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Unit-I

Introduction to Statistics

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Introduction to Statistics

1.1. INTRODUCTION
The word ?Statistics? has been derived from an Italian word ?statista? which means
?State? or ?Province?. Most of the researchers also believe that the word ?Statistics? comes from
the German word ?Statistik? which means ?Political State?. The word ?Statistics? was first
appeared in the famous book entitled, ?Elements of Universal Erudition? written by a
famous author ?J.F. Baran?.

1.2. MEANING OF STATISTICS


The word ?statistics? may be defined as ?the science of collection, organisation,
presentation, analysis and interpretation of numerical data.?
According to Prof. Bowley, ?Statistics may be called the science of counting.?
But this definition covers only one aspect of science, namely the collection of data. It
ignores other important aspects like organization, presentation, analysis and interpretation.
According to Prof. Boddington, ?Statistics is the science of estimates and probabilities.?
This definition is also not complete as it does not cover all the aspects of statistics.
According to Berenson and Levin, ?Statistics, as a science, can be viewed as the
application of the scientific method in the analysis of numerical data for the purpose of making
rational decisions.?
Croxton and Cowden has defined ?Statistics? as below:
??Statistics may be defined as the collection, presentation, analysis and interpretation of
numerical data?.
This definition covers almost all the important aspects of ?Statistics? but ignores one
aspect, that is ?organization of numerical data?.
Hence, based upon the above discussion, we can conclude that the word, ?Statistics?
satisfies the five characteristics, which are given below:
(i) Collection: It is the first step in the investigation of any statistical data and it
forms the foundation of any statistical analysis. A faulty data cannot be reliable. The data can
be collected from the existing published or unpublished sources or it can be collected by the
researcher himself.
(ii) Organization: It is the second step in the investigation of any statistical data. The
data collected from the published sources are generally in an organized form. But, the data
collected from unpublished sources need to be organized as it may contain the irrelevant data.
The collected data must be edited carefully so that any inconsistency, irrelevancy and wrong
computations may be corrected or removed. Once the data have been edited, the next step is to
classify it.

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Here, the classification of data means to arrange the data according to some common
characteristics possessed by the individuals forming the data. After classification, the next step
in organization is tabulation of data. Here, the tabulation of data means to arrange the data
in rows and columns. The purpose of tabulation of data is to have clarity in the data presentation.
(iii) Presentation: We have collected and organized the data. Now, it is ready for
presentation. There are two different modes in which we can present the collected data.
(a) Graphs
(b) Diagrams.
(iv) Analysis: This is the fourth step of the statistical investigation. The ?analysis?
means to get important information useful for decision-making. We can analyse the collected,
organized and presented data by using statistical methods such as measures of central tendency,
measures of dispersion, moments, skewness and kurtosis, etc.
(v) Interpretation: This is the last stage of any statistical investigation. The word
?interpretation? means drawing conclusions from the collected, organized, presented and
analysed data. It is a difficult job and needs a high-degree skill. If the data has not been
properly interpretated, the conclusions obtained may be faulty. Properly interpretated data
will give valid conclusions which will help the researchers in suitable decisions.
Lastly us, Prof. Ya-Lun-Chou, has defined ?statistics? as:
?Statistics is a method of decision-making in the face of uncertainty on the basis of
numerical data and calculated risks.?

1.3. SCOPE OF STATISTICS


We are familiar by the statistical methods i.e., the methods which can be used to analyse
the statistical data are known as statistical methods. These statistical methods can be applied
to a very number of fields such as, Economics, Sociology, Anthropology, Management,
Phychology, Education, Agriculture, etc. But Economics and Business are the two major areas
where statistical methods can play a vital role. Also, the government agencies, private business
firms and research organizations use statistical methods in the forecasting, controlling and
exploring their potentials.
Statistics can become the most important tool for taking decisions in the midst of
uncertainty. There is hardly any branch of science today that does not make use of statistics.
We now discuss its scope as below:
I. In Business
(i) Due to growing size and increasing competition, the problems of the business firms
are becoming more complex. Most of the problems are being resolved in the light of factual
information. Therefore, statistical methods can be used in finding the solutions of these problems
in a systematic way.
(ii) With the growth in the size of business firms, it has now become impossible for the
owners to maintain personal contact with the thousands and lakhs of customers. Hence, the
big firms are facing a great degree of uncertainty concerning future operations. Due to this,
the firms may not be able to make profits. Statistics tools can be used to deal systematically
the uncertainty. The higher the degree of accuracy, of a busines?s man estimates, the greater
is the success, attending on his business.
(iii) The business activities consists of mainly, production, sale, purchase, finance,
accounting, market and production research and quality control. By using statistical methods,
we can obtain abundant quantitative information, which can be used in formulating suitable
policies.
INTRODUCTION TO STATISTICS 3

(iv) By using the techniques of time series, the businessman can predict the effect of a
large number of variables with a fair degree of accuracy.
II. In Economics
(i) Economics is concerned with the production and distribution of wealth, consumption,
saving and investment of income. For the proper understanding of the economic problems and
in the formation of economic policies, statistical methods can be effectively used.
(ii) In production, statistics can help us in adjusting the supply and demand management.
(iii) In consumption, statistics can enable us to find out the way in which people of
different starta of society spend their income. This will help us in knowing the standard of
living and paying capacity of the people.
(iv) In stock exchange, statistics can be used to make laws of prices based on supply and
demand.
(v) Financial statistics can be used in banking, short-term credit, consumer finance,
public finance, etc.
(vi) Statistics can be used for comparison of market prices, cost and profits of individual
firms.
(vii) By using statistical land legal tools, we can analyse operational studies of public
utilities.
(viii) Analysis of population, land economics and economic geography can be done by
solving using statistical approach.
(ix) Statistical data and statistical methods can play a vital role insolving various
problems such as poverty, unemployment, etc.
III. In Testing of Hypothesis: Statistical methods can be helpful in formulating and
testing of a hypothesis. For example, the hypothesis, like whether it would rain or not, whether
a certain drug is effective in curing swine flu, whether the credit squeeze is effective in checking
price increases, etc., can be tested by appropriate statistical tools.
IV. In Prediction Theory: Statistics tools can be used in framing suitable policies and
plans well in advance of the time of their implementation. This would help us in knowing the
expected demand for the coming years.
V. In Formulating Suitable policies: Statistics can provide us the basic material for
framing suitable policies. For example, by using statistics, we can obtain the data about
population, its distribution by age and sex, the rate of growth of population, etc. This data can
be used in determining the future needs such as food, clothing, housing, education, water,
electricity, transport, etc. Similarly, detailed information on the unemployed persons, their
skills, experiences, etc. can be helpful for framing suitable policies to tackle the problems in
future.

1.4. IMPORTANCE OF STATISTICS


The importance of statistics in the recent years cannot be over emphasized. The growing
size and increasing competition in the business has increased its importance. Statistics is now
regarded as one of the most important tools for taking decision in the midst of uncertainty. In
fact, there is hardly any branch of science today that does not make use of statistics. The
following are the main factors which are responsible for its importance.
I. In Planning: Planning is necessary for formulating future policies. Plans and policies
of an organization are to be formulated well in advance of the time of their implementation. A
knowledge of future trends is very helpful in framing suitable policies and plans. Statistical
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methods provide the necessary tools for forecasting the future. Hence, statistics is indispensable
in planning.
II. In Business (P.T.U. M.B.A. Dec., 2012): Statistical knowledge is very helpful to the
businessman. Using statistics, he formulates different policies and plans, which further helps
him in forecasting the future trends. With the help of statistical techniques, he estimates the
market fluctuations, changes in the demand conditions, etc. Hence, statistics can help a
businessman for becoming a successful businessman.
III. In Economics: There is a variety of economics problems such as consumption,
production, distribution of income and assets, poverty, unemployment, etc. These problems
are being solved by using and analysing the statistical data. Also, these problems are described,
compared and correlated using statistics. Using statistics in Economics, many economic laws
such as Engel?s law of consumption, Pareto?s law of distribution of income, etc., have
formulated. Similarly, statistical tools like index numbers have become barometers of
Economics.
IV. In Politics: By sampling a few voters prior to the election, observers work out the
percentage of the votes the candidate will receive in the election. The estimated percentage is
used to decide whether a greater campaigning effort is required to assure success.
V. In Natural Science: Statistical techniques are being used in the natural sciences
like Astronomy, Biology, Medicine, Meteorology, Zoology, Botany, etc. In diagosing the correct
disease, doctors rely heavily on actual data like temperature of the body, pulse rate, blood
pressure, etc. In judging the efficiency of a particular drug for curing a certain disease, doctors
conduct experiments upon the number of people who are cured after using the drug. In fact, it
is difficult to find any scientific activity where statistical data and statistical methods are not
used.
VI. In Banking: Almost all the banks use various statistical tools to make a very careful
study of the cash requirements without which they may find short of cash and their existence
is at sake.
VII. In Computers: The modern computers are capable of performing millions of
calculations in mere seconds. This is of great benefit to business and other organizations for
maintaing records of their operations.
VIII. In Administration: In ancient times, statistics was used to collect data relating
to manpower, crimes, income, etc., for formulating different policies. Now its role has became
mainfold. It has become indispensable for the administrators. It is being widely used for the
formulation and forecasting different policies and plans of the state administration.
IX. In Business Management: Management has become a specialised job and a
manager is called upon to plan, organize supervise and control the operations of the business.
Statistical tools like collection, classification, analysis and interpretation of data are essential
in business management. The success of modern business primarily depends on accurate
forecasting of the future demand and trends. For this, statistics is essential.
X. In Research: Statistics is indispensable in research work. One cannot think of
undertaking any research activities without using statistics. Most of the advancement in
knowledge has taken place because of experiments conducted with the help of statistical
methods. For example, statistical methods are being used to design and analyse the experiments
on different type of fertilizers, different types of soils, growth of animals under different diets
etc. Statistical methods also affect research in medicine and public health.
In fact, statistics of today has risen from the science of statecraft to the science of universal
applicability.
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1.5. LIMITATIONS OF STATISTICS


Although statistics has many applications in almost all sciences like physical, social,
natural, etc. But it has some limitations, which restricts its scope and importance. The following
are the important limitations of statistics.
I. It does not study qualitative phenomenon: As statistics deals with numerical
data, we can not apply it for the study of those problems which can be stated and expressed
qualitatively. As an example, honesty, efficiency, intelligency, blindness, deafness, beauty
etc., can not be studied directly. Another example, ?Export volume of Punjab has increased
considerably during the last five years?, cannot be analysed statistically. However, it is possible
to analyse such problems statistically by expressing them numerically. As an example, the
intelligence level in a class of students can be studied on the basis of their IQ (intelligence
quotients).
II. It does not study individual measurements: A single or isolated figure cannot
be a part of statistics, unless, it is a part of the aggregate of facts relating to any particular
field of enquiry. As an example, price of a single item, increase in the share price of a particular
bond, the wages earned by a individual worker, the marks obtained by one student of a class
etc., does not constitute statistics. However, the wages of all workers in a factory, average
marks obtained by the students in a class, etc., can be analysed statistically.
III. Statistical results are not universal: The conclusions obtained from various
statistical methods and tools are true only under some conditions. In other words, statistical
results are true only on an average.
IV. It can be misused: The greatest limitation of statistics is that statistics is liable to
be misused. For proper use of statistics, we should have enough skill and experience to draw
accurate conclusions. It is a great danger for those who do not possess sufficient experience
and ability to analyse and interpret statistical data and draw accurate conclusions. As an
example, ?The conclusion that the smoking causes cancer because 90% of people who smoke die
before the age of 72 years.?, is statistically invalid. Because, the above example does not mention
the percentage of those people who do not smoke and die before reaching the age of 72.
Hence, ?Statistics are like clay of which you can make a God or Devil as you please.?

1.6. APPLICATIONS OF INFERENTIAL STATISTICS IN MANAGERIAL DECISION-MAKING


The ?statistics? can be divided into the following two categories:
I. Descriptive statistics
II. Inferential statistics.
By Descriptive statistics we mean those statistical methods which are used in the
collection, organization, presentation, analysis and interpretation of data. The most commonly
used methods of statistical analysis include, measures of central tendency, measures of
dispersion, skewness, moments, kurtosis, correlation and regression etc. Descriptive statistics
also involve various statistical tools such as Bar charts, Pie charts, Pictographs, Cartograms,
line graphs, range chart, band graph, ratio charts, histograms, frequency curve, ogives etc.
On the other hand, Inferential statistics include those statistical methods which faciliate
the estimation of various characteristics of a population or making decisions concerning a
population on the basis of sample results. Sample and Population are relative terms.
An aggregate of items under study is called population or universe. A finite subset of
a population or universe is called a sample. The number of individuals in a sample is called
the sample size.
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Inferential statistics mainly work on two factors: statistical estimation and


hypothesis testing.
In statistical estimation, we estimate the value of the population parameter from
sample statistics. In hypothesis testing, we test some hypothesis about the parent population
from which the sample is drawn.
In many situation, we collect data for a large group of elements such as companies,
households, products, customers, voters, etc. But, it is not possible to draw conclusion based
upon the information obtained from the large population. Therefore, we study a group of
individuals, called sample and draw a conclusion about a population on the basis of information
contained in a sample drawn from that population.
This helps the decision-maker to draw conclusions about the characteristic of a large
population under study.
With the growth in the size of business firms, it is quite impossible for the decision-
makers to maintain personal contact with the thousands of customers. A manager has to plan,
organize, supervise and control the whole operations of any business activity. But due to little
contact with the customers, he faces a great degree of uncertainty regarding future policies.
Also, most of the production, now-a-days, is in anticipation of demand and therefore, unless he
makes a careful study of the market, he may not be able to make profits.
Statistical reports provide a summary of business activities which improve the capability
of making more effective decisions regarding future activities. Below are some major areas
where a businessman can make use of statistics for making good decisions.
I. In Marketing: Before a product is launched, the manager of a firm, along with his
team, makes a pilot survey. For this, he makes use of various statistical techniques to analyse
data on various factors such as purchasing power of customers, habits of the customers, number
of competitors, pricing of other products, etc. Such studies help the manager in knowing the
possible market potential for the product. Therefore, by using the concerned statistical
techniques, he can make advertising strategies, routing of salesman, establish sales territories
and hence improve the sales of his products.
II. In Production: By using statistical methods, a manager can carry research and
development programmes for improving the quality of existing products and set quality control
standards for the coming products. This will help him in taking the decisions about the quantity
and time of either self-manufacturing or buying from outside.
III. In Finance: By studying the correlation analysis of profits and dividends, a firm
manager can predict and decide probable dividends for the coming years. Similarly, the analysis
of data on assets and liabilities, income and expenditure, sales and purchase, etc., can help
the manager to ascertain the financial results of various operations.
IV. In Manpower Planning: For the smooth functioning of big organizations, a proper
manpower planning is essential. A manager can make use of statistical studies of wages,
incentive plans, cost of living, labour turnover rates, employment trends, accident rates, training
and development programmes, Employer-employee relationships, etc. This will help him in
formulating future policies and plans for the overall success of on organization.
Hence, statistics and statistical methods can provide the businessman with one of his
most valuable tools for decision-making.