Statistics for Business

Perumal Mariappan

• Publisher: Chapman and Hall/CRC
• Year: 2019
• ISBN:
  9780429811494
• Edition: 1
• Topic: Business
• Subtopic: Management
• Index: Business

Statistics for Business is meant as a textbook for students in business, computer science, bioengineering, environmental technology, and mathematics. In recent years, business statistics is used widely for decision making in business endeavours. It emphasizes statistical applications, statistical model building, and determining the manual solution methods.

Special Features:

This text is prepared based on "self-taught" method.

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• For most of the methods, the required algorithm is clearly explained using flow-charting methodology.

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• More than 200 solved problems provided.

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• More than 175 end-of-chapter exercises with answers are provided.

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• This allows teachers ample flexibility in adopting the textbook to their individual class plans.

This textbook is meant to for beginners and advanced learners as a text in Statistics for Business or Applied Statistics for undergraduate and graduate students.

1

Introduction to Statistics and Its Business Applications

1.1 Introduction

The word ‘statistics’ is derived from the Greek word statistik. Its meaning is political state, and the derivation suggests its origin. Administration of the state required the collection and analysis of data regarding population and property for purposes of war and finance. Now there is hardly any field of social activity or scientific research that does not find statistics useful.

The term ‘statistics’ has two meanings: (1) statistical principles and methods and (2) statistical data that have been developed to handle the data. When census reports are taken, it is a lot of data regarding the population. They are ‘statistics’ in the first sense of the word. On the other hand, the methods of collecting the data, the way samples are chosen for measurement, the methods of classifying and tabulating the data collected, the methods of analysing them and correlating them, the methods of interpreting them, and so much more form ‘the statistical methods’.

The five stages mentioned are called the phases of a statistical investigation.

Croxton and Cowden define statistics as, ‘the collection, presentation, analysis and interpretation of numerical data’.

Principles involved in interpreting the data are forming valid conclusions by analysing the data.

According to Bowley, ‘[s]tatistics may be called the science of counting’.

As per Boddington, ‘[s]tatistics is the science of estimates and probabilities’.

Spiegel states that statistics is concerned with scientific methods for collecting, organising, summarising, presenting, and analysing data and drawing valid conclusions and making reasonable decisions based on such analysis.

This implies that statistics can be said to include the study of the following:

Methods of collecting statistical data can be directly by researchers through mail cards or indirectly from existing published sources.

The various methods used to evaluate the reliability of the data.

Sampling Methods:

• Methods of classifying the data usefully and logically based on quantity, quality, time, or geographical regions.

• Methods of presenting the data in the form of easily understood tables, graphs, and other diagrams.

• Methods of calculating average, measures of variation, skewness, correlation, or association to understand the basic characteristic of the data.

• Principles involved in interpreting the data that are useful in forming valid conclusions by analysing the data.

• Principles involved in forecasting on the basis of the existing data.

Classification of Statistics:

The study of statistics can be classified into two broad areas: Descriptive Statistics and Inferential Statistics:

Descriptive statistics: Descriptive statistics can be defined as a set of methods involving the collection, presentation, characterisation, and summarisation of a set of data by means of numerical descriptions.

Inferential statistics: Inferential statistics can be defined as a set of methods that allow estimation or testing of a characteristic or attribute of a population, or the making of a judgment or decision concerning a population based only on sample results.

1.2 Is Statistics a Science?

Science is an organised body of knowledge, and statistics is the science of making decisions in the face of uncertainty. But strictly speaking, statistics is not a science like the physical sciences. To quote Croxton and Cowden again, ‘[s]tatistics should not be thought of as a subject correlative with physics, chemistry, economics or sociology. Statistics is not a science; it is a scientific method’. Statistical methods are an indispensable tool for the research worker in all sciences, physical, biological, or social. Wherever there are numerical data, the methods of statistics are useful.

1.3 Application of Statistics in Business

Statistical methods are used in the collection, analysis, and interpretation of quantitative data. Though these methods are used in every area of scientific investigation, they are especially useful to economists and businessmen. In fact, there is no field in business in which statistics do not come in handy as a tool for efficient and effective management. Statistical application to business can be used:

• for locating a new plant.

• to formulate a sales program.

• to expand the existing plant.

• to add new processes.

• to add new products.

• to have a new policy, etc.

For example, while selecting a location for a new plant, a businessman takes the following things into consideration:

• the most suitable site

• climate and adequate available labour

• availability of raw materials, transport facilities, and markets

• the tax laws, prevailing wage rates, cost of living, political climate, etc.

To make a decision, the necessary data must be collected, and with the help of statistics, a decision can be made. Similarly, in the field of sales planning, statistics is useful. By studying population and income statistics and consumption pattern, a businessman makes a forecast of its sales and plans them accordingly. It helps in making decisions regarding the stock of raw material inventory, stock of semi-finished goods inventory, and finished goods inventory, etc. In recent years, market research has been used to the fullest extent to study the consumer behaviour towards a product, their habits, the effectiveness of the various types of trade channels, advertisement media, and the functioning of rival companies, etc. Statistics is also extremely useful in the field of production planning. Modern business makes use of statistics to test the efficiency and performance of their workers to decide the promotional aspect. The statistical data also help a businessman compare his performance to that of his competitors. Another field in which modern industry uses statistics effectively is quality control. Banking and insurance companies, as well as other investors, look to production and finance and share price statistics of various companies to decide their investment programs. Insurance companies use actuarial statistics for determining their premium amounts. On the whole, statistics is an important tool to doing successful business. Statistics consists of a set of tools whose proper use helps in decision making. These tools are used in many fields other than business, for example, in biology, agriculture, psychology, education, and so on.

1.3.1 The Phases of the Statistical Decision-Making Process

Industry and government statisticians generally divide their tasks into different phases. They are

• Study design

• Data collection

• Data analysis

• Action on results

1.3.1.1 Study Design Phase

• Question definition: The manager defines the question in terms of the business need for information.

• Alternative strategies: The statistician develops and specifies alternative procedures for sampling, data collection, and analysis.

• Strategy evaluation: The manager and the statistician evaluate the advantages and disadvantages of the feasible alternatives.

• Strategy selection: The manager selects a strategy on the basis of cost and the importance of the information to the organisation.

1.3.1.2 Data Collection

• Sample design: The statistician plans the sampling procedure based on work done in second stage of Study Design and the selection made in fourth stage of Study Desig...