AN INTRODUCTION TO BUSINESS STATISTICS

learning objectives : The aim of the present lesson is to enable the students
to understand the meaning, definition, nature, importance and limitations of
statistics.
WHAT IS STATISTICS?
• Statistics is the art and science of collecting and understanding data. Since data refers to any kind of recorded
information, statistics plays an important role in many human endeavours.

• ‘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.

• A.L. Bowley has defined statistics as: (i) statistics is the science of counting, (ii) Statistics may rightly be called the
science of averages, and (iii) statistics is the science of measurement of social organism regarded as a whole in all its
manifestations.

• Boddington has defined as: Statistics is the science of estimates and probabilities.

• W.I. King has defined Statistics in a wider context, the science of Statistics is the method of judging collective,
natural or social phenomena from the results obtained by the analysis or enumeration or collection of estimates.
From the above definitions, we can highlight the major characteristics of statistics as follows:

(i) 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.

(ii) 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.

(iii) 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.

(iv) 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.

(v) Collected in a systematic manner for a pre-determined purpose

(vi) Lastly, 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.
 WHY STATISTICS?
Is knowledge of statistics really necessary to be successful in business? Or is it enough to rely on intuition, experience,
and hunches? Let’s put it another way: Do you really want to ignore much of the vast potentially useful information out
there that comes in the form of data?

WHY SHOULD YOU LEARN STATISTICS?

By learning statistics, you acquire the competitive advantage of being comfortable and competent around data and
uncertainty. A vast amount of information is contained in data, but this information is often not immediately accessible
—statistics helps you extract and understand this information. A great deal of skill goes into creating strategy from
knowledge, experience, and intuition. Statistics helps you deal with the knowledge component, especially when this
knowledge is in the form of numbers, by answering questions such as, To what extent should you really believe these
figures and their implications? and, How should we summarize this mountain of data? By using statistics to acquire
knowledge, you will add to the value of your experience and intuition, ultimately resulting in better decision making.
THE FIVE BASIC ACTIVITIES OF STATISTICS
In the beginning stages of a statistical study, either there are not yet any data or else it has not yet been
decided what data to look closely at.
1. The design phase will resolve these issues so that useful data will result.
2. Once data are available, an initial inspection is called for, provided by the exploratory phase.
3. In the modelling phase, a system of assumptions and equations is selected in order to provide a
framework for further analysis.
4. A numerical summary of an unknown quantity, based on data, is the result of the estimation process.
5. The last of these basic activities is hypothesis testing, which uses the data to help you decide what the
world is really like in some respect.
TYPES OF DATA
•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.

Continuous data

Quantitative data

Discrete data
Data Tipe
Nominal data
Qualitative data
Ordinal data
DATA SOURCES

(i) 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.

(ii) 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

• 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.

• 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.
IMPORTANCE OF STATISTICS IN BUSINESS
There are three major functions in any business enterprise in which the statistical methods are useful. These are as follows:

 The planning of operations: This may relate to either special projects or to the recurring activities of a firm over a
specified period.

 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.

 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.

 Use of Descriptive Statistics: Descriptive statistics are used to summarize and describe total numbers. Looking at
statistical numbers such as mean (average number), mode (most frequent number) or median (middle number) help
managers monitor business activities and make decisions. Often numbers themselves do not show the big picture, so
ratios, or numbers representing relationships are used.

 Monitoring Business Activities: Perhaps you are a regional manager who oversees 25 different two wheeler dealerships.
You will keep track of sales per month, number of vehicles sold, number of salesmen, sales per person, operational costs,
delivery times, and other information. You use this statistical information to look at trends, understand relationships
between numbers, and make sound business decisions. Perhaps you need to shift a sales member to a different store, or
realize that you need more available stock during certain months - all of which helps maximize the company's resources
and profit.
 Making Sound Business Decisions: perhaps you are regional store manager and are concerned about how long
customers have to wait to check out. Currently, customers queue in multiple lines with a single cashier. You measure
the mean, or average length of time, for customers to complete their transaction for a month. Then the next month,
you line up customers in a single line with multiple cashiers and measure the mean length of time for the
transaction. You notice that even though customers take longer to walk to the next available cashier, the overall
transactions are reported faster. When the company expands and builds the next store, you specifically request it to
be designed with one queuing line, using your findings to substantiate the request.

 Use of Inferential Statistics: Inferential statistics help managers draw conclusions based on limited data. When
predicting the future, we don't have a magic crystal ball. But we do have statistical strategies such as sampling,
probability, and models.

 Marketing Departments: Marketing departments often use inferential statistics. A company might issue a survey
and ask questions about their products. However, it is impossible to survey every individual customer. The marketing
department will determine the appropriate sample size, or the number of people to ask. Based on the results,
statisticians can infer the responses are representative of the larger group of customers.

 Financial Planning: Finance departments use statistical modelling for predicting budgets and capital expenditures,
when there are many unknown factors. A statistical model is a representation of what will probably happen.
Unfortunately, economists can't predict everything so they use probability. Probability is simply the likelihood of
something happening.
Limitations of Statistics
Qualitative Aspect Ignored: The statistical methods don’t study the nature of phenomenon which cannot be expressed in
quantitative terms. Such phenomena cannot be a part of the study of statistics. These include health, riches, intelligence etc.
It needs conversion of qualitative data into quantitative data.
It does not deal with individual items: It is clear from the definition given by Prof. Horace Sacrist, “By statistics we mean
aggregates of facts…. and placed in relation to each other”, that statistics deals with only aggregates of facts or items and it
does not recognize any individual item. Thus, individual terms as death of 6 persons in an accident, 85% results of a class of a
school in a particular year, will not amount to statistics as they are not placed in a group of similar items. It does not deal with
the individual items, however, important they may be.
It does not depict entire story of phenomenon: When even phenomena happen, that is due to many causes, but all these
causes cannot be expressed in terms of data. So we cannot reach at the correct conclusions. Development of a group depends
upon many social factors like, parents’ economic condition, education, culture, region, administration by government etc. But
all these factors cannot be placed in data. So we analyse only that data we find quantitatively and not qualitatively. So results
or conclusion are not 100% correct because many aspects are ignored.
It is liable to be miscued: As W.I. King points out, “One of the short-comings of statistics is that do not bear on their face the
label of their quality.” So we can say that we can check the data and procedures of its approaching to conclusions. But these
data may have been collected by inexperienced persons or they may have been dishonest or biased. As it is a delicate science
and can be easily misused by an unscrupulous person. So data must be used with a caution. Otherwise results may prove to
be disastrous.
Laws are not exact: As far as two fundamental laws are concerned with statistics- (i) Law of inertia of large numbers and (ii)
Law of statistical regularity, are not as good as their science laws. They are based on probability. So these results will not
always be as good as of scientific laws. On the basis of probability or interpolation, we can only estimate the production of
paddy in 2018 but cannot make a claim that it would be exactly 63 %. Here only approximations are made.
Results are true only on average: As discussed above, here the results are interpolated for which time series or regression or
probability can be used. These are not absolutely true. If average of two sections of students in statistics is same, it does not
mean that all the 50 students is section A has got same marks as in B. There may be much variation between the two. So we
get average results. “Statistics largely deals with averages and these averages may be made up of individual items radically
different from each other.” —W.L King
Too Many methods to study problems: In this subject we use so many methods to find a single result. Variation can be
found by quartile deviation, mean deviation or standard deviations and results vary in each case. “It must not be assumed
that the statistics is the only method to use in research, neither should this method of considered the best attack for the
problem.” —Croxten and Cowden
Statistical results are not always beyond doubt and uncertainty: “Statistics deals only with measurable aspects of things and
therefore, can seldom give the complete solution to problem. They provide a basis for judgement but not the whole
judgment.” —Prof. L.R. Connor. Although we use many laws and formulae in statistics but still the results achieved are not
final and conclusive. As they are unable to give complete solution to a problem, the result must be taken and used with
much wisdom.