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Business Statistics UNIT-1

What is Statistics? Statistics is concerned with scientific method for collecting, organizing, summarizing, presenting and analyzing data as well as drawing valid conclusion and making reasonable decisions on the basis of such analysis.

Application of Statistics in Managerial Decision Making Every minute of the working day, decisions are made by business around the world that determines whether companies will be profitable and growing or wither they will stagnate and die. Most of these decisions are made with the assistance of information gathered about the market place, the economic and financial environment, the workforce, the competition, and other factors. Such information in the form of data or is accompanied by data. Business statistics provides the tool through which such data are collected, analyzed, summarized, and presented to facilitate the decision making process. Virtually every area of business uses statistics in decision making. Here are some examples of the use of statistics in several areas of business. Presents facts in numerical figures Helps in the formulation of policies Helps in forecasting Provides techniques for making decisions under uncertainty Helps in the judgment if performance

Measures of Central Tendency It provides information about the centre, or middle part, of a group of numbers. Measure of central tendency is the single value which can be taken as representative of the whole distribution. There are the following tools to measure central tendencyMean The arithmetic mean is the average of a group of numbers. Because the arithmetic mean is so widely used, most statisticians refer to it simply as the mean. The population mean is denoted by the Greek letter mew (). The sample mean is denoted by x

Merits and Demerits of Arithmetic Mean Merits:

The calculation of arithmetic mean is very simple. It is also simple to understand the meaning of arithmetic mean Calculation of arithmetic mean is based on all the observations and hence, it can be regarded as representative of the given data Arithmetic mean can be calculated even if the detailed observation is not known but the sum of observations and number of observations are known It is least affected by the fluctuation of sampling It provides a good basis for the comparison of two or more distributions

Demerits

It can neither be determined by inspection nor by graphical location It can not be calculated for qualitative data; like data on intelligence, honesty, smoking habit etc. It is too much affected by extreme observations and hence, it does not adequately represent the data consisting of some extreme observations Simple arithmetic mean gives greater importance to larger values and lesser importance to smaller values The value of mean obtained for a data may not be an observation of the data and as such it is called a fictitious average

Median The median is the middle value in an ordered array of numbers. If the number of observations is odd, the median is middle value. If the number of observation is even, the median is the average of the two middle numbers.

Md = Lm + [n/2 c] h
Where Lm is the lower limit of median class, h is the width of the class and f is the frequency of median class. Merits and Demerits of Arithmetic Mean Merits: It is easy to calculate and easy to understand Median can be determined even the class intervals have open ends or not of equal width It is not much affected by extreme observations. It is also independent of range or dispersion of the data Median can also be located graphically It is the only suitable measure when data is qualitative

Demerits:

Uses:

In case of ungrouped data, the process of calculating median requires their arrangement in the order of magnitude which may be a cumbersome task, particularly when the number of observations is very large In comparison to arithmetic mean, it is much affected by the fluctuations of sampling Since it is not possible to define weighted median like weighted mean, this average is not suitable when different items are of unequal importance It is not based on the magnitude of the observations, There may be a situation where different sets of observations give same

It is an appropriate measure of central tendency when the characteristics are not measurable but different items are capable of being ranked Median is used to convey the idea of a typical observation of the given data Median is often computed when quick estimates of averages are desired When the given data has class intervals with open ends, median is preferred as a measure of central tendency since it is not possible to calculate mean in this case

Mode

The mode is the most frequently occurring value in a set of data or in other words it is that value which occurs maximum number of times in a distribution. It is calculated as the mid point of the modal class. Merits and Demerits of Arithmetic Mean Merits: It is easy to understand and easy to calculate. In many cases it can be located just by inspection. It can be located in situations where the variable is not measurable but categorization or ranking of observation is possible Like mean or median it is not affected by extreme observations It can be determined even if the distribution has open end classes It is a value around which there is more concentration of observations and hence the best representative of the data

Demerits: It is not based on all the observations It is much affected by the fluctuations of sampling It is not suitable when different items of the data are of unequal importance It is an unstable average because, mode of distribution, depends upon the choice of width of class intervals It is not easy to calculate unless the number of observations is sufficiently large

Relation between Mean, Median and Mode:

It has been observed that for a moderately skewed distribution, the difference between mean and mode is approximately three times the difference between mean and median, i.e.

X - Mo = 3(X - Md)
OR

X = 3 Md Mo 2
Where X = Mean, Md = Median, Mo = Mode Measures of Variability (Dispersion): The concept of dispersion is related to the extent of scatter or variability in observations. The variability, in an observation, is often measured as its deviation from a central value. The measure of the degree to which numerical data tend to spread about an average value is called the measure of variability or dispersion. Objectives of Measuring Variability or Dispersion:

To test the reliability of an average To compare the extent of variability in two or more distributions To facilitate the computations of other statistical measures To serve as the basis for control of variation

Tools of Measuring Variability or Dispersion: Range: It is the simplest measure of dispersion. For ungrouped data, the range is the difference between the highest and lowest values in a set of data. Range = Highest Value lowest Value For ungrouped data the range is defined as the difference between upper limit of the highest class and the lower limit of the lowest class. Merits and Demerits of Arithmetic Mean Merits: It is easy to understand and easy to calculate It does not require any special knowledge It takes minimum time to calculate the value of range

Demerits:

Use:

It does not take into account of all items of distribution Only two extreme values are taken into consideration It is affected by extreme values It does not indicate the direction of variability It does not present very accurate picture of the variability

It facilitates to study quality control It facilitates to study variations of prices on shares, debentures, bonds and agricultural commodities It facilitates weather forecasts

Mean Deviation: The arithmetic mean of the absolute values of the deviations of observations from a central value like mean, median, mode. MD = X - X N Where X= value of each observation, X = arithmetic mean, N = No. of observations Merits and Demerits of Arithmetic Mean Merits: It is easy to understand It is based on all items of the series It is less affected by extreme values It is not much affected by fluctuations of sampling

Demerits:

It lacks properties such as that (+) & (-) signs are not taken into consideration It is not suitable for mathematical treatment It may not give accurate results when the degree of variability in a series is very high

Variance: Variance is a measure of variability based on the squared deviations of the observed values in the data set about the mean value. It is the arithmetic mean of the squares of deviations of all the items of the distribution from the 2 arithmetic mean. The population variance is denoted by (Sigma square) and sample variance is denoted by s2 and is calculated as-

Standard Deviation: It is the most commonly used measure of dispersion. It is defined as the square root of arithmetic mean of sum of squares of deviation of all the observations. It can be computed by taking the positive square root of the variance. It is denoted by and is calculated as-

Merits and Demerits of Standard Deviation Merits:


It is based on all the items of distribution It is least affected by fluctuations of sampling It facilitates the other statistical calculations like skewness, correlation It is capable of being treated mathematically. For example, if SD of a number of groups are known, their combined SD can be computed.

Demerits: It can not be used for comparing the variability of two or more observations given in different units. It is very much affected by the extreme values It can not be computed for a distribution with open ended classes. While calculating SD, more deviation is given to extreme values and less to those near means

Coefficient of Variation: The coefficient of variation represents the ratio of the standard deviation to the mean, and it is a useful statistic for comparing the degree of variation from one data series to another, even if the means are drastically different from each other. In the investing world, the coefficient of variation allows you to determine how much volatility (risk) you are assuming in comparison to the amount of return you can expect from your investment.

Skewness: Skewness describes asymmetry from the normal distribution in a set of statistical data. Skewness can come in the form of "negative skewness" or "positive skewness", depending on whether data points are skewed to the left (negative skew) or to the right (positive skew) of the data average.

Coefficient of Skewness: A measure of skewness is Pearson's Coefficient of Skewness. It is defined as:

Sk > 0 then skewed right distribution (Positive skewed) Sk = 0 then normal distribution (Symmetrical) Sk < 0 then skewed left distribution (Negative skewed)

Kurtosis: This is another measure of the shape of a frequency curve. While skewness refers to the extent of lack of symmetry, kurtosis refers to the extent to which a frequency curve is peaked. Kurtosis is a Greek word which means bulginess. In statistics, the word is used for a measure of the degree of peakedness of a frequency curve. There are three types of shapes depending upon the shapes of their peaks.