Continuous data represent the numerical values of a continuous variable.

Figure 1: Descriptive statistics

Figure 2: Inferential statistics

 Importance of statistics in business management

Module: 4 Lecture No: 28

 To discuss the concept of bivariate linear correlation.

Important & Relevant Questions

 What do you mean by correlation?

 Amir D. Aczel and J. Sounderpandian, Business Statistics, Tata McGraw Hill

Correlation Analysis and Linear Regression

average or if one variable decreases, the other variable also decreases on an

(i) Scatter diagram

Figure 1: Scatter diagrams

 if the points on the diagram reveal any trend (either upward or

Figure 2: Scatter diagram

Figure 3: Correlation graph

Thus by substituting these equations, we can write the Pearsonian correlation

Pearsonian correlation coefficient cannot exceed 1 numerically. In other words

Module: 4 Lecture No: 29

 To discuss linear regression.

Important & Relevant Questions

 Self-assesment questions (Numerical questions)

 What is meant by regression?

 Amir D. Aczel and J. Sounderpandian, Business Statistics, Tata McGraw Hill