Statistics

Statistics is the formal science of making effective use of numerical data relating to groups of
individuals or experiments. It deals with all aspects of this, including not only the collection,
analysis and interpretation of such data, but also the planning of the collection of data, in terms of
the design of surveys and experiments. A statistician is someone who is particularly well versed
in the ways of thinking necessary for the successful application of statistical analysis. Often such
people have gained this experience after starting work in any of a number of fields. There is also
a discipline calledmathematical statistics, which is concerned with the theoretical basis of the
[Link] word statistics can either be singular or plural.[2] When it refers to the discipline,
"statistics" is singular, as in "Statistics is an art." When it refers to quantities (such
as mean and median) calculated from a set of data,[3] statistics is plural, as in "These statistics are
misleading."

Statistics in the field of business

Business statistics is the science of good decision making in the face of uncertainty and
is used in many disciplines such as financial analysis, econometrics, auditing, production
and operations including services improvement, and marketing research. These sources
feature regular repetitive publication of series of data. This makes the topic of time
series especially important for business statistics. It is also a branch of applied
statistics working mostly on data collected as a by-product of doing business or by
government agencies. It provides knowledge and skills to interpret and use statistical
techniques in a variety of business applications. A typical business statistics course is
intended for business majors, and covers statistical study, descriptive statistics
(collection, description, analysis, and summary of data), probability, and the binomial
and normal distributions, test of hypotheses and confidence intervals, linear regression,
and correlation

The Journal of Business and Economic Statistics (JBES) is an academic journal,

published quarterly by the American Statistical Association. The journal publishes
articles dealing with a broad range of applied problems in business and economic
statistics. The topics include forecasting, seasonal adjustment, applied demand and
cost analysis, applied econometric modeling, empirical finance, analysis
ofsurvey and longitudinal data related to business and economic problems, the
impact of discrimination on wages and productivity, the returns to education and
training, the effects of unionization, and applications of stochastic control theory to
business and economic problems. Many of the articles published in the journal
contain empirical applications, though submissions of papers in the areas
of computation, simulation, networking, and graphics are encouraged as long as the
intended applications are very closely related to the general topics of interest of the
journal.

A statistic is the result of applying a proper function (algorithm) to a set of data available
to us. Its statistical theory defines statistic as a function of a sample or a selected thing
where the function itself is independent of the sample's distribution and
separation. Statistics can be used in various fields from simple to complex. We may use it
for counting things. We may use it in mathematics. Its main use is in research tasks. It
makes our data compilation easier than ever before. It is all about simplification of things
in a real world. It is playing a vital role in calculations in science subjects. It is helpful to
keep and improve the record of an organization. Business management is incomplete
without education of statistics. This shows that statistics is playing a role in all of the
fields, it has a role in buying fruits from markte and it has a role in a big business deal as
well. So we cannot deny its important and animated role in any way.

The word statistics have been derived from the Latin word status or the Italian word
"statista". Both the word means a political state. The word statistic is also found used by
Shakespeare and Milton in the same of states men i.e. a person well versed in the affairs of
the state. Its originally meant information useful to the state.

Statistics has come to play an important role in almost every field of life and human
activity. There is hardly any field where statistical data or statistical methods are used for
one purpose or the other our arrival in this world and departure from here are recorded as
statistical data somewhere and in same form.

Statistics plays an important role in business, because it provides the quantitative basis
for arriving at decisions in all matters. All types of banks make use of statistics for a
number of purposes. Statistics has proved to be of immense use in physics and
chemistry. It has given a new understanding to the essential qualities of the laws of
nature.

Statistics plays an important in psychology and education. In experimental psychology,

whenever a problem has to be studied, it has to be based on a sample. Statistical methods
are also used in analyzing the experimental data and drawing conclusions there from.
We have seen that statistics now holds a central position in almost every field and the
importance of statistics is increasing day by day.

Statistics is a mathematical science involving the collection, interpretation, analysis, and

presentation of data. It is often used to make predictions based on data. It is widely
applicable in various social and natural sciences as such as political science and
medicine as well as in business such as the insurance industry.
For example, statistics are a very important part of political campaigns as they lead up to
elections. Every time a scientific poll is taken, statistics are used to calculate and illustrate
the results in percentages and to calculate the margin for error.
Statistics are also used in psychology. People’s behavior can be measured on a bell
curve. Most people fall within acceptable ranges of the bell curve. However the people who
fall outside "the norm" or on the "fringe" of the bell curve may be considered unstable.
Statistics are very important in various aspects of business; a terrific example is the
insurance industry. It is the job of an actuarial scientist to determine how long people will
live (statistically), how likely they are to have an accident, and how likely is it their home
will burn down or be damaged in a hurricane? These risks are all rated based solely on
statistical data and policies are priced accordingly.

Statistics play an important role in business. A successful businessman must be very

quick and accurate in decision making. He knows that what his customers wants, he
should therefore, know what to produce and sell and in what quantities. Statistics helps
businessman to plan production according to the taste of the costumers, the quality of the
products can also be checked more efficiently by using statistical methods. So all the
activities of the businessman based on statistical information. He can make correct
decision about the location of business, marketing of the products, financial resources
etc…

Statistics is essential for a country. Different policies of the government are based on
statistics. Statistical data are now widely used in taking all administrative decisions.
Suppose if the government wants to revise the pay scales of employees in view of an
increase in the living cost, statistical methods will be used to determine the rise in the cost
of living. Preparation of federal and provincial government budgets mainly depends upon
statistics because it helps in estimating the expected expenditures and revenue from
different sources. So statistics are the eyes of administration of the state.
Like most people, you probably feel that it is important to "take control of your life." But
what does this mean? Parly it means being able to properly evaluate the data and claims
that bombard you every day. If you cannot distinguish good from faulty reasoning, then
you are vulnerable to manipulation and to decisions that are not in your best interest.
Statistics provides tools that you need in order to react intelligently to information you
hear or read. In this sense, statistics is one of the most important subject matter that you
ever study.

To be more specific, here are some claims that we have heard on several occassions. (We
are not saying that each one of these claims is true!)

4 out of 5 dentists recommend Dentyne

Almost 85% of lung cancers in men and 45% in women are tobacco-related.

Condoms are effective 94% of the time.

Native Americans are significantly more likely to be hit crossing the streets than are
people of other ethnicities.

People tend to be more persuasive when they look others directly in the eye and speak
loudly and quickly.

Women make 75 cents to every dollar a man makes when they work the same job.

A surprising new study shows that eating egg whites can increase one's lifespan.

People predict that it is very unlikely there will ever be another baseball player with a
batting average over 400.

There is an 80% chance that in a room full of 30 people that at least two people will share
the same birthday.

79.48% of all statistics are made up on the spot.

All of these claims are statistical in character. We suspect that some of them sound
familiar; if not, we bet that you have heard other claims like them. Notice how diverse the
examples are. They come from psychology, health, law, sports, business, etc. Indeed, data
and data-interpretation show up in discourse from virtually every facet of contemporary
life.

Statistics are often presented in an effort to add credibility to an argument or advice. You
can see this by paying attention to television advertisements. Many of the numbers thrown
about in this way do not represent careful statistical analysis. They can be misleading, and
push you into decisions that you might find cause to regret. For these reasons, learning
about statistics is a long step towards taking control of your life. (It is not, of course, the
only step needed for this purpose.) The present on-line textbook is designed to help you
learn statistical essentials. It will make you into an intelligent consumer of statistical claims.

You can take the first step right away. To be an intelligent consumer of statistics, your first
reflex must be to question the statistics that you encounter. The British Prime Minister
Benjamin Disraeli famously said, "There are three kinds of lies -- lies, damned lies, and
statistics." This quote reminds us why it is so important to understand statistics. So let us
invite you to reform your statistical habits from now on. No longer will you blindly accept
numbers or findings. Instead, you will begin to think about the numbers, their sources,
and most importantly, the procedures used to generate them.

We have put the emphasis on defending ourselves against fraudulent claims wrapped up
as statistics. We close this section on a more positive note. Just as important as detecting
the deceptive use of statistics is the appreciation of the proper use of statistics. You must
also learn to recognize statistical evidence that supports a stated conclusion. Statistics
are all around you,

Businesses rely heavily on statistics to determine consumer trends and calculate

important economic data. The data that is collected and the information derived from that
data is useful in planning an advertising strategy based on demographics and
geographies, and internal statistical data guides the business on how they should allocate
their resources to insure the greatest profit margin.

2. Statistics in Business and Industry

In general a typical organization has three levels: Strategic, Managerial and Oper-
ational. This classification is somewhat general and arbitrary. However, this can
help identify and emphasize different tools to be directed at the different levels.
We envision Statistics to play important roles at all these levels.

2.1. Strategic Level (Top of an Organization)

At the strategic level the most emphasis should be on Statistical Thinking which
has the following components:
i) Notion of a Process,
ii) Notion of measurement and data based decisions,
iii) Understanding and dealing with variation,
iv) Statistical tools, and
v) Systematic approach.
The notion of process thinking is fundamental to any organizational change.
Every action has some inputs and outputs which need to be identified in every
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Implementation of Statistics in Business and Industry 3
context. Decisions at the strategic level should be based on facts supported by
appropriate data and this requires an understanding of variation (Deming 1986).
Business and Industry have seen the arrival and demise of many programs such
as Total Quality Management. Embracing any program that comes along without
firm commitment and understanding is doomed to failure.

2.2. Managerial Level (Middle Level)

This is the level at which systems are devised for implementation of the directions
taken by upper management. In particular, systems for robust product and pro-
cess design, process control and improvement, and training are the responsibility
of middle management. Understanding of some statistical tools and statistical
thinking are prerequisites for those who are designing these systems.

2.3. Operational Level

At this level the methods are implemented through the system built at the mana-
gerial level. Understanding of statistical tools such as control charting, capability
analysis, design of experiments, measurement system analysis, regression analysis
etc are essential. Appropriate statistical tools need to be used by operational peo-
ple as part of their daily work. People in some areas need to know the details only
of certain statistical tools. For instance, an operator responsible for maintaining
stability of a process by charting should know the workings of a control chart but
need not know a lot about design of experiments. On the other hand an engineer
responsible for process improvement should be knowledgeable in several aspects of
statistical process control and design of experiments.

3. Implementation: General Issues

3.1. Commitment of Top Management
For the success of any program that affects an organization as a whole, full and
highly visible commitment of senior management is essential. Thus the vision
and values of the top level management is highly important. Employees must
perceive active leadership and involvement of senior people in implementation.
Top management has to asses the situation early and to decide to allocate the
needed resources. They have to decide in advance what role they can and will
play. For example the success of the Six Sigma program at General Electric and
Motorola is due to the commitment of its senior management.
Recognition of the potential benefits of implementation in the beginning can
help focus on what is needed. Top management must recognize that, in addition to
help solving problems and improving processes, statistical tools can help increase
customer satisfaction and help measure the performance of the organization. Im-
plementation of statistical tools is an ongoing process and it helps the organization
Revista Colombiana de Estadística 30 (2007) 1–11
4 Bovas Abraham
to be a learning organization and a knowledge based enterprise. Knowledge based
organizations will be the successful ones in the long run.
3.2. Role of Statisticians
The traditional role of a statistician in business or industry has been to act as a
consultant to projects, or to train some workers in certain tools such as statistical
process control and design of experiments. This role has to be broadened. Statis-
ticians need to teach at all levels of an organization (senior managers, scientists
and engineers, middle managers and operational people). Statisticians have to be
leaders, facilitators, aide to management etc. They have to identify the role of
statistics in various business functions and also have to interact with the outside
world. These require broadening statistician’s skills set. Statisticians need to ac-
quire communication skills and have to be good communicators. We have to keep
the statistical tools appropriate and simple. We also need to make sure that the
implementation adds value to the organization.

3.3. Systems Thinking

As in any other implementation, there are several components involved and these
need to be considered as part of a system for successful implementation. Some
of these components include people, technology, organizational structure and cul-
ture, methodology, etc. and these components have to work jointly. There will
be interaction between these components. Systems need to be built such that
the interaction effects are positive so that the total effect from the components is
more than the sum of the individual effects. For instance if there are two compo-
nents A and B then Effect(A + B) = Effect(A) + Effect(B) + Effect(AB)
where Effect(AB) is the ‘interaction’ between the components A and B. Sta-
tistical tools should be implemented such that Effect(AB) is positive so that
Effect(A + B) is more than Effect(A) + Effect(B). A negative ‘interaction’
can not only lower the total effect but also can cause long term problems. Some
guiding principles such as Deming’s 14 points for management can help in this
regard. Such principles help to foster positive interaction between components
such as people and technology. Some training programs use sophisticated software
to train employees without considering the background of the trainees.

3.4. Planning for Implementation

Before embarking on the implementation of statistical methods one has to have
a plan with answers to the following questions. How does it start? Who are
responsible for the tasks? When do the activities take place? What is the scope
of the system? Is there a calendar of activities? Is there a measurement system
to track progress of activities?. What are the review points, and the associated
expected results? Are resources assigned for the planned activities?
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Implementation of Statistics in Business and Industry 5
There are many project implementation systems cited in the literature. Dem-
ing’s PDSA circle (Shewhart’s wheel)-Plan, Do, Study, Act (Deming 1986) is a
well known example. Six sigma is another system which uses DMAIC -Define,
Measure, Analyze, Improve, Control. There are many others. The important fact
is that it is essential to have a systematic and disciplined approach to implementa-
tion. Implementation of statistical tools needs to be interfaced with these systems.
Most of these systems are very similar and it does not matter which one is used.
It is better to go with what is already available in the organization rather than
looking for something new. It is important to be consistent and stable with it. It
is not a good idea to change to some other systestwm