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topic: role of statistics in management sciences.

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1 DEFINE STATISTICS?

2 STATISTICS IN BUSINESS:

➢ DESCRIPTIVE STATISTICS.

➢ ESTIMATION.

➢ HYPOTHESIS TESTING.

3 FREQUENCY DISTRIBUTION.

4 MANAGEMENT SCIENCES.

5 RELATIONSHIP BETWEEN STATISTICS AND

MANAGEMENT SCIENCES.

➢ PRESENTATION.

➢ ANALYSIS.

➢ INTERPRETATION.

6 AREAS OF KEEN INTEREST.

➢ OMISSION OF IMPORTANT FACTORS.

➢ CARELESSNESS.

➢ NON SEQUITUR.

➢ CONCEALED

➢ RESEARCH METHODS.

7 TOOLS OF QUALITY.

➢ HISTOGRAM & ITS IMPORTANCE.

➢ JOINT FREQUENCY DISTRIBUTION & ITS

IMPORTANCE.

➢ BAR CHARTS & ITS IMPORTANCE.

➢ PARETO CHARTS & ITS IMPORTANCE.

➢ PIE CHARTS & ITS IMPORTANCE.

➢ LINE CHARTS & ITS IMPORTANCE.

➢ FORECASTS.

➢ TIME SERIES ANALYSIS.

➢ TIME SERIES PLOT.

➢ SCATTER DIAGRAM.

1

STATISTICS:

The term statistics is used in either of two senses. In common parlance it is

generally employed synonymously with the word data. Thus someone may say that

he has seen “statistics of industrial accidents in the united states.” It would be

conducive to greater precision of meaning if we were not to use statistics in this

sense, but rather to say “data of industrial accidents in the united states.”

“Statistics” also refers to the statistical principles and methods which have been

developed for handling numerical data and which form the subject matter of this

text. Statistical methods or statistics range from the most elementary descriptive

devices which may be understood by anyone to those extremely complicated

mathematical procedures which are comprehended by only the most expert’s

theoreticians. It is the purpose of this volume not to enter into the highly

mathematical and theoretical aspects of the subject but rather to treat of its more

elementary and more frequently used phases.

Statistics may be defined as the collection, presentation, analysis and interpretation

of the numerical data. The facts which are dealt with must be capable of numerical

expressions. We can make little use statistically of the information that dwellings

are built of bricks, stone, wood and other materials, however if we are able to

determine how many or what proportion o dwellings are constructed of each type

material we have numerical data suitable for statistical analysis.

A collection of tools and techniques that are used to convert data into meaningful

information in a business environment.

business statistics include those specially designed to describe data such as charts,

graphs and numerical measures. Also included are inferential tools that help

decision makers draw inferences from a set of data. Inferential tools include

estimation and hypothesis testing.

The inferential tools includes two things the estimation and hypothesis testing.

2

ESTIMATION: In situations where one would like to know about all the data in

large data sets but it is impractical to work with all the data, decision makers can

use techniques to estimate what the larger data set looks like. The estimates are

formed by looking closely at a subset of the larger data set.

important variables in a situation and established the relationship among them

through logical reasoning in the theoretical framework the decision maker is in a

better position to test whether the relationship that have been theorized do in fact

hold true. By testing these relationships scientifically through appropriate

statistical analysis or through negative case analysis in qualitative research we are

able to obtain reliable information on what kind of relationships exist among the

variables operating in the problem situation. The results of these tests offer the

decision maker some clues as to what could be changed in the situation to solve the

problem. Formulating such testable statements is called hypothesis development.

FREQUENCY DISTRIBUTION:

Frequency distribution is a summary of a set of data that displays the number of

observations in each of the distribution’s categories and classes.

MANAGEMENT SCIENCE:

SCIENCES:

3

The statistics plays a very crucial role in the field of management science. It is

practically in practice in the organizations. The management’s main responsibility

is to make logically sound decisions and the base of the decisions is the data that

depends on the work and the statistical tools. So the statistical is inevitable for the

business.

PRESENTATION:

Either for one’s own use or for the use of others the data is presented in some

suitable form. Usually the figures are arranged in tables or represented by graphic

devices as discussed below:

➢ Text presentation .

➢ Tabular presentation .

➢ Semi tabular presentation.

➢ Graphic presentation.

TEXT PRESENTATION: Combining figures and text is not a particularly

effective device, since it is necessary to read, or at least scan, all of the paragraphs

before one can grasp the meaning of the entire set of figures. Most person cannot

easily comprehend the data when set forth in this manner, and it is especially

difficult for the reader to single out individuals. There is an advantage, however

that the writer can direct attention to, and thus emphasize, certain figures and can

also attention to comparisons of importance.

usually superior to the use of text. A table of its title should be fully self

explanatory although it may frequently be accompanied by a paragraph of

interpretation or a paragraph directing attention to important figures. It is readily

seen that the table is much briefer than the text statement since the row and column

headings eliminate the necessity of repeating explanatory matter. As no text

appears with the figures, the presentation is more concise. The logical arrangement

of items in the stub and the box head makes a table clear and easy to read. The use

of columns and rows for the figures facilitates comparisons.

survivable in that the figures are made to stand out from the text as they would not

do if worked into one or two sentences. Incidentally the figures can be more

readily compared than if they were in the text.

4

GRAPHIC PRESENTATION: Graphic devices are extremely useful and

effective for quickly presenting a limited amount of information.

ANALYSIS:

In the process of analysis, data is classified into useful and logical categories. The

possible categories must be considered when plans are made for collecting the

data, the data is classified as they are tabulated and before they can be shown

graphically. Thus the process of analysis is partially concurrent with collection and

presentation. There are four important bases of classification of statistical data:

➢ Qualitative

➢ Quantitative

➢ Chronological

➢ Geographical

union we have a qualitative differentiation. The distinction is one of kind rather

than of amount. Individuals may be classified concerning material status, as single,

married, widowed, divorced and separated.

characteristics, a quantitative classification is appropriate. Families may be

classified according to the number of children. Manufacturing concerns may be

classified according to the number of workers employed, and also according to the

value of goods produced. Individuals may be classified according to the amount of

income tax paid. Most quantitative distributions are frequency distributions.

a particular phenomenon at various specified times. In a certain sense time series

are somewhat akin to quantitative distributions in that each succeeding year or a

month of a series is one year or month further removed from from earlier point of

reference. Occasionally a time series may be converted into a frequency

distribution.

5

GEOGRAPHICAL: The geographical distribution is essentially a type of

qualitative distribution, but is generally considered as a distinct classification.

Sometimes a geographical distribution may be put into the form of a frequency

distribution.

the original material. Too exact conclusions must not be drawn from data which

themselves are but approximations. It is essential however, that the investigator

discovers and clarify all the useful and applicable meaning which is present in its

data.

➢ Omission of important factors.

➢ Carelessness.

➢ Non sequitur.

➢ Concealed classification.

➢ Research methods.

EXPLANATION:

the example that one year certain manufacturing company felt called upon to prove

that all metal tops did not result in hotter car interiors. They suggested that a test

involving three steps:

1) Take a piece of top fabric about 8 inches square. Place a piece of lining

material of similar size beneath the fabric and a thermometer beneath the

lining material.

2) Take a piece of highly finished steel about 8 inches square. Placed similar

sized pieces of ¼ inch felt and lining material beneath the metal and a

thermometer beneath the lining material.

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3) Place each of the above assemblies on a board at room temperature. Carry

the entire apparatus out into hot sunshine, leave it exposed for about 10

minutes and then read the

Temperature of the thermometer.

mistakes, but should be reduced to a minimum.

weekly news magazine the circulation of which had been growing in a healthy

fashion, undertook to demonstrate for a particular year that its readers greatly

exceeds in circulation. It is possible because of the involvement of statistics which

tells the exact figures of the increase in the number of readers and the number of

magazines in circulation.

may sometimes be invalid because of the presence of the concealed classification

which is overlooked. One such concealed classification was found to be present in

a study of suicides. The data seemed to show that suicides were more likely to

occur among certain religious groups than among others. Upon further

consideration it was apparent that the matter of the urban or rural occurrence of the

suicides had been overlooked.

method to be used in research; neither should this method be considered as the best

attack for every problem. There are various method followed in the research that

includes the case study method, experimental method, deductive method and the

inductive method. The complementary nature of these methods of research is also

reflected in operations research. This relatively new field is the application o

quantitative methods to specific management problems which revolve around the

use of men and machines within an organization. The objective is to optimize the

solution to the problems. In operation research (sometimes called management

science) the principles of such physical science as physics and chemistry are

frequently combined. Of particular importance in operation research is the

mathematical techniques of linear programming in which the inputs, the outputs

and the objectives are completely quantified.

7

TOOLS OF QUALITY:

➢ Histogram.

➢ Joint frequency distribution.

➢ Bar charts.

➢ Pareto charts.

➢ Pie charts.

➢ Line charts.

➢ Forecasts.

➢ Time series analysis.

➢ Time series plot.

➢ Scatter diagram.

distribution into a visually appealing format. Histogram is a graph of frequency

distribution with the horizontal axis showing classes the vertical axis showing the

frequency count and the rectangles having a height equal to frequency in each

class.

Histogram is very useful for decision making when a data is of sequential nature

and result required in comparison form to be shown to the management or directors

for choosing among various options given. Such methods of pictogram clearly give

the decision maker an idea in a bird’s eye view without going through the whole

data.

tools for describing data. Joint frequency distribution is a summary of a vicariate

set of data that displays the number of observations that exhibit the respective joint

characteristics of one value taken from each of the variables that define the data

set.

Distributions or data which is shown or required in such a manner that each

variable is connected with the other hand or accumulated previous data so that the

analyst can draw the result through escalated values.

8

BAR CHARTS: Bar charts are the graphical presentation of a categorical data set

in which a rectangle or bar is drawn over each category or class. The length of each

bar represents the frequency or percentage of observations contained in a category.

The bars may be vertical or horizontal. The bars may all be the same color or they

may be different colors depicting different categories. Additionally multiple

variables can be graphed on the same bar chart.

When data has different values under same heads like prices of food grains, cost of

living indexes etc then bar charts are used to help the decision maker to analyze

various and multiple nature values single glance. By multiple or complexbar charts

joint data like sales of different items in given month, in a given time period,

profits of different cumulative distributions in time period can be analyzed and

compared and decision can be arrived quickly otherwise detailed study would have

been required.

Example diagram:

PARETO CHARTS: Pareto charts is a bar chart that is sorted so that the

categories or classes are arranged from highest to the lowest with respect to the

magnitude of the displayed variable associated with each category or class.

These charts are used for ascending and descending order data i.e. four products

are being manufactured in an organization and their respective sales is to be shown

for deciding to give away the least selling commodity. Pareto chart is used in

ascending order hence the least or the last bar drawn will show the least selling

commodity. Yet it is another important tool of decision making.

PIE CHARTS: A pie chart is a graph in the shape of a circle. The circle is divided

into slices corresponding to the categories or classes to be displayed. The size of

the slices is proportional to the magnitude of the displayed variable associated with

each category or class.

9

These charts represents the different sales volume of many things such as sales of

car in a given year, sales of costumes etc. when total of a given data is known and

it required to show the proportion of various value in the whole or share of

individual items in the whole then pie chart is used for determining the larger or

smaller share. Pie charts also helps the organization in decision making because the

suggestions given by different employees can easily be accumulated by such charts

and it also represents the most weighted opinion or the suggestion which helps the

organization to be stuck at the best option.

Example diagram:

Sales

1st Qtr 8.2

2nd Qtr 3.2

3rd Qtr 1.4

4th Qtr 1.2

LINE CHARTS: Line charts are two dimensional charts showing time on the

horizontal axis and the variable of interest on the vertical axis.

When trends are require to deciding about the future, decision making or

determining the future performance of the sales, production, employees turnover

etc line charts are used. They represents comparisons between trends of previous

year in different phases i.e. months, forth night, quarters, semis etc. with the

previous year’s trends with similar backups.

Example:

Series Series Series

1 2 3

Categor

y1 4.3 2.4 2

Categor

y2 2.5 4.4 2

Categor

y3 3.5 1.8 3

10

Categor

y4 4.5 2.8 5

demand forecast for the goods or services provides. A retail clothing store must

forecast the demand for the shirts it sells by the shirt size. The concessionaire at

dodger stadium at Los Angeles must forecast each game attendance to determine

how many soft drinks and hot dogs to have on hand. The state elected officials

must forecast tax revenues in order to establish a budget each year. There are only

a few of the instances in which forecasting is required. For many organizations the

success of the forecasting effort will play a major role in determining the general

success of the organization. When one graduate and join the organization in the

public or the private sector, that person will almost definitely be required to

prepare forecast or to us forecast provided by someone else in the organization.

One would not have an access to crystal ball on which to rely for an accurate

prediction of the future.

planning. Planning is the process of determining how to deal with the future. On

the other hand forecasting is the process of predicting what the future will be like.

Forecasts are used as inputs for the planning process.

Experts agree that good planning is essential for an organization to be effective.

Since forecast is an important part of the planning process. You need to be familiar

with forecasting methods. There are two broad categories of forecasting

techniques:

a) Qualitative forecasting technique.

b) Quantitative forecasting technique.

11

The qualitative forecasting technique are based upon expert opinion and judgment.

Qualitative forecasting techniques are based on statistical methods for analyzing

quantitative historical data.

In general quantitative forecasting techniques are used whenever the following

conditions are true:

a) Historical data relating to the variable to b forecast exist.

b) The historical data can be quantified.

c) One can assume that the historical pattern will continue in the future.

If these conditions do not exist qualitative forecasting techniques may be

employed.

TIME SERIES PLOT: Time series plot is a two dimensional plot of time series.

The vertical axis measures the variable of interest and the corresponds to the time

period. In plotting the time series the following steps are to be followed:

➢ Model fitting.

➢ Model diagnosis.

➢ Forecasting period.

➢ Forecasting intervals.

specified a model fits past data.

The idea is that if the future trends look like the past a model must adequately fit

the past data to have a reasonable chance of forecasting the future. As a forecaster

the decision maker will spend much time selecting the models specification and

estimating the models parameters to reach an acceptable fit of the past data.

the model fits the past data and how well the models assumptions to be satisfied.

The decision maker will need to determine how well the model fits the past data,

how well it performs in forecasting trials, and how well the models assumptions

appear to be satisfied. If the model is unacceptable in any of these areas the

decision maker will be forced to revert to the model specification step and begin

12

again. An important consideration when the decision makers are developing

forecasting model is to use the simplest available model that will meet the decision

makers forecasting needs. The objective of forecasting is to provide the good

forecast. The decision maker does not feel that the sophisticated approach is better

if a simpler one will provide acceptable forecast.

forecasts are to be made.

The forecasting period may be one day, one month, a week, a quarter or a year.

Thus the forecasting horizons consist of one or more forecasting periods. If

quantitative forecasting is to be employed, historical quantitative data must be

available for a similar period. For instance if we want weekly forecast, weekly

historical data must be available.

new forecasts are prepared.

The forecasting interval is generally the same length as the forecast period. That is,

if the forecast period is one week, then we will provide a new forecast each week.

points in which the vertical axis represents values of the other. Each plotted point

has coordinates whose values are obtained from the respective variables.

13

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