Chapter 1

Business Statistics-What & Why

Statistics: Statistics is a body of methods of obtaining and analyzing data in order to base
decisions on them. It is a branch of scientific methods used in dealing with phenomena that
can be described numerically either by count or by measurement. Thus, the word statistics
refers either to quantitative information or to a method of dealing with quantitative
information.
The methods by which statistical data are analyzed are called statistical methods. The
mathematical theory which is the basis of these methods is called the theory of statistics or
mathematical statistics. Statistical methods are applicable to a very large number of fields-
economics, sociology, anthropology, business, agriculture, psychology, medicine, education-
all lean heavily upon statistics.
Statistics is a highly valuable one in the analysis of problems in natural, physical and social
sciences. Statistics often assumes its greatest importance in the study of economics and
business. Statistical methods are used by governmental bodies, private business firms and
research agencies for-
1) Forecasting, 2) Controlling and 3) Exploring.

Statistical Data: Webster defined statistics as "The classified facts relating the condition of
the people in a State especially those facts which can be stated in numbers or in tables of
numbers or in any tabular or classified arrangements."
Yule and Kendall defined statistics as: “By statistics we mean quantitative data affected to a
marked extent by multiplicity of causes.”
The characteristics of statistical data:
1. Statistics are aggregate of facts.
2. Statistics are affected to a marked extent by multiplicity of causes.
3. Statistics are numerically expressed.
4. Statistics are enumerated or estimated according to reasonable standards of accuracy.
5. Statistics are collected in a systematic manner.
6. Statistics are collected for a pre-determined purpose.
7. Statistics should be placed in relation to each other.

Statistics may be defined as the science of collection, organization, presentation,

analysis and interpretation of numerical data. So, the five stages in statistical methods
are-

1. Collection
2. Organization
3. Presentation
4. Analysis
5. Interpretation.

Functions of Statistics: The functions of statistics are-

1. It presents facts in a definite form.
2. It simplifies mass of figures.
3. It facilitates comparison
4. It helps in formulating and testing hypothesis.
5. It helps in prediction.
6. It helps in the formulation of suitable policies.

Limitations of Statistics: It is necessary to know the limitations and the possible misuses
of statistics. The following are the important limitations of statistics:-
1. Statistics does not deal with isolated measurement.
2. Statistics deals only with quantitative characteristics
3. Statistical results are true only on an average
4. Statistics is only a means.
5. Statistics can be misused.

Collection & Presentation of Data

Collection of Data: Data constitute the foundation of statistical analysis and interpretation.
Data can be obtained from three important sources, namely: - (i) Secondary Source, (ii)
Internal Records and (iii) Primary Source. So, depending on the source, data can be classified
as-
1) Secondary Data: When an investigator uses the data which has already been collected by
others, such data are called secondary data. Secondary data can be obtained from journals,
reports, government publications, publications of research organizations, trade and
professional bodies, etc. However, secondary data must be used with utmost care. The user
should be extra cautious in using secondary data and he should not accept it at its face value.
The reason is that such data may be full of errors because of bias, inadequate size of the
sample, substitution, errors of definition, arithmetical errors, etc. So, before using secondary
data the investigator should examine the following aspects-
a) Whether the data are suitable for the purpose of investigation: Before using secondary
data the investigator must ensure that the data are suitable for the purpose of the inquiry. The
suitability of data can be judged in the light of the nature and scope of investigation.
b) Whether the data are adequate for the purpose of investigation: If it is found that the
data are suitable for the purpose of investigation they should be tested for adequacy.
Adequacy of the data is to be judged in the light of the requirements of the survey and the
geographical area covered by the available data.
c) Whether the data are reliable: To determine the reliability of secondary data is perhaps
the most important and at the same time most difficult job. The following tests may be
helpful to determine how far the given data are reliable:
i) Was the collecting agency unbiased?
ii) If the enumeration was based on a sample, was the sample representative?
iii) Were the enumerators capable and properly trained? Incompetent or poorly trained
enumerators cannot be depended upon to produce useful results.
iv) Was there a proper check on the accuracy of field work?
v) Was the editing, tabulating and analysis carefully and conscientiously done?
vi) What degree of accuracy was desired by the compiler? How far was it achieved?

2) Internal Data: Internal data refer to the measurements that are the by-product of routine
business record keeping like accounting, finance, production, personnel, quality control,
sales, R & D, etc. Since internal data originate within the business, collecting the desired
information does not usually offer much difficulty. The particular procedure depends largely
upon the nature of facts being collected and the form in which they exist.
3) Primary Data: Primary data are measurements observed and recorded as part of an
original study. When the data required for a particular study can be found neither in the
internal records of the enterprise, nor in published sources, it may become necessary to
collect original data, i.e., to conduct first hand investigation. The work of collecting original
data is usually limited by time, money and manpower available for the study. When the data
to be collected are very large in volume, it is possible to draw reasonably accurate
conclusions from the study of a small portion of the group called a sample. There are two
basic methods of obtaining primary data. They are-
a) Questioning: Questioning is distinguished by the fact that data are collected by asking
questions from people who are thought to have the desired information. Questions may be
asked in person, or in writing. A formal list of such questions is called a questionnaire.
b) Observation: When data are collected by observation, the investigator asks no questions.
Instead, he observes the objects or actions in which he is interested. Sometimes individuals
make the observations; on other occasions, mechanical devices observe and record the
desired information.

Presentation of Data: After the data have been collected, the next step is to present them
in some suitable form. When data are presented in easy to-read form, it can help the reader to
acquire knowledge in much shorter period of time and also facilitate statistical analysis.
Presentation can take two basic forms:
i) Statistical Table: A statistical table is presentation of numbers in a logical arrangement,
with some brief explanation to show what they are. However, before tabulating data, it is
often necessary to first classify them.
ii) Statistical Chart: A statistical chart or a graph is a pictorial device for presenting data.

So, presentation of data can be divided into three main parts. They are-
A) Classification of Data: Classification is the grouping of related facts into different
classes. Facts in one class differ from those of another class with respect to some
characteristics called a basis of classification. Classification of statistical data is comparable
m the sorting operation.
Types of Classification: Broadly, the data can be classified on the following four basis:-
i) Geographical Classification: In geographical classification, data are classified on the
basis of geographical or locational differences between the various items. For example:
production of rice, wheat, etc. for various districts.
ii) Chronological Classification: When data are observed over a period of time, the type of
classification is known as chronological classification. For example: The sales figures of a
company for five years.
iii) Qualitative Classification: In qualitative classification, data are classified on the basis of
some attribute or quality such as gender, color of hair, literacy, religion, etc. The important
point of this type of classification is that the attribute under study cannot be measured, one
can only find out whether it is present or absent in the units of the population under study.
For example: If the attribute under study is blindness, it may find out how many persons are
blind in a given population.
iv) Quantitative Classification: Quantitative classification refers to the classification of data
according to some characteristics that can be measured, such as height, weight, income, sales
etc. For example: The workers of a factory may be classified according to the wages paid.
In this type of classification, there are two elements. They are-
i) The variable, i.e., the monthly wages and
ii) Frequency, i.e., the number of workers in each class.

i) Variable: A frequency distribution refers to data classified on the basis of some variable
that can be measured such as prices, wages, age, number of units produced or consumed. A
variable may be either continuous or discrete (also called discontinuous).
ii) Frequency/ Frequency distribution: By counting the number of times a particular value
is repeated which is called the frequency of that class. In order to facilitate counting, a
column is prepared which is known as ‘Tally’. This method of classifying helps in
condensing the data only where values are largely repeat. In order to make the series more
compact so that characteristics can be easily studied, data may be classified according to
class-intervals.

Classification according to Class-Intervals: This type of classification is most popular

in practice. The following technical terms are used when data are classified according to
class-intervals:
i) Class Limits: The class limits are the lowest and the highest values that can be included in
class. For example: Take the class of 20-40. The lowest value of this class is 20 and the
highest value is 40. The two boundaries of a class are known as the lower limit and the upper
limit of the class. Class may be two types- 1) Open-end classes and 2) Close-end classes
ii) Class-intervals: The span of a class, that is, the difference between the upper limit and the
lower limit, is known as class-interval. For example: In the class 20-40, the class interval is
20 (i.e., 40 minus 20). The size of the class-interval is determined by the number of classes
and the total range in the data. Formula of class-interval is-
Range
Class-interval (i) =
1+ 3.322logN
Here, Range = Highest value of data- Lowest value of data
There are two methods of classifying the data according to class-intervals. They are-
a) Exclusive Method: When the class-intervals are so fixed that the upper limit of one class
is the lower limit of the next class, it is known as the ‘exclusive’ method of classification.
The following data are classified on this basis:

Income (TK.) No. of Employees Income (TK.) No. of Employees

5000-6000 50 8000-9000 150
6000-7000 100 9000-10000 40
7000-8000 200 10000 and above 10
Total 550

b) Inclusive Method: Under the ‘inclusive’ method of classification, the upper limit of one
class is included in that class itself. The example of this method:

Income (TK.) No. of Employees Income (TK.) No. of Employees

5000-5999 50 8000-8999 150
6000-6999 100 9000-9999 40
7000-7999 200 10000-10999 10
Total 550

iii) Class Frequency: The number of observations corresponding to the particular class is
known as the frequency of that class or the class frequency. By adding together the
frequencies of all individual classes, the total frequency can be calculated.
iv) Class Mid-point: It is the value lying half-way between the lower and upper class limits
of a class-interval. So,
Upper limit of the class + Lower limit of the class
Mid-point of a class =
2
For the purpose of further calculations in statistical work the mid-point of each class is taken
to represent that class.
General consideration for classification of data (Frequency Table):
1. The number of classes should preferably be between 5 and 15. The formula for determining
the approximate number of classes:

k = l + 3.322 log N.
k = The approximate number of classes.
N = Total number of observations.
log = The ordinary logarithm to the base of 10.

2. Try to avoid odd values of class-intervals, e.g., 3, 7, 11, 26, 39 etc.

3. The starting point, i.e., the lower limit of the first class, should either be zero or 5 or
multiple of 5.
4. To ensure continuity and to get correct class-interval we should adopt ‘exclusive’ method
of classification.
5. Whenever possible all classes should be of the same size.

B) Tabulation of Data: One of the simplest and most revealing devices for summarizing
data and presenting them in meaningful fashion is the statistical table. A table is a systematic
arrangement of statistical data in columns and rows. Rows are horizontal arrangement,
whereas columns are vertical ones. The purpose of a table is to simplify the presentation and
to facilitate comparisons.
Parts of a Table:
1. Table number 5. Body of the table
2. Title of the table 6. Headnote
3. Caption 7. Footnote
4. Stub

C) Charting Data: One of the most convincing and appealing ways in which data may be
presented is through charts. Evidence of this can be found in the financial pages of
newspapers, journals, advertisements, etc. Graphical presentation helps in quick
understanding of the data.
A chart can take the shape of either a diagram or a graph.
i) Diagram: For representing data, diagrams are more commonly used than graphs. Diagram
may be different types. Like-
a. One-dimensiona1 diagrams, e.g., bar diagrams.
b. Two-dimensional diagrams, e.g., rectangles, squares, circles and pie diagrams
c. Pictograms and cartograms.

ii) Graph: A large variety of graphs are in practical use. Broadly, the various graphs can be
divided under the following two heads:
1. Graphs of time series or line graphs: like- range charts, band graphs etc.
2. Graphs of frequency distributions: A frequency distribution can be presented graphically in
any of the following ways:
i. Histogram.
ii. Frequency polygon.
iii. Smoothed frequency curve.
iv. Cumulative frequency curves or ‘Ogives’.
Illustration 1: The profits (in lakhs of Taka) of 30 companies for the year 1999-2000 are
given below:

20. 22, 35, 42, 37, 42, 48, 53, 49, 65, 39, 48, 67,
18, 16, 23, 37, 35, 49, 63, 65, 55, 45, 58, 57, 69,
25, 29, 58, 65.

Requirement: Classify the above data taking a suitable class-interval and prepare a
frequency distribution table.

Illustration 2: Present the following data of the marks of 60 applicants who were given a
certain test for the purpose of selection to a post:

41 17 83 63 55 92 60 58 70 06
67 82 33 44 57 49 34 73 54 63
36 52 32 75 60 33 09 79 28 30
42 93 43 80 03 32 57 67 84 64
63 11 35 28 10 23 08 41 60 32
72 53 92 88 62 55 60 33 40 57

Requirement: By using the above data prepare a frequency distribution table. [Take first
class as 0-9]