School of Business

Course Code:D1PK104T Course Name: Business Statistics for Decision Making

Program Name: MBA Dual Specialization

 Index

• Course Outcome of Units-1 (COs)

• Recognize the basic concepts of the Statistics and apply the concept of mean
median, mode in real life for decision making. (K2)
 Course outcome

CO1 Recognize the basic concepts of the Statistics and apply the concept of
mean median, mode in real life for decision making. (K2)
CO2 Examine various probabilistic situations based on various laws of probability
and application of Binomial, Poisson, Normal distributions (K3)
CO3 Apply the concepts of correlation and regression to find the relationship for
the given bivariate data and its various applications. (K4)
CO4 Estimate the concepts of time series and its uses in forecasting for business
data. (K5)
CO5 Apply the concepts of hypothesis testing to create the hypotheses and make
suitable decisions. (K5)
• Unit I: Introduction to Business Statistics 8 lecture hours
• Introduction to business statistics, application of statistics in decision making,
measures of central tendency, mean, median, mode, measures of dispersion,
range, quartile deviation, mean deviation, standard deviation. Solution on Excel.
• 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). 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.
 MEANING AND DEFINITIONS OF STATISTICS

• MEANING AND DEFINITIONS OF STATISTICS : 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 manifestations.

• Spiegel defines statistics highlighting its role in decision-making particularly under uncertainty, as
follows: statistics is concerned with scientific method for collecting, organizing, summarizing,
presenting and analyzing data as well as drawing valid conclusions and making reasonable decisions
on the basis of such analysis.

• From the above definitions, we can highlight the major characteristics of statistics as follows:
(i) 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.
(ii) 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
(iii) 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.

(iv) 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.

(v) 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.
• Data sources could be seen as of two types, viz., secondary and primary. The two can be defined
as under:
(i) 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.

(ii) 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.

• TYPES OF STATISTICS:

• The term descriptive statistics deals with collecting, summarizing, and 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.
• 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.
• 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.
• 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.
• Variables
A variable is a characteristic or condition that can change or take on
different values.
Most research begins with a general question about the relationship
between two variables for a specific group of individuals.
• Population
• The entire group of individuals is called the population.
• For example, a researcher may be interested in the relation between
class size (variable 1) and academic performance (variable 2) for the
population of third-grade children.
• Sample- Usually populations are so large that a researcher cannot
examine the entire group. Therefore, a sample is selected to
represent the population in a research study. The goal is to use the
results obtained from the sample to help answer questions about the
population.
• Types of Variables: Variables can be classified as discrete or
continuous.
• Discrete variables (such as class size) consist of indivisible categories,
• continuous variables (such as time or weight) are infinitely divisible
into whatever units a researcher may choose. For example, time can
be measured to the nearest minute, second, half-second, etc.
• Measuring Variables: To establish relationships between variables, researchers
must observe the variables and record their observations. This requires that the
variables be measured.
• The process of measuring a variable requires a set of categories called a scale of
measurement and a process that classifies each individual into one category.
Four Types of Measurement Scales:
1. A nominal scale is an unordered set of categories identified only by name. Nominal
measurements only permit you to determine whether two individuals are the same or different.
2. An ordinal scale is an ordered set of categories. Ordinal measurements tell you the direction of
difference between two individuals.
3. An interval scale is an ordered series of equal-sized categories. Interval
measurements identify the direction and magnitude of a difference. The zero
point is located arbitrarily on an interval scale.
4. A ratio scale is an interval scale where a value of zero indicates none of the
variable. Ratio measurements identify the direction and magnitude of
differences and allow ratio comparisons of measurements.
• Measures of Central Tendency
• A measure of central tendency is a descriptive statistic that describes
the average, or typical value of a set of scores
• There are three common measures of central tendency:
• the mode
• the median
• the mean
• 1. Choosing the appropriate movie genre
• Suppose, you and your family members go to watch a movie. When you
reach the cinema premises, you see that there are three different types
of movies available. Now, you are supposed to select the perfect movie
that is enjoyable for all the members. Let, the three types of movies
available be: animated (best suited for the kids), thriller (liked by the
teenage group), and biopic (preferred by the adults). The ages (in years)
of people who have visited are- 6, 13, 15, 17, and 60. If you calculate
the mean or the average for the following data, it comes out to be 22,
which belongs to the adult age group. So, you opt for the biopic. But, in
the theatre, you will find only one person to be enjoying it, while the
others will get bored. The better alternative in such a case is to calculate
the median instead of calculating the mean. The median is the middle
value of the properly arranged data, i.e., 15 in this case. When you
decide to watch a thriller movie, more people enjoy the cinema day out.
The next time, you can apply the concept of median to decide which
movie you should watch.
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• 2. Grouping Data
• Suppose, you have to organize an activity in your class, for which
you are supposed to divide the students of the class into two
groups. But, you can’t decide how to proceed as you can not
abruptly put people into different categories. To do so, you should
first decide the factor according to which you want the grouping to
be done. For example, let the factor chosen is the height of the
students. Now, just note down the height of all the students, and
arrange the data in ascending order. Let, the data be arranged as-
152 cm, 158 cm, 160 cm, 162 cm, 189 cm, and 195 cm. If you
calculate the median of the above-mentioned data, it comes out to
be 161 cm. Now, two groups can be formed very easily, one would
be a group of students with a height above 161 cm, while the
second group has a height below 161 cm.

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• 3. Explicating the Poverty Line
• One of the prime applications of the concept of the median
lies in the calculation of the poverty line. Let us suppose,
we have the information about the monthly income (in INR)
of different groups of people in the following range, i.e.,
1000, 2000, 3000, 30000, and 80000. The mean comes out
to be INR 23,500. If someone employs the concept of mean
to set the poverty line, it would be highly inappropriate.
This is why we jump to another notion, i.e., median. The
median of the above data comes out to be INR 3000, which
can more accurately decide that the people below this
benchmark are poverty-ridden.

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• 4. Buying a property

• Buying a property is a peculiar decision in one’s life. Assume that you visit a
broker who deals in real estate, he shows you pictures of various houses with their
respective prices (in the Indian rupees), 30L, 32L, 38L, 40L, 87L, 90L, and 95L.
You ask him for the average price to which he replies INR 60L. Also, you observe
that the median price is INR 40L. In this case, you may easily get trapped in the
dilemma that the houses with lesser prices might have some flaws in them, while
the expensive ones go out of the budget that you have planned. When you consider
all the factors, you tend to go with the house worth middle or median price, i.e.,
INR 40L, and that proves to be the wise decision. Hence, you may consider taking
the help of the median while choosing an appropriate property to invest in.

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• 6. Business
• Statistics play a key role in business management. Let us say, a
businessman who deals in shoes has set distinct prices for
different products, say, INR 120, INR 180, INR 250, INR 400, and
INR 1000. He needs to improve his business by revising the
product cost that is more acceptable to most people. He calculates
mean that comes out to be INR 390, while the median comes out
to be INR 250. Here, mean will not be that helpful because the
person who tends to buy shoes worth INR 400 will find no
difference in the new price, i.e., INR 390, while the other person
who was able to afford shoes worth INR 120 has to wait until he
reaches the average price, i.e., INR 390. On the other hand, the
median allows the customers of all sorts to reach a moderate price
that they can easily afford. Hence, his business blooms.

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