Introduction to Business Statistics


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Introduction to Business Statistics

  1. 1. BUSINESS STATISTICS - WHAT AND WHY?Definition of Statistics-Statistics is the study of how to collect, organize, analyze, and interpret numerical informationfrom data.Types of StatisticsDescriptive statistics involves methods of organizing, picturing and summarizing informationfrom data. Inferential statistics involves methods of using information from a sample to drawconclusions about the population.Steps in Statistical Investigation-Five stages of statistical investigation Collection of Data ↓ Organization of data ↓ Presentation of data ↓ Analysis ↓ Interpretation of Resultsa) Collection of Data A structure of statistical investigation is based on a systematic collection of data. Thedata is classified into two groups i) Internal data and ii) External data
  2. 2. Internal data are obtained from internal records related to operations of businessorganisation such as production, source of income and expenditure, inventory, purchases andaccounts. The external data are collected and purchased by external agencies. The external datacould be either primary data or secondary data. The primary data are collected for first time andoriginal, while secondary data are collected by published by some agencies.b) Organisations of data The collected data is a large mass of figures that needs to be organised. The collecteddata must be edited to rectify for any omissions, irrelevant answers, and wrong computations.The edited data must be classified and tabulated to suit further analysis.c) Presentation of data The large data that are collected cannot be understand and analysis easily and quickly.Therefore, collected data needs to be presented in tabular or graphic form. This systematic orderand graphical presentation helps for further analysis.d) Analysis of data The analysis requires establishing the relationship between one or more variables.Analysis of data includes condensation, abstracting, summarization, conclusion etc. With thehelp of statistical tools and techniques like measures of dispersion central tendency, correlation,variance analysis etc analysis can be done.e) Interpretation of data The interpretation requires deep insight of the subject. Interpretation involves drawingthe valid conclusions on the bases of the analysis of data. This work requires good experienceand skill. This process is very important as conclusions of results are done based oninterpretation.FUNCTIONS OF STATISTICSStatistics as a discipline is considered indispensable in almost all spheres of human knowledge.There is hardly any branch of study which does not use statistics. Scientific, social and economicstudies use statistics in one form or another. These disciplines make-use of observations, factsand figures, enquiries and experiments etc. using statistics and statistical methods. Statisticsstudies almost all aspects in an enquiry. It mainly aims at simplifying the complexity ofinformation collected in an enquiry. It presents data in a simplified form as to make themintelligible. It analyses data and facilitates drawal of conclusions. Now let us briefly discusssome of the important functions of statistics.
  3. 3. 1. Presents facts in. simple form:Statistics presents facts and figures in a definite form. That makes the statement logical andconvincing than mere description. It condenses the whole mass of figures into a single figure.This makes the problem intelligible.2. Reduces the Complexity of data:Statistics simplifies the complexity of data. The raw data are unintelligible. We make themsimple and intelligible by using different statistical measures. Some such commonly usedmeasures are graphs, averages, dispersions, skewness, kurtosis, correlation and regression etc.These measures help in interpretation and drawing inferences. Therefore, statistics enables toenlarge the horizon of ones knowledge.3. Facilitates comparison:Comparison between different sets of observation is an important function of statistics.Comparison is necessary to draw conclusions as Professor Boddington rightly points out.” theobject of statistics is to enable comparison between past and present results to ascertain thereasons for changes, which have taken place and the effect of such changes in future. So todetermine the efficiency of any measure comparison is necessary. Statistical devices likeaverages, ratios, coefficients etc. are used for the purpose of comparison.4. Testing hypothesis:Formulating and testing of hypothesis is an important function of statistics. This helps indeveloping new theories. So statistics examines the truth and helps in innovating new ideas.5. Formulation of Policies :Statistics helps in formulating plans and policies in different fields. Statistical analysis of dataforms the beginning of policy formulations. Hence, statistics is essential for planners,economists, scientists and administrators to prepare different plans and programmes.6. Forecasting :The future is uncertain. Statistics helps in forecasting the trend and tendencies. Statisticaltechniques are used for predicting the future values of a variable. For example a producerforecasts his future production on the basis of the present demand conditions and his pastexperiences. Similarly, the planners can forecast the future population etc. considering thepresent population trends.7. Derives valid inferences :
  4. 4. Statistical methods mainly aim at deriving inferences from an enquiry. Statistical techniques areoften used by scholars planners and scientists to evaluate different projects. These techniques arealso used to draw inferences regarding population parameters on the basis of sample information.Limitations of statistics:Statistics with all its wide application in every sphere of human activity has its own limitations.Some of them are given below.1. Statistics is not suitable to the study of qualitative phenomenon: Since statistics is basically ascience and deals with a set of numerical data, it is applicable to the study of only these subjectsof enquiry, which can be expressed in terms of quantitative measurements. As a matter of fact,qualitative phenomenon like honesty, poverty, beauty,intelligence etc, cannot be expressednumerically and any statistical analysis cannot be directly applied on these qualitativephenomenons. Nevertheless, statistical techniques may be applied indirectly by first reducing thequalitative expressions to accurate quantitative terms. For example, the intelligence of a group ofstudents can be studied on the basis of their marks in a particular examination.2. Statistics does not study individuals: Statistics does not give any specific importance to theindividual items, in fact it deals with an aggregate of objects. Individual items, when they aretaken individually do not constitute any statistical data and do not serve any purpose for anystatistical enquiry.3. Statistical laws are not exact: It is well known that mathematical and physical sciences areexact. But statistical laws are not exact and statistical laws are only approximations. Statisticalconclusions are not universally true. They are true only on an average.4. Statistics table may be misused: Statistics must be used only by experts; otherwise, statisticalmethods are the most dangerous tools on the hands of the inexpert. The use of statistical tools bythe inexperienced and untraced persons might lead to wrong conclusions. Statistics can be easilymisused by quoting wrong figures of data. As King says9aptly ‘ statistics are like clay of whichone can make a God or Devil as one pleases’ .5. Statistics is only, one of the methods of studying a problem:Statistical method do not provide complete solution of the problems because problems are to bestudied taking the background of the countries culture, philosophy or religion into consideration.Thus the statistical study should be supplemented by other evidences.Statistics can analyze only aggregated observation or data:Any statistics is a collection of data.Individual observation does not belong to statisticshence,statistics analyses a collection of data andenlighten the overall estimated result. For-example theaverage income of the laborers of abusiness can be estimated by observing their percapital
  5. 5. income. Average income does notparticularize anybody or neglect anybodiesincome. In thisrespect, statistics gives an over allidea.•Statistics describes only numeral information:Statistics is anexposure of the numerical data .If it is not possibleto express in a, statistics fail tomake acomparative study between rich and poor, soundand ill etc .•Statistics given only overall measures: statics gives us only anaverage or overall estimation. It is almostimpossible to achieve aparticular result. After aprolonged observation as it is found in otherbranches of knowledge. Asthe data are influencedby different factors, the some result is notavailable every time.•Statistics rules are mutable:In some brunches of science some unchangeableprinciples and data are available .but instatisticsthey are not found. The principles of statistics arevariable and changeable, approximateetc.•Statistics is simply amethod: The practical solution of anyproblem can be done in many ways. Statistics isone of the methodsof solving the problem. Itsevidences give the ideas of any matterbeforehand. Its evidences are tobe relativelysupported by other observation or data.•Statistics incapable indecision making:It is not alwayspossible for statistics to take proper decision.proper decision always depends onproper data.But the data is statistics are often collected byunskilled persons.•Statistics cannot expressthe entire data set: Statisticsmethod dose not express the topic or incidentfully. It simplifies the complicated dataandpresents them.•Using inappropriateinformation:Unskilled, idle andinexperienced person often collect data. As aresult, erroneous, puzzling andpartial informationis collected. As a result, very often improperdecision is taken.•Purposive misuses: The most totallimitation of statistics is that its purposive misuse.Very often erroneousinformation may becollected. But sometimes some institutions usestatistics for self interest andpuzzling otherorganizations.
  6. 6. COLLECTION OF DATAEverybody collects, interprets and uses information, much of it in a numerical or statistical formsin day-to-day life. It is a common practice that people receive large quantities of informationeveryday through conversations, televisions, computers, the radios, newspapers, posters, noticesand instructions. It is just because there is so much information available that people need to beable to absorb, select and reject it. In everyday life, in business and industry, certain statisticalinformation is necessary and it is independent to know where to find it how to collect it. Asconsequences, everybody has to compare prices and quality before making any decision aboutwhat goods to buy. As employees of any firm, people want to compare their salaries andworking conditions, promotion opportunities and so on. In time the firms on their part want tocontrol costs and expand their profits.One of the main functions of statistics is to provide information which will help on makingdecisions. Statistics provides the type of information by providing a description of the present, aprofile of the past and an estimate of the future. The following are some of the objectives ofcollecting statistical information.1. To describe the methods of collecting primary statistical information.2. To consider the status involved in carrying out a survey.3. To analyse the process involved in observation and interpreting.4. To define and describe sampling.5. To analyse the basis of sampling.6. To describe a variety of sampling methods.Categories of data:Any statistical data can be classified under two categories depending upon the sourcesutilized.These categories are,1. Primary data 2. Se condarydataStatistical Data
  7. 7. Statistical investigation is a long and comprehensive process and requires systematiccollection of data in large size. The validity and accuracy of the conclusion or results of thestudy depends upon how well the data were gathered. The quality of data will greatly influencethe conclusions of the study and hence importance is to be given to the data collection process. Statistical data may be classified as Primary Data and Secondary Data based on thesources of data collection. Primary data Primary data are those which are collected for the first time by the investigator /researchers and are thus original in character. Thus, data collected by investigator may be for thespecific purpose / study at hand. Primary data are usually in the shape of raw materials to whichstatistical methods are applied for the purpose of analysis and interpretation. Secondary data Secondary have been already collected for the purpose other than the problem at hand.These data are those which have already been collected by some other persons and which havepassed through the statistical analysis at least once. Secondary data are usually in the shape offinished products since they have been already treated statistically in one or the other form.After statistical treatment the primary data lose their original shape and becomes secondary data.Secondary data of one organisation become the primary data of other organisation who firstcollect and publish them.Primary Vs Secondary Data  Researcher originates primary data for specific purpose / study at hand while secondary data have already been collected for purpose other than research work at hand.  Primary data collection requires considerably more time, relatively expensive. While the secondary data are easily accessible, inexpensive and quickly obtained. Table – A compression of Primary and Secondary Data Primary data Secondary data
  8. 8. Collection purpose For the problem at hand For other problemsCollection process Very involved Rapid and easyCollection cost High Relatively lowCollection time Long ShortSuitability Its suitability is positive It may or may not suit the object of surveyOriginality It is original It is not originalPrecautions No extra precautions It should be used with required to use the data extra caseLimitations of secondary data a) Since secondary data is collected for ‘some other purpose, its usefulness to current problem may be limited in several important ways, including relevancies and accuracy. b) The objectives, nature and methods used to collect secondary data may not be appropriate to present situation. c) The secondary data may not be accurate, or they may not be completely current or dependable.Criteria for evaluating secondary data Before using the secondary data it is important to evaluate them on following factors a) Specification and methodology used to collect the data b) Error and accuracy of data. c) The currency d) The objective – The purpose for which data were collected e) The nature – content of data f) The dependabilitySources of data Primary source – The methods of collecting primary data.
  9. 9. When data is neither internally available nor exists as a secondary source, then theprimary sources of data would be approximate. The various method of collection of primary data are as follows a) Direct personal investigation - Interview - Observation b) Indirect or oral investigation c) Information from local agents and correspondents d) Mailed questionnaires and schedules e) Through enumerationsSecondary source – The methods of collecting secondary datai) Published Statistics a) Official publications of Central Government Ex: Central Statistical Organisation (CSO) – Ministry of planning - National Sample Survey Organisation (NSSO) - Office of the Registrar General and Census Committee – GOI - Director of Statistics and Economics – Ministry of Agriculture - Labour Bureau – Ministry of Labour etc.ii) Publications of Semi-government organisation Ex: - The institute of foreign trade, New Delhi - The institute of economic growth, New Delhi.iii) Publication of research institutes Ex: - Indian Statistical Institute - Indian Agriculture Statistical Institute - NCRET Publications - Indian Standards Institute etc.iv) Publication of Business and Financial Institutions Ex:
  10. 10. - Trade Association Publications like Sugar factory, Textile mill, Indian chamber of Industry and Commerce. - Stock exchange reports, Co-operative society reports etc.v) News papers and periodicals Ex: - The Financial Express, Eastern Economics, Economic Times, Indian Finance, Reports of various committees and commissions Ex: - Kothari commission report on education - Pay commission reports - Land perform committee reports etc.vii) Unpublished statistics - Internal and administrative data like Periodical Loss, Profit, Sales, Production Rate, Balance Sheet, Labour Turnover, Budges, etc.Primary data:Primary data is the one, which is collected by the investigator himself for the purpose of aspecific inquiry or study. Such data is original in character and is generated by survey conductedby individuals or research institution or any organisation.The primary data can be collected by the following five methods.1. Direct personal interviews.2. Indirect Oral interviews.3. Information from correspondents.4. Mailed questionnaire method.5. Schedules sent through enumerators1. Direct personal interviews:The persons from whom informations are collected are known as informants. The investigatorpersonally meets them and asks questions to gather the necessary informations. It is the suitablemethod for intensive rather than extensive field surveys. It suits best for intensive study of thelimited field.
  11. 11. 2. Indirect Oral Interviews: Under this method the investigator contacts witnesses or neighbours or friends or some otherthird parties who are capable of supplying the necessary information. This method is preferred ifthe required information is on addiction or cause of fire or theft or murder etc., If a fire hasbroken out a certain place, the persons living in neighbourhood and witnesses are likely to giveinformation on the cause of fire. In some cases, police interrogated third parties who aresupposed to have knowledge of a theft or a murder and get some clues. Enquiry committeesappointed by governments generally adopt this method and get people’ s views and all possibledetails of facts relating to the enquiry. This method is suitable whenever direct sources do notexists or cannot be relied upon or would be unwilling to part with the information.3. Information from correspondents:The investigator appoints local agents or correspondents in different places and compiles theinformation sent by them. Informations to Newspapers and some departments of Governmentcome by this method. The advantage of this method is that it is cheap and appropriate forextensive investigations. But it may not ensure accurate results because the correspondents arelikely to be negligent, prejudiced and biased. This method is adopted in those cases whereinformations are to be collected periodically from a wide area for a long time.4. Mailed questionnaire method:Under this method a list of questions is prepared and is sent to all the informants by post. Thelist of questions is technically called questionnaire. A covering letter accompanying thequestionnaire explains the purpose of the investigation and the importance of correctinformations and request the informants to fill in the blank spaces provided and to return theform within a specified time. This method is appropriate in those cases where the informants areliterates and are spread over a wide area.5. Schedules sent through Enumerators:Under this method enumerators or interviewers take the schedules, meet the informants andfilling their replies. Often distinction is made between the schedule and a questionnaire. Aschedule is filled by the interviewers in a face-to-face situation with the informant. Aquestionnaire is filled by the informant which he receives and returns by post. It is suitable forextensive surveys.Secondary Data:Secondary data are those data which have been already collected and analysed by some earlieragency for its own use; and later the same data are used by a different agency.
  12. 12. According to W.A.Neiswanger, ‘ A primary source is a publication in which the data arepublished by the same authority which gathered and analysed them. A secondary source is apublication, reporting the data which have been gathered by other authorities and for whichothers are responsible’ .Sources of Secondary data:In most of the studies the investigator finds it impracticable to collect first-hand information onall related issues and as such he makes use of the data collected by others. There is a vastamount of published information from which statistical studies may be made and fresh statisticsare constantly in a state of production.The sources of secondary data can broadly be classified under two heads:1. Published sources, and2. Unpublished sources.1. Published Sources:The various sources of published data are:1. Reports and official publications of(i) International bodies such as the International Monetary Fund, International FinanceCorporation and United Nations Organisation.(ii) Central and State Governments such as the Report of the Tandon Committee and PayCommission.2. Semi-official publication of various local bodies such as Municipal Corporations and DistrictBoards.3. Private publications-such as the publications of –(i) Trade and professional bodies such as the Federation ofIndian Chambers of Commerce andInstitute of Chartered Accountants.(ii) Financial and economic journals such as ‘ Commerce’ , ‘ Capital’ and ‘ Indian Finance’ .(iii) Annual reports of joint stock companies.(iv) Publications brought out by research agencies, research scholars, etc.2. Unpublished Sources
  13. 13. All statistical material is not always published. There are various sources of unpublished datasuch as records maintained by various Government and private offices, studies made by researchinstitutions, scholars, etc. Such sources can also be used where necessaryPrecautions in the use of Secondary dataThe following are some of the points that are to be considered in the use of secondary data1. How the data has been collected and processed2. The accuracy of the data3. How far the data has been summarized4. How comparable the data is with other tabulations5. How to interpret the data, especially when figures collected for one purpose is used for anotherGenerally speaking, with secondary data, people have to compromise between what they wantand what they are able to find.Merits and Demerits of Secondary Data:1. Secondary data is cheap to obtain. Many government publications are relatively cheap andlibraries stock quantities of secondary data produced by the government, by companies and otherorganisations.2. Large quantities of secondary data can be got through internet.3. Much of the secondary data available has been collected for many years and therefore it can beused to plot trends.4. Secondary data is of value to:- The government – help in making decisions and planning future policy.- Business and industry – in areas such as marketing, and sales in order to appreciate the generaleconomic and social conditions and to provide information on competitors.- Research organisations – by providing social,economical and industrial information.