Chapter 1

Definition, Importance and Uses of Statistics

Definition of Statistics: Statistics may be defined as a science which deals with collection,
organization, classification, presentation, summarization, analysis and interpretation of statistical
data in any field of inquiry.

Reasons for learning Statistics: In the context of todays competitive business environment it is
important for decision-maker to develop the ability to exact meaningful information from raw
data to make better decision. It is possible only through the careful analysis of data guided by
statistical thinking. The data analysis shows the variable and its causes in any phenomenon that
leads to better decisions about it that produces data. So, the learning of statistics enables the
decision-maker to understand how to:

 present and describe information (data) so as to improve decisions

 draw conclusions about the large population based upon information obtained from
samples.
 seek out relationship between pairs of variables to improve processes
 obtain reliable forecasts of justified variables of interest

Flow chart of reason of studying Statistics:

Reasons for studying

Presentation and Drawing conclusions Obtaining reliable forecast

description of information about population of variable of interest

Statistical Method

Statistics: Fundamentals of probability and Regression and correlation

An overview probability distribution

Data collection, Tabulation Index number

and presentation
Sampling and Sampling
distributions
Descriptive statistical
methods: Central
tendency, dispersion,
moments, skewness and Estimation and Hypothesis testing
kurtosis confidence interval

Types of Statistical Method:

(i) Descriptive statistics: It includes statistical methods involving the collection,

presentation and characterization of a set of data. The methods are: graphic, measures
of central tendency, measure of dispersion, skewness and kertosis.

(ii) Inferential statistics: It includes statistical methods for estimating the characteristics
of a population (parameter) or making decisions concerning a population on the basis
of sample results. It can be categorized as parametric and nonparametric. In
parametric statistics parent population is considered normal and measured scale is
interval and ratio. But in nonparametric statistics there is no assumption of normality
and the measured scale is nominal and ordinal.
Importance of statistics:

Statistics and state: A state in the modern setup collects the largest amount of statistics for
various purposes. It collects data relating to prices, production, consumption, income and
expenditure, investment and profits. Popular statistical methods such as time-series analysis,
index numbers, forecasting and demand analysis are extensively used in formulating economic
policies. Government also collects data on population dynamics in order to initiate and
implement various welfare policies and programs.

Statistics and economics: (i) Time series analysis is used for studying the behaviors of prices,
productions, and consumption of commodities, money in circulation and bank deposits and
clearings (ii) Index numbers are useful in economic planning as they indicate the changes over a
specified period of time in (a) prices of commodities (b) imports and exports (c)
industrial/agricultural production (d) cost of living. (iii) Demand analysis is used to study the
relationship between the price of a commodity and its output (supply). (iv) forecasting
techniques are used to predict inflation rate, unemployment rate, or manufacturing capacity
utilization .

Statistics in Business management: In the business point of view, statistics may be defined as a
method of decision making in the face of uncertainty on the basis of numerical data and
calculated risks. Following are certain activates of a typical organization where statistics plays an
important role in their efficient execution.

Marking: Before a product in launched, the market research team of an organization, through a
pilot survey, makes use of various techniques of statistics to analyze data on population
purchasing power, habits of the consumers, competitors, pricing and other aspects. Such studies
reveal the possible market potential for the product.

Production: Statistical methods are used to carry out programs for improvement in the quality of
the exciting products and setting quality control standards for new ones. Decisions about the
quality and time of either self-manufacturing or buying from outside are based on statistically
analyzed data.

Finance: A statistical study through correlation analysis of profit and dividend helps to predict
and decide probable dividends for future years. Statistics applied to analyze of data on assets and
liabilities and income and expenditure, help to ascertain the financial results of various
operations.

Personal: In the process of manpower planning, a personal department makes statistical studies
of wage rates, incentive plans, cost of living, labor turnover rates, employment trends, accident
rates, performances, training and development programs.

Statistics in social science: (i) Regression and correlation analysis techniques are used to study
and isolate all these factors associated with each social phenomenon which bring out the changes
in data with respect to time, place and object.

(i) Sample techniques and estimation theory and indispensable methods for
conducting any social survey for drawing valid inferences.
(ii) In sociology, statistical methods are used to study death rates, birth rates,
population growth and other aspect of vital statistics.

Statistics in medical science: The knowledge of statistical method and techniques in all natural
sciences – zoology, botany, meteorology, and medicine-is of great importance. For example, for
proper diagnosis of a disease, the doctor needs and relies heavily on factual data relating to pulse
rate, body temperature, blood pressure, heart beat, and body weight. An important application of
statistics lies for testing the efficacy of a particular drug or vaccines to cure or prevent a specific
disease.

Statistics and computer: Computer and information technology, in general have had a
fundamental effect on most business and service organization. Over the last decades personal
computer (PC) has revolutionized both the areas to which statistical techniques are applied. PC
facilities such as spreadsheets or common statistical packages have now made such analysis
readily available to any business decision-maker. Computer helps in processing and maintaining
past records of operations involving payroll calculations, inventory management, railway/airline
reservation etc.

Limitation of statistics: Although Statistics has it’s application in almost all sciences-social,
physical, and natural- it has it’s own limitations as well, which restrict it’s scope and utility.

a) Statistics does not study qualitative phenomena: Since Statistics deals with numerical
data, it cannot be applied in studying those problems which can be stated and expressed
quantitatively. Qualitative characteristics such as honesty, poverty, welfare, beauty or
health cannot directly measured quantitatively. However, these subjective concepts can
be related in an indirect manner to numerical data after assigning particular scores.
b) Statistics does not study individuals: Statistics always deals with aggregated data that
Statistics always helps for taking decision about a population based on sample
information.
c) Statistics can be misused: Statistics are liable to be misused. For proper use of statistics
one should have enough skill, knowledge, experience to draw accurate and sensible
conclusion. Further, valid results cannot be drawn from the use of statistics unless one
has a proper understanding of the subject to which it is applied.

Variable: A characteristics which varies individual to individual is called variable. As for

example, height, weight, income, number of courses, expenditure etc.

Dummy Variable: The variable which takes only two values either 0 or 1. As for example, yes
or no, present or absent etc.

Primary Data: The data which collected from the respondent directly by different survey using
questionnaire or schedule is known as primary data.

Secondary Data: The data collected from different published journals or books or other sources
is known as secondary data.

Classification of Variable: Variables can be classified in several ways. One method of

classification refers to the type and amount of information contained in the data. Data are either
categorical or numerical. Another method is to classify data by levels of measurement, giving
either qualitative or quantitative.

Categorical (Qualitative) Variables: Categorical variables produce response that belongs to

groups or categories. For example, response to yes/no questions are categorical. “Do you own a
mobile phone?” and did you ever visit Hiroshima, Japan? Are limited to yes or no answer? Other
examples of categorical variables include questions on gender, marital status, and your major in
college. Sometime categorical variables include a range of choices such the instructor in this
course was an effective teacher (1: strongly disagree 2: slightly disagrees, 3: neither agree nor
disagree, 4: slightly agree, 5: strongly agree).

Numerical (Quantitative) Variables: Numerical variables include both discrete and continues
variable.

Discrete Variable: A discrete variable may (but does not necessary) have a finite number of
values. However, the most common type of discrete that we will encounter produces a response
that comes from a counting process. As for example, the number of students enrolled in a class,
the number of university credits earned by a student at end of a particular semester and the
number of insurance claims filed following a particular hurricane in any particular state.

Continuous Variable: A continuous variable may take any value within a given range of real
numbers and usually arises from a measurement (not a counting) process. As for example
continuous numerical variables include height, weight, time, distance, temperature etc. Someone
might say that he is 6 feet (or 72 inches) tall but his height could be actually be 72.1 inches, 71.8
inches or some other similar number, depending on the accuracy of the instrument used to
measure height. Other examples of continuous numerical variables include the weight of cereal
boxes, the time to run a race, and the distance between two cities etc.
Measurement and Scaling Concept:
Measurement: Measurement is the assignment of numbers or other symbols to characteristics of
objects according to certain pre-specified rules. Note that what we measure is not the object, but
some characteristic of it. Thus, we do not measure objects- only their perceptions, attitudes,
preferences, or other relevant characteristics. In research, numbers are usually assigned for one
of two reasons. First, numbers permit statistical analysis of the resulting data. Second, numbers
facilitate the communication of measurement rules and results. In case of qualitative data there is
no measurable to the “difference” in numbers. For one basketball player is assigned the number
“20” and another player has the number “10” we can not conclude that the first player is twice as
good as the second player. However, with qualitative data, there is a measurable meaning to the
difference in numbers. When one student scores 90 on examination and another student scores
45, the difference is measurable and meaningful.

Scale: A Scale may be defined as any series of items that are arranged progressively according to
value or magnitude into which an item can be placed according to its quantification. It can be
defined as a continuous spectrum or series of categories.

Purpose of Scaling: The purpose of scaling is to represent usual quantitatively an items, a

person’s or an event’s place in the spectrum. The type of scale determines what numerical and
statistical operations can be used in analyzing measurements.
Types of Scale: There are four types of scales, such as: (i) Nominal scale (ii) Ordinal scale (iii)
Interval scale (iv) Ratio scale.

Nominal Scale: It is a measurement scale of simplest type in which the number or letters
assigned to objects serve only labels or tags for identifying and classifying objects with a strict
one-to-one correspondence between the numbers and the objects.
Example: In business research if we give the coding of males as 1 and females as 2. These two
numbers are nothing but levels.

Ordinal Scale: It is type of scale that arranges objects or alternatives according to their
magnitudes in an ordered relationship. When the respondents are ordered, ordinal values are
assigned. Thus it is possible to determine whether an object has more of less of a characteristic
than some other object.
Example: In business research if we ask to rate companies as excellent, good, fair, poor we
know excellent is higher.

Interval Scale: It is another type of scale that not only arranges objects according to their
magnitudes but also distinguishes their ordered arrangement in units of equal intervals. An
interval scale contains all the information of an ordinal scale, but it also allows you to compare
the differences between objects. The difference between any two scale values is identical to the
difference between any other two adjacent values of an interval scale. There is a constant or
equal interval between scale values.
Example: The classic example is Fahrenheit temperature scale. If a temperature is it cannot
said that is twice as hot as . The reason is far that does not represent the lack of
temperature, but a relative point on the Fahrenheit scale.

Ratio Scale: A ratio scale possesses all the properties of the nominal, ordinal and interval scales
and in addition, an absolute zero point. It possesses an absolute zero. Thus, in ratio scales we can
identify or classify objects, rank the objects and compare intervals or differences. It is also
meaningful to compute ratios of scale values.

Example: Money and weight are ratio because they posses an absolute zero and interval
properties.

Mathematical and Statistical Analysis of Scales

Permissible Statistics
Common Marketing Numerical
Scale Basic Characteristics
Examples Examples Operation
Descriptive Inferential
 Numbers identify  Social Security  Brand  Counting  Percentages,  Chi-square,
and classify objects numbers, numbers, store mode binomial test
Nominal
numbering of types, sex
football players classification
 Numbers indicate  Quality  Preference  Rank  Percentile,  Rank-order
the relative rankings, rankings, ordering median correlation,
positions of the rankings of market Friedman
Ordinal objects but not the teams in a position, social ANOVA
magnitude of tournament class
differences
between them
 Differences  Temperature  Attitudes,  Arithmetic  Range,  Product-
between objects (Fahrenheit, opinions, operations mean, moment
can be compared; Centigrade), IQ index numbers on intervals standard correlations, t-
Interval
zero point is score between deviation tests, ANOVA,
arbitrary numbers regression,
factor analysis
 Zero point is fixed;  Length, weight  Age, income,  Arithmetic  Geometric  Coefficient of
ratios of scale costs, sales, operations mean, variation
Ratio
values can be market shares on actual harmonic
computed quantities mean

Frequency distribution:

A frequency distribution is a table used to organize data. A frequency distribution divides

observations in the data set into conveniently established, numerically ordered classes (groups or
categories). The number of observations in each class is referred to as frequency.

Constructing a Frequency Distribution:

If the variation within the data set is not so wide, then it is wide to construct ungrouped
frequency distribution for summarizing data. If the number of observations obtained gets large,
the method discussed above to summarize data become difficult and time consuming. Thus to
further summarizing the data into group frequency distribution tables, the following steps should
be taken:
 i) select an appropriate number of non-overlapping class intervals
ii) determine the width of the class interval
iii) determine class limits (or boundaries) for each class interval to avoid overlapping.

For constructing the frequency distribution, we need the following steps:

Step 1: Determine range: From the given data set, find out the lowest value and the highest
value. Then range is the difference between highest value and lowest value.

Step 2: Determine the number of class: If K determine the number of classes and N the total
number of observations, then the value K will be the smallest exponent of number 2, that is
.
Another way to find the value of K by using Sturge’s rule is given by: K = 1 + 3.322 ,
where is the logarithm (base 10) of total number.

Step 3: Determine the width or the interval of classes: For constructing the frequency
distribution determine the suitable class interval i,

Both K and i should be rounded upward, possible to the next longest integer.

Step 4: Determine the class limits (boundaries): The limits of each class interval should be
clearly defined so that each observation (element) of the data set belongs to one and only one
class. The class interval must be inclusive and non-overlapping such as 20-29, 30-39, etc.
Sometimes we also need exclusive types of class, where upper limit of each classes are excluded
from the each class (such as 20-30, 30-40, 40-50 etc.)

Step 5: Mid-point of class interval: The class mid-point is the point halfway between the
boundaries of each class. That means, it is the average of upper limit and of lower limit of each
classes.

Step 6.Tally marks: Now each and every observations of the data set are matched with the
respective classes and put a tally for every observation, after completing the whole data set, the
tallies of every class are added and put it on corresponding classes. This is known as frequencies.

Step 7: Cumulative frequency (less than): If you add the frequencies of each classes with next
class from the top in a cumulative form then it is known as cumulative frequencies less than. If
do the same thing from the bottom then it is known as cumulative frequencies more than. If we
divide the frequencies of each class by the total frequencies then it is known as relative
frequency.

Example 1: Following data shows the total time (in hours) work by 30 machinists. Construct a
frequency distribution.

90 88 90 89 90 84 86 90 84 89 93 84 90 94 91
94 93 93 92 92 85 88 86 91 87 94 89 85 90 95

Solution: Here the variations among the data set are not vary wide, so we construct a ungroup
frequency distribution as follows:

Table 1: Frequency distribution of total time hours work by 30 machinists.

Working hours 84 85 86 87 88 89 90 91 92 93 94 95
No. of Employee 3 2 2 1 2 3 6 2 2 3 3 1
Example 2: Following data shows the weekly overtime (in hours) of 50 employees in a reputed
fashion design company. Construct a frequency distribution by taking suitable class interval.

22 77 79 82 65 50 65 73 60 33 75 66 65 30 63 41 55
65 67 62 45 49 75 59 55 54 51 28 39 25 50 48 68 55
81 35 65 65 79 61 45 53 81 49 37 57 78 27 87 77

Solution: Here, , so the value of number of classes is 6. And the range of the data is 22-
82=60. Therefore the width of the class inter is 12. On the other hand, we know,
= =9.0350

Here the nearest value of the width is 10 (we select it multiple of 5).

Overtime (in hours) No. of employee

20-30 4
30-40 5
40-50 6
50-60 10
60-70 13
70-80 8
80-90 4

Example: The management of a factory wants to know per month working pattern of workers of
their factory. In this connection, a survey was conducted on randomly selected 48 workers of the
factory. Following data give the number of hours work per month of the 48 workers of the
factory.

140 165 103 110 130 144 133 204 175 156 187 195
162 161 167 184 151 149 157 124 87 71 79 155
164 40 94 113 108 146 122 87 69 164 116 203
121 128 149 148 30 93 114 104 150 62 143 42

Construct a frequency distribution by using suitable class interval.

Describing Data: Graphical:

Once we carefully define a problem, we will need to collect data for making decision. Often the
number of observations collected is so large that the actual findings of the study are unclear. For
this reason, it is necessary to summarize data in such a way that a clear and accurate picture
emerges. Unfortunately, there is no single method or way to describe data. Rather, the
appropriate line is typically problem-specific, depending on two factors, the type of data and the
purpose of the study. Tables and graphs help us to gain a better understanding of data and
provide visual support for improved decision making.

Use of graphs: Following are the uses of graphs:

(i) It is helpful in explaining the main features of a set of data

(ii) It is often valuable in suggesting an appropriate method of analysis and in explaining
the conclusions founded upon the analysis.
(iii) It can sometimes pinpoint gross errors in statistical records.

Basic principle of graphs:

(i) A graph should be clear and simple; a complicated graph defeats its own purpose.
(ii) A graph should be completely self explanatory.
(iii) The origin, the vertical and the horizontal scales should be so chosen that a graph
does not convey a false impression about the nature of the data.
Limitation of graphs:

(i) They may be misleading, unless drawn and studied with care.
(ii) The conclusions drawn from the graphs should normally be regarded as tentative and
therefore, the graphs are no substitute for more critical statistical analysis.

Types of diagrams:

(i) bar diagram, (ii) pie diagram, (iii) histogram, (iv) frequency polygon, (v) line diagram, (vi)
cumulative frequency polygon, (vii) ogive curve (viii) scatter diagram.

Bar diagram and pie diagram are mainly used for representing qualitative data. The former is
also frequently used for depicting numerical values of a given item over a period of time.
Histogram, frequency polygon and cumulative frequency polygon are used to represent
frequency distributions. Line diagram is widely used to study the changes in the values of a
variable with the passage of time. Scatter diagram is very useful in studying the interrelationship
of two variables. .

Bar Diagram: This diagram is drawn by constructing a series of blocks of equal widths but the
heights of the blocks or rectangles is proportional to the values corresponding to different time
period or categories. Following Table shows the distribution of the expenditure budget (in core
taka) of different sector of country in the year 2012 as follows:

Sector of Expenditure Transport Education Agriculture Industry Others

Expenditure (in core taka) 25 40 80 70 55

Now if we put the categories (sector) in the x-axis and the expenditure in y-axis then the diagram
will be a bar diagram where the width of the bars are equal but the heights are proportional to the
expenditure of the sectors.

100
80
60
Series1
40
20
0
t n
or io re try er
s
sp cat ul tu us th
n d
Tr
a
Ed
u ri c In O
Ag

An interesting and useful extension to the simple bar chart can be used when components of
individual categories are also of interest. As for example, following Table shows the number of
students enrolled in three business majors for three different years of BUP.

Subject 2001-02 2002-03 2003-04

Accounting 40 50 70
Marketing 70 80 90
Finance & Banking 45 55 80

100
90
80
70
60 Accounting
50 Marketing
40 Finance & Banking
30
20
10
0
2001-02 2002-03 2003-04
This information can be shown in a bar chart by breaking down the total number of students for
each year so that the three components are distinguished by differences called components or bar
chart. This graph allows us at make visuals comparisons of totals and individual components. In
this example it appears that the increase in enrollment between 2001 and 2004 was almost
uniform over the three majors.

Pie diagram: Pie chars are also used to describe categorical data. If we want to draw attention to
the proportion of frequencies in each category, then we will probably use a pie chart to depict the
division of a whole into its constituent parts. The circle represents the total, and the segments cut
from its center depict shares of that total. Following Table shows the distribution of monthly
expenditure of the students of BUP.

Item of Expenditure Expenditure (in taka)

Food 6500
Clothing 2500
House rent 7000
Education 3500
Miscellaneous 3500

Expen. (in taka)

Food
Clothing
House rent
Education
Miscellaneous

Histogram: It is a graphical method for representing a frequency distribution. To construct this

diagram the horizontal axis (x-axis) is divided into segments corresponding to the class
boundaries of the frequency distribution. On each segment a rectangle with area proportional to
the frequency in the class is erected. The set of adjacent rectangles so constructed, constitutes a
histogram. Following distribution shows the audit time of 20 clients by exclusive method:

Audit time (in hours) 10-15 15-20 20-25 25-30 30-35

Number of clients 4 8 5 2 1

9
8
7
6
5
4
3
No. of Client

2
1
0
10-15 15-20 20-25 25-30 30-35

Audit Time

Frequency Polygon: It is a diagram used to represent a frequency distribution. The mid-values

of class intervals are plotted along the x-axis and corresponding frequencies are plotted along the
y-axis. These later points are then joined by straight lines. This forming with the x-axis a
polygon called frequency polygon. The frequency polygon should be brought down-at each end
to the x-axis by joining it to mid value (on the base line) of the next outlying interval.

Audit time (in hours) 10-20 20-30 30-40 40-50 50-60 60-70
Number of clients 4 8 12 7 5 4

Frequency Polygon

14
12
10
Frequency

8
6
4
2
0
15 25 35 45 55 65
Mid value

Cumulative Frequency Polygon: It is also a graphical method for representing frequency

distribution. In this graph cumulative frequency less then any upper class boundary plotted
against the upper class boundary is called a cumulative frequency polygon.

Ogive (less than): In the X axis we plot upper limit of the class and in Y axis we plot cumulative
frequency less than.

Class interval 5-10 10-15 15-20 20-25 25-30 30-35

Frequency 5 7 11 8 4 2
Cumulative frequency 5 12 23 31 35 37

Ogive Curve

40
Cumulative frequency

30

20 Series2

10

0
10 15 20 25 30 35
Upper lim its
Graphs to Describe Time-series Data:

Line diagram: If we are given the values of a variable at different point of time, the set of values
is known as a time series. The line diagram is used to represent this type of data. In this diagram
time is represented along the x-axis and the variable is plotted along the y-axis. Thus we get a
point for each time period and successive points, when it connected by straight line, gives the
desired diagram.

Year of enrollment 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
No. of student (‘00) 12 14 15 17 18 15 16 19 20 21

Enrollment

25
20
15
10
5
0
1 2 3 4 5 6 7 8 9 10

The situations in which the line diagram is particularly useful are:

a) When the emphasis is on the movement of a variable rather then on it’s actual magnitude.
b) When several series are compared on the same chart.
c) When estimates or forecasts of a variable are to be obtained or displayed graphically.

Scatter diagram: Sometimes the data consist of pair values of two related variables, and the
statistical problem is to investigate the inter-relationship between the variables. The pairs of
values of such related variable are: height and weight, income and expenditure, price and
consumption etc. When the given pair of values is plotted on ordinary graph paper, we get a
scatter diagram. If the dotted points form an upward trend on the graph paper then the
relationship between the variable is positive. If it forms a down ward trend on the graph paper
then the relationship between two variables is negative.

Expense of Ad. 10 12 15 20 23 9 6 7 11 12 13
Sales (in lac) 14 17 23 21 25 11 8 9 14 13 27
Sales

30

25

20

15

10

0
0 5 10 15 20 25

Stem-and-leaf display: Stem and leaf display is another form of presentation of quantitative
data. It allows us to condense data, but still retain the individuality of the data. This presentation
shows the range, concentration, presence of outlier, if any, and distribution of the data set at a
glance.

The stem of an observation is the leading digit or digits and the leaf of an observation is the
trailing digit. All the values in the stem are listed in order in a column, a vertical line is drawn
beside them and then all the corresponding leaf values are recorded for each stem in row, to right
of vertical line.
Steps for construction of stem and leaf plot or display:

a) Divide each observation into two parts: the stem and the leaf.
b) List the leaf in a column, with a vertical line to their right.
c) For each observation, record the leaf portion in the same raw as its corresponding stem.
d) Order the leaves from lowest to highest in each stem.
e) Mention the leaf unit to understand the actual observation.

Example: The prices (in taka) of 20 different brand of walking shoes are given below:

45 70 70 55 75 73 70 65 68 60 74 80 83 58 68 85 90 64 75 82

Construct a stem and leaf plot to display the distribution of the data.

Solution: The stem and leaf display of the data is follows:

Stem Leaf
4 5
5 5 8
6 5 8 0 8 4
7 0 0 5 3 0 4 5
8 0 3 5 2
9 0

Now we arrange the digits of each leaf in ascending order we get:

Stem Leaf
4 5
5 5 8
6 0 4 5 8 8
7 0 0 0 3 4 5 5
8 0 2 3 5
9 0

From the display it is seen that lowest price of walking shoe is 45 and highest is 90. And the
most common price is 70.