THIS MODULE GOOD

FOR 2 WEEKS

DEADLINE: MAY 3,
2021
Republic of the Philippines
NORTHERN ILOILO POLYTECHNIC STATE COLLEGE
West Campus Estancia, Iloilo

BUSINESS STATITISTICS

MODULE 1
Course Description
Statistics is the art of using data to make numerical conjectures about problems. Descriptive
statistics is the art of summarizing data. Topics include: histograms, the average, the standard
deviation, the normal curve, correlation. Much statistical reasoning depends on the theory of
probability. Topics include: chance models, expected value, standard error, probability histograms,
convergence to the normal curve. Statistical inference is the art of making valid generalizations from
samples. Topics include: estimation, measurement error, tests of statistical significance
OBJECTIVES:
The aim of the present lesson is to enable the students to understand the meaning, definition,
nature, importance and limitations of statistics.
“A knowledge of statistics is like a knowledge of foreign language of algebra;
it may prove of use at any time under any circumstance”
……………………………………...Bowley
INTRODUCTION
For a layman, ‘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. At the macro level, these are data
on gross national product and shares of agriculture, manufacturing, and services in GDP (Gross
Domestic Product). SUBJECT: BUSINESS STATISTICS COURSE CODE: MC-106 AUTHOR: SURINDER
KUNDU LESSON: 01 VETTER: DR. B. S. BODLA AN INTRODUCTION TO BUSINESS STATISTICS 2 at the
micro level, individual firms, howsoever small or large, produces extensive statistics on their operations.
The annual reports of companies contain variety of data on sales, production, expenditure, inventories,
capital employed, and other activities. These data are often field data, collected by employing scientific
survey techniques. Unless regularly updated, such data are the product of a one-time effort and have
limited use beyond the situation that may have called for their collection. A student knows statistics
more intimately as a subject of study like economics, mathematics, chemistry, physics, and others. It is
a discipline, which scientifically deals with data, and is often described as the science of data. In dealing
with statistics as data, statistics has developed appropriate methods of collecting, presenting,
summarizing, and analysing data, and thus consists of a body of these methods.
MEANING AND DEFINITIONS OF STATISTICS
In the beginning, it may be noted that the word ‘statistics’ is used rather curiously in two senses
plural and singular. In the plural sense, it refers to a set of figures or data. In the singular sense,
statistics refers to the whole body of tools that are used to collect data, organize and interpret them
and, finally, to draw conclusions from them. It should be noted that both the aspects of statistics are
important if the quantitative data are to serve their purpose. If statistics, as a subject, is inadequate
and consists of poor methodology, we could not know the right procedure to extract from the data the
information they contain. Similarly, if our data are defective or that they are inadequate or inaccurate,
we could not reach the right conclusions even though our subject is well developed. 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 mani-
3 festations. Boddington defined as: Statistics is the science of estimates and probabilities. Further, 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. Seligman explored that statistics is a science that deals with the methods of
collecting, classifying, presenting, comparing and interpreting numerical data collected to throw some
light on any sphere of enquiry. Spiegal defines statistics highlighting its role in decision-making
particularly under uncertainty, as follows: statistics is concerned with scientific method for collecting,
organizing, summa rising, presenting and analyzing data as well as drawing valid conclusions and
making reasonable decisions on the basis of such analysis. According to Prof. Horace Secrist, Statistics
is the aggregate of facts, affected to a marked extent by multiplicity of causes, numerically expressed,
enumerated or estimated according to reasonable standards of accuracy, collected in a systematic
manner for a pre-determined purpose, and placed in relation to each other.
From the above definitions, we can highlight the major characteristics of statistics as follows:
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.
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.
Statistics must be reasonably accurate. Wrong figures, if analyzed, will lead to erroneous
conclusions. Hence, it is necessary that conclusions must be based on accurate figures.
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.
 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.
TYPES OF DATA AND DATA SOURCES
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. Any object subject phenomenon, or
activity that generates data through this process is termed as a variable. In other words, a variable is
one that shows a degree of variability when successive measurements are recorded. In statistics, data
are classified into two broad categories: quantitative data and qualitative data. This classification is
based on the kind of characteristics that are measured.
Quantitative data are those that can be quantified in definite units of measurement. These
refer to characteristics whose successive measurements yield quantifiable observations. Depending on
the nature of the variable observed for measurement, quantitative data can be further categorized as
continuous and discrete data. 5 Obviously, a variable may be a continuous variable or a discrete
variable.
Continuous data represent the numerical values of a continuous variable. A continuous variable
is the one that can assume any value between any two points on a line segment, thus representing an
interval of values. The values are quite precise and close to each other, yet distinguishably different. All
characteristics such as weight, length, height, thickness, velocity, temperature, tensile strength, etc.,
represent continuous variables. Thus, the data recorded on these and similar other characteristics are
called continuous data. It may be noted that a continuous variable assumes the finest unit of
measurement. Finest in the sense that it enables measurements to the maximum degree of precision.
Discrete data are the values assumed by a discrete variable. A discrete variable is the one
whose outcomes are measured in fixed numbers. Such data are essentially count data. These are
derived from a process of counting, such as the number of items possessing or not possessing a certain
characteristic. The number of customers visiting a departmental store every day, the incoming flights
at an airport, and the defective items in a consignment received for sale, are all examples of discrete
data.
Qualitative data refer to qualitative characteristics of a subject or an object. A characteristic is
qualitative in nature when its observations are defined and noted in terms of the presence or absence
of a certain attribute in discrete numbers. These data are further classified as nominal and rank data.
(i) Nominal data are the outcome of classification into two or more categories of items or units
comprising a sample or a population according to some quality characteristic. Classification of students
according to sex (as males and 6 females), of workers according to skill (as skilled, semi-skilled, and
unskilled), and of employees according to the level of education (as matriculates, undergraduates, and
post-graduates), all result into nominal data. Given any such basis of classification, it is always possible
to assign each item to a particular class and make a summation of items belonging to each class. The
count data so obtained are called nominal data.
(ii) Rank data, on the other hand, are the result of assigning ranks to specify order in terms of the
integers 1,2,3, ..., n. Ranks may be assigned according to the level of performance in a test. a contest, a
competition, an interview, or a show. The candidates appearing in an interview, for example, may be
assigned ranks in integers ranging from I to n, depending on their performance in the interview. Ranks
so assigned can be viewed as the continuous values of a variable involving performance as the quality
characteristic.
Data sources could be seen as of two types, viz., secondary and primary. The two can be defined as
under:
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.
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.
 MODULE 2
TYPES OF STATISTICS
There are two major divisions of statistics such as descriptive statistics and inferential statistics.
The term descriptive statistics deals with collecting, summarizing, and 7 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. Descriptive statistics may thus be seen as comprising
methods of bringing out and highlighting the latent characteristics present in a set of numerical data. It
not only facilitates an understanding of the data and systematic reporting thereof in a manner; and
also makes them amenable to further discussion, analysis, and interpretations. The first step in any
scientific inquiry is to collect data relevant to the problem in hand. When the inquiry relates to physical
and/or biological sciences, data collection is normally an integral part of the experiment itself. In fact,
the very manner in which an experiment is designed, determines the kind of data it would require
and/or generate. The problem of identifying the nature and the kind of the relevant data is thus
automatically resolved as soon as the design of experiment is finalized. It is possible in the case of
physical sciences. In the case of social sciences, where the required data are often collected through a
questionnaire from a number of carefully selected respondents, the problem is not that simply
resolved. For one thing, designing the questionnaire itself is a critical initial problem. For another, the
number of respondents to be accessed for data collection and the criteria for selecting them has their
own implications and importance for the quality of results obtained. Further, the data have been
collected; these are assembled, organized, and presented in the form of appropriate tables to make
them readable. Wherever needed, figures, diagrams, charts, and graphs are also used for better
presentation of the data. A useful tabular and graphic presentation of data will require that the raw
data be properly classified in accordance with the objectives of investigation and the relational analysis
to be carried out. . 8 A well thought-out and sharp data classification facilitates easy description of the
hidden data characteristics by means of a variety of summary measures. These include measures of
central tendency, dispersion, skewness, and kurtosis, which constitute the essential scope of
descriptive statistics. These form a large part of the subject matter of any basic textbook on the subject,
and thus they are being discussed in that order here as well. 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. The part of totality, which
is observed for data collection and analysis to gain knowledge about the population, is called a sample.
The desired information about a given population of our interest; may also be collected even by
observing all the units comprising the population. This total coverage is called census. Getting the
desired value for the population through census is not always feasible and practical for various reasons.
Apart from time and money considerations making the census operations prohibitive, observing each
individual unit of the population with reference to any data characteristic may at times involve even
destructive testing. In such cases, obviously, the only recourse available is to employ the partial or
incomplete information gathered through a sample for the purpose. This is precisely what inferential
statistics does. Thus, obtaining a particular value from the sample information and using it for drawing
an inference about the entire population underlies the subject matter of inferential statistics. Consider
a 9 situation in which one is required to know the average body weight of all the college students in a
given cosmopolitan city during a certain year. A quick and easy way to do this is to record the weight of
only 500 students, from out of a total strength of, say, 10000, or an unknown total strength, take the
average, and use this average based on incomplete weight data to represent the average body weight
of all the college students. In a different situation, one may have to repeat this exercise for some
future year and use the quick estimate of average body weight for a comparison. This may be needed,
for example, to decide whether the weight of the college students has undergone a significant change
over the years compared. Inferential statistics helps to evaluate the risks involved in reaching
inferences or generalizations about an unknown population on the basis of sample information. For
example, an inspection of a sample of five battery cells drawn from a given lot may reveal that all the
five cells are in perfectly good condition. This information may be used to conclude that the entire lot
is good enough to buy or not. Since this inference is based on the examination of a sample of limited
number of cells, it is equally likely that all the cells in the lot are not in order. It is also possible that all
the items that may be included in the sample are unsatisfactory. This may be used to conclude that the
entire lot is of unsatisfactory quality, whereas the fact may indeed be otherwise. It may, thus, be
noticed that there is always a risk of an inference about a population being incorrect when based on
the knowledge of a limited sample. The rescue in such situations lies in evaluating such risks. For this,
statistics provides the necessary methods. These centers on quantifying in probabilistic term the
chances of decisions taken on the basis of sample information being incorrect. This requires an
understanding of the what, why, and how of probability and probability distributions to equip
ourselves with methods of drawing statistical inferences and estimating the 10 degree of reliability of
these inferences.

SCOPE OF STATISTICS
Apart from the methods comprising the scope of descriptive and inferential branches of
statistics, statistics also consists of methods of dealing with a few other issues of specific nature. Since
these methods are essentially descriptive in nature, they have been discussed here as part of the
descriptive statistics. These are mainly concerned with the following:
It often becomes necessary to examine how two paired data sets are related. For example, we
may have data on the sales of a product and the expenditure incurred on its advertisement for a
specified number of years. Given that sales and advertisement expenditure are related to each other, it
is useful to examine the nature of relationship between the two and quantify the degree of that
relationship. As this requires use of appropriate statistical methods, these falls under the purview of
what we call regression and correlation analysis.
 Situations occur quite often when we require averaging (or totaling) of data on prices and/or
quantities expressed in different units of measurement. For example, price of cloth may be quoted per
meter of length and that of wheat per kilogram of weight. Since ordinary methods of totaling and
averaging do not apply to such price/quantity data, special techniques needed for the purpose are
developed under index numbers.
Many a time, it becomes necessary to examine the past performance of an activity with a view
to determining its future behaviour. For example, when engaged in the production of a commodity,
monthly product sales are an important measure of evaluating performance. This requires compilation
and analysis of relevant sales data over time. The more complex the activity, the 11 more varied the
data requirements. For profit maximizing and future sales planning, forecast of likely sales growth rate
is crucial. This needs careful collection and analysis of past sales data. All such concerns are taken care
of under time series analysis.
Obtaining the most likely future estimates on any aspect(s) relating to a business or economic
activity has indeed been engaging the minds of all concerned. This is particularly important when it
relates to product sales and demand, which serve the necessary basis of production scheduling and
planning. The regression, correlation, and time series analyses together help develop the basic
methodology to do the needful. Thus, the study of methods and techniques of obtaining the likely
estimates on business/economic variables comprises the scope of what we do under business
forecasting. Keeping in view the importance of inferential statistics, the scope of statistics may finally
be restated as consisting of statistical methods which facilitate decision-- making under conditions of
uncertainty. While the term statistical methods is often used to cover the subject of statistics as a
whole, in particular it refers to methods by which statistical data are analyzed, interpreted, and the
inferences drawn for decision-making. Though generic in nature and versatile in their applications,
statistical methods have come to be widely used, especially in all matters concerning business and
economics. These are also being increasingly used in biology, medicine, agriculture, psychology, and
education. The scope of application of these methods has started opening and expanding in a number
of social science disciplines as well. Even a political scientist finds them of increasing relevance for
examining the political behaviour and it is, of course, no surprise to find even historians statistical data,
for history is essentially past 12 data presented in certain actual format.

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:
(i) The planning of operations: This may relate to either special projects or to the recurring activities of
a firm over a specified period.
(ii) 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.
(iii) 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. A worth noting point is that although these three
functions-planning of operations, setting standards, and control-are separate, but in practice they are
very much interrelated. Different authors have highlighted the importance of Statistics in business. For
instance, Croxton and Cowden give numerous uses of Statistics in business such as project planning,
budgetary planning and control, inventory planning and control, quality control, marketing, production
and personnel administration. Within these also they have specified certain areas where Statistics is
very relevant. Another author, Irwing W. Burr, dealing with the place of statistics in an industrial
organisation, specifies a number of areas where statistics is extremely useful. These are: customer
wants and market research, development design and specification, purchasing, production, inspection,
packaging and shipping, sales and complaints, inventory and maintenance, costs, management control,
industrial engineering and research. Statistical problems arising in the course of business operations
are multitudinous. As such, one may do no more than highlight some of the more important ones to
emphasis the relevance of statistics to the business world. In the sphere of production, for example,
statistics can be useful in various ways. Statistical quality control methods are used to ensure the
production of quality goods. Identifying and rejecting defective or substandard goods achieve this. The
sale targets can be fixed on the basis of sale forecasts, which are done by using varying methods of
forecasting. Analysis of sales affected against the targets set earlier would indicate the deficiency in
achievement, which may be on account of several causes: (i) targets were too high and unrealistic (ii)
salesmen's performance has been poor (iii) emergence of increase in competition (iv) poor quality of
company's product, and so on. These factors can be further investigated.
Another sphere in business where statistical methods can be used is personnel management.
Here, one is concerned with the fixation of wage rates, incentive norms and performance appraisal of
individual employee. The concept of productivity is very relevant here. On the basis of measurement of
productivity, the productivity bonus is awarded to the workers. Comparisons of wages and productivity
are undertaken in order to ensure increases in industrial productivity. Statistical methods could also be
used to ascertain the efficacy of a certain product, say, medicine. For example, a pharmaceutical
company has developed a new medicine in the treatment of bronchial asthma. Before launching it on
commercial basis, it wants to ascertain the effectiveness of this medicine. It undertakes an
experimentation involving the formation of two comparable groups of asthma patients. One group is
given this new medicine for a specified period and the other one is treated with the usual medicines.
Records are maintained for the two groups for the specified period. This record is then analysed to
ascertain if there is any significant difference in the recovery of the two groups. If the difference is
really significant statistically, the new medicine is commercially launched.
LIMITATIONS OF STATISTICS
Statistics has a number of limitations, pertinent among them are as follows:
(i) There are certain phenomena or concepts where statistics cannot be used. This is because these
phenomena or concepts are not amenable to measurement.
For example, beauty, intelligence, courage cannot be quantified. Statistics has no place in all
such cases where quantification is not possible.

(ii) Statistics reveal the average behaviour, the normal or the general trend. An application of the
'average' concept if applied to an individual or a particular situation may lead to a wrong conclusion
and sometimes may be disastrous.
For example, one may be misguided when told that the average depth of a river from one bank
to the other is four feet, when there may be some points in
between where its depth is far more than four feet. On this understanding, one
may enter those points having greater depth, which may be hazardous.

(iii) Since statistics are collected for a particular purpose, such data may not be relevant or useful in
other situations or cases. For example, secondary data
(i.e., data originally collected by someone else) may not be useful for the other person.
(iv) Statistics are not 100 per cent precise as is Mathematics or Accountancy. Those who use statistics
should be aware of this limitation.In statistical surveys, sampling is generally used as it is not physically
possible to cover all the units or elements comprising the universe. The results may not be appropriate
as far as the universe is concerned. Moreover, different surveys based on the same size of sample but
different sample units may yield different results.
(vi) At times, association or relationship between two or more variables is studied in statistics, but such
a relationship does not indicate cause and effect' relationship. It simply shows the similarity or
dissimilarity in the movement of the two variables. In such cases, it is the user who has to interpret the
results carefully, pointing out the type of relationship obtained.
(vii) A major limitation of statistics is that it does not reveal all pertaining to a certain phenomenon.
There is some background information that statistics does not cover. Similarly, there are some other
aspects related to the problem on hand, which are also not covered. The user of Statistics has to be
well informed and should interpret Statistics keeping in mind all other aspects having relevance on the
given problem. Apart from the limitations of statistics mentioned above, there are misuses of it. Many
people, knowingly or unknowingly, use statistical data in wrong manner. Let us see what the main
misuses of statistics are so that the same could be avoided when one has to use statistical data. The
misuse of Statistics may take several forms some of which are explained below.
(i) Sources of data not given: At times, the source of data is not given. In the absence of the source,
the reader does not know how far the data are reliable. Further, if he wants to refer to the original
source, he is unable to do so.
Defective data: Another misuse is that sometimes one gives defective data. This may be done
knowingly in order to defend one's position or to prove a particular point. This apart, the definition
used to denote a certain phenomenon may be defective. For example, in case of data relating to
unemployed persons, the definition may include even those who are employed, though partially. The
question here is how far it is justified to include partially employed persons amongst unemployed ones.
(iii) Unrepresentative sample: In statistics, several times one has to conduct a survey, which
necessitates to choose a sample from the given population or universe. The sample may turn out to be
unrepresentative of the universe. One may choose a sample just on the basis of convenience. He may
collect the desired information from either his friends or nearby respondents in his neighbourhood
even though such respondents do not constitute a representative sample.
(iv) Inadequate sample: Earlier, we have seen that a sample that is unrepresentative of the universe is
a major misuse of statistics. This apart, at times one may conduct a survey based on an extremely
inadequate sample.
For example, in a city we may find that there are 1, 00,000 households. When we have to conduct a
household survey, we may take a sample of merely 100 households comprising only 0.1 per cent of the
universe. A survey based on such a small sample may not yield right information.
(v) Unfair Comparisons: An important misuse of statistics is making unfair comparisons from the data
collected. For instance, one may construct an index of production choosing the base year where the
production was much less. Then he may compare the subsequent year's production from this low base.
Such a comparison will undoubtedly give a rosy picture of the production though in reality it is not so.
Another source of unfair comparisons could be when one makes absolute comparisons instead of
relative ones. An absolute comparison of two figures, say, of production or export, may show a good
increase, but in relative terms it may turn out to be very negligible. Another example of unfair
comparison is when the population in two cities is different, but a comparison of overall death rates
and deaths by a particular disease is attempted. Such a comparison is wrong. Likewise, when data are
not properly classified or when changes in the composition of population in the two years are not
taken into consideration, comparisons of such data would be unfair as they would lead to misleading
conclusions.
(vi) Unwanted conclusions: Another misuse of statistics may be on account of unwarranted
conclusions. This may be as a result of making false assumptions.
For example, while making projections of population in the next five years, one may assume a lower
rate of growth though the past two years indicate otherwise. Sometimes one may not be sure about
the changes in business environment in the near future. In such a case, one may use an assumption
that may turn out to be wrong. Another source of unwarranted conclusion may be the use of wrong
average. Suppose in a series there are extreme values, one is too high while the other is too low, such
as 800 and 50. The use of an arithmetic average in such a case may give a wrong idea. Instead,
harmonic mean would be proper in such a case.
(vii) Confusion of correlation and causation: In statistics, several times one has to examine the
relationship between two variables. A close relationship between the two variables may not establish a
cause-and-effect-relationship in the sense that one variable is the cause and the other is the effect. It
should be taken as something that measures degree of association rather than try to find out causal
relationship.

SUMMARY
In a summarized manner, ‘Statistics’ means numerical information expressed in quantitative
terms. As a matter of fact, data have no limits as to their reference, coverage, and scope. At the macro
level, these are data on gross national product and shares of agriculture, manufacturing, and services
in GDP (Gross Domestic Product). At the micro level, individual firms, howsoever small or large,
produce extensive statistics on their operations. The annual reports of companies contain variety of
data on sales, production, expenditure, inventories, capital employed, and other activities. These data
are often field data, collected by employing scientific survey techniques. Unless regularly updated, such
data are the product of a one-time effort and have limited use beyond the situation that may have
called for their collection. A student knows statistics more intimately as a subject of study like
economics, mathematics, chemistry, physics, and others. It is a discipline, which scientifically deals with
data, and is often described as the science of data. In dealing with statistics as data, statistics has
developed appropriate methods of collecting, presenting, summarizing, and analyzing data, and thus
consists of a body of these methods.

QUESTIONS:
1. Define Statistics. Explain its types, and importance to trade, commerce and business.
2. “Statistics is all-pervading”. Elucidate this statement.
3. Write a note on the scope and limitations of Statistics.
4. What are the major limitations of Statistics? Explain with suitable examples.
5. Distinguish between descriptive Statistics and inferential Statistics.

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