The scope of statistics is so vast and ever-increasing that not only it is difficult to define but also unwise to do so. The use of statistics has permeated almost every facet of our lives. It is a tool of all sciences indispensable to research and intelligent judgment and has become a recognized discipline in its own right. There is hardly any field whether it be trade, industry or commerce, economics, biology, botany, astronomy, physics, chemistry, education, medicine, sociology, psychology, or technology where statistical tools are not applicable. In fact, the greatest victory of mankind of the 20th century, that of the landing of Apollo 11 on the moon, would not have been a success in the absence of statistical help. The applications of statistics are so numerous that it is often remarked “Statistics is what statisticians do”. Governments, businessmen, and individuals collect statistical data required to carry out their activities efficiently and effectively. Let us examine a few fields in which statistics is applied.
A. Statistics and State
Since ancient times the ruling kings and chiefs have relied heavily on statistics in farming suitable military and fiscal policies. Most of the statistics such as that of crimes, military strength, population, taxes, etc., that were collected by them were by-products of administrative activity. In recent years the functions of the state have increased tremendously. The concept of a state has changed from that of simply maintaining law and order to that of a welfare state. Statistical data and statistical methods are of great help in promoting human welfare. Statistics today are not exclusively a by-product of administrative activity- the state collects statistics on several problems. These statistics help in farming suitable policies. All ministers and departments of the government whether they are finance, transport, Defense, Railways, Food, Commerce, Post and Telegraph, or Agriculture, depend heavily on factual data for their efficient functioning.
Statistics are so significant to the state that the government in most countries is the biggest collector and user of statistical data. Such data is of immense help to many institutions and research scholars who further process it and arrive at useful conclusions which help in decision-making.
B. Statistics in Business and Management
The use of statistical methods in the solution of business problems dates almost exclusively to the 20th century. Applications of statistics pervade virtually every area of activity in business and industry such as production, financial analysis, distribution analysis, market research, research and development, manpower planning, and accounting. The main focus of this text is to discuss various statistical techniques that are indispensable in analyzing and solving business problems and hence the justification for the book to be called “Business Statistics”.
With the growing size and ever-increasing competition, the problems of business enterprises are becoming complex. Prior to Industrial Revolution when production was in the handicraft state, individual business was small and the production was carried pit pm a very small scale mainly to cater to local needs. The management of such business enterprises was very much different from the present management of large-scale businesses. The information needed by the executives was much less extensive than at present.
Through the aid of statistical reports, the executive can gain a summary picture of current operations which, improves his factual basis for making valid decisions affecting future operations. The following are some major activities of typical, large, and progressive organizations which would indicate how statistics help in the efficient discharge of various activities.
Through the aid of statistical reports, the executive can gain a summary picture of current operations which, improves his factual basis for making valid decisions affecting future operations. The following are some major activities of typical, large, and progressive organizations which would indicate how statistics help in the efficient discharge of various activities.
- Marketing: Statistical analyses are frequently used in providing information for marketing decisions. In the field of marketing, it is necessary first to find out what can be sold and then to evolve a suitable strategy so that goods reach the ultimate consumer. A skillful analysis of data on population, purchasing power, habits of people, competition, transportation cost, etc. should precede any attempt to establish a new market. In retail stores, wholesale houses and sales departments, and manufacturing concerns, statistical records and analysis enable one to determine in advance, at a small cost, much that would be very costly if determined by actual experience. In building up and maintaining an extensive market, it is important to keep accurate records of its present and potential geographic distribution. Analysis of sales in relation to the distribution of population and purchasing power is especially important in establishing sales territories routing salesman and in order to know where to advertise and where to push sales.
- Production: in the field of production, statistical data, and statistical methods play a very important role. The decision about what to produce, how much to produce, when to produce, for whom to produce, how much to produce, when to produce, and for whom to produce is based largely on facts analyzed statistically. Statistical tools are also of immense help in quality control, optimum inventory level, dealing with labor problems, etc.
- Finance: The financial Managers in discharging their finance function efficiently depend heavily on a statistical analysis of facts and figures. Financial forecasts, breakeven analysis, and investment decisions under uncertainty are but part of their activities. In the three decades, sophisticated models dealing with inventories, cash balances, and so on have been developed and applied. These models involve the application of several statistical concepts. The area of security analysis is also highly quantitative.
- Banking: Banking institutions have found it increasingly necessary to establish departments within their organizations for the purpose of gathering and analyzing information, not only regarding their own operations but on general economic conditions and on every line of business in which they might be directly or indirectly interested. Probably banks more than any other individual business feel the direct effects of the conditions in every type of business and need to be constantly informed as to the trends in every line of activity. Its reserves are influenced by money markets that are not local but which are national or international. In making loans banks have to be particularly careful that they do not lend too much money when business is dangerously inflated. In all the problems mentioned above, the bankers use the objective analysis furnished by statistics and then temper their decisions on the basis of qualitative information.
- Investment: statistics greatly assist the investor in making a clear and valued judgment in his investment decision in selecting securities that are safe and which have the best prospects of yielding a good income. Such investigations assist in determining whether to buy, to sell or to do neither. On the basis of these statistical guides investors purchase securities when they are low, hold them for a few years until they are high, and then sell them and hold the proceeds until they can again but at low figures. The investment banker is one of the greatest users of statistics---he must accurately distinguish between good and bad securities. To do so, he should not only have a clear understanding of the present situation of the money and security markets and a definite knowledge of the actual conditions in the different industries but also have a fairly clear conception of what will be the most probable future conditions in various industries.
- Purchase: the purchasing department in discharging its functions makes use of statistical data to frame suitable purchase policies such as form where to buy, how much to buy, at what time to buy, and what price to buy.
- Accounting: Statistical methods are also employed in accounting. In particular, the auditing functions make frequent application of statistical sampling and estimation procedures, and the cost account uses regression analysis. The accountant collects data on historical costs in the course of auditing a company’s records.
- Control: the management control process combines statistical and accounting methods in making the overall budget for the coming year—including sales, material, labor, and other costs, and net profits and capital requirements. It usually maintains a standard cost system for controlling costs and setting prices of products.
- Credit: The credit department performs statistical analysis to determine how much credit to extend to various customers. In the formulation of future credit policy, the characteristics of those who have paid and those who have defaulted are kept in mind.
- Personnel: The personnel department frames personnel policies based on facts. It makes statistical studies of wage rates, incentive plans, cost of living, labor turnover rates, employment trends, accident rates, employee grievances, performance appraisal, training programs, etc. Such studies help the personnel department in the process of manpower planning.
- Research and Development: Many big organizations have research and development departments that are primarily concerned with finding out how existing products can be improved; what new product lines can be added and how the optimal use of resources is made. In the absence of factual data, it is almost impossible to carry out fruitful research and development programs.
C. Statistics and Economics
In the year 1890 Prof. Alfred Marshall, the renowned economist observed that “Statistics are the straw out of which I, like every other economist, have to make bricks.” This proves the significance of statistics in economics. Economics is concerned with the generation and distribution of wealth as well as with the complex institutional set-up concerned with the consumption, saving, and investment of income. Statistical data and statistical methods are of immense help in the proper understanding of economic problems and in the formation of economic policies. In fact, these are the tools and appliances of an economist’s laboratory. Statistics of production help in adjusting the supply of demand; statistics of consumption enable us to find out the way in which people of different strata of society spend their income. Such statistics are very helpful in knowing the standard of living and taxable capacity of the people.
In fact, statistics are the very foundation stone of the theory of exchange. In distribution too, statistics plays a vital role. Flow the national income is to be calculated and how it is to be distributed, these are the questions which cannot be answered without statistics. In reducing disparities in the distribution of income and wealth, statistics are of immense help. Similarly in solving problems of rising prices, growing population, unemployment, property, etc., one has to rely heavily on statistics. In fact, most of the economic policies would be leap in the dark in the absence of appropriate statistical information. Statistical methods help not only in formulating appropriate economic policies but also in evaluating their effect.
Thus economists today are no longer satisfied to theorize in abstract terms. Instead, they utilize the excellent data now available to build a sound factual foundation for their reasoning. Some of the applications of statistics in economics are as follows:
In fact, statistics are the very foundation stone of the theory of exchange. In distribution too, statistics plays a vital role. Flow the national income is to be calculated and how it is to be distributed, these are the questions which cannot be answered without statistics. In reducing disparities in the distribution of income and wealth, statistics are of immense help. Similarly in solving problems of rising prices, growing population, unemployment, property, etc., one has to rely heavily on statistics. In fact, most of the economic policies would be leap in the dark in the absence of appropriate statistical information. Statistical methods help not only in formulating appropriate economic policies but also in evaluating their effect.
Thus economists today are no longer satisfied to theorize in abstract terms. Instead, they utilize the excellent data now available to build a sound factual foundation for their reasoning. Some of the applications of statistics in economics are as follows:
- Measures of gross national product and input-output analysis have greatly advanced overall economic knowledge and opened up entirely new fields of study.
- Financial statistics are basic in the fields of money and banking short-term credit, consumer finance, and public finance.
- Statistical studies of business cycles, long-term growth, and seasonal fluctuations serve to expand our knowledge of economic instability and modify them from time to time.
- Studies of competition, oligopoly, and monopoly require statistical comparisons of market prices, costs, and profits of individual firms.
- Statistical surveys of prices are essential in studying the theories of prices, pricing policy, and price trends, as well as their relationship to the general problem of inflation.
- Operational studies of public utilities require both statistical and legal tools of analysis.
- Analysis of population, land economics, and economic geography are basically statistical in their approach.
- In solving various economic problems such as poverty, unemployment, and disparities in the distribution of income and wealth, statistical data and statistical methods play a vital role.
D. Statistics and Physical Sciences
The physical sciences, especially astronomy, geology, and physics were among the fields in which statistical methods were first developed and applied, but until recently these sciences have not shared the 20th-century developments of statistics to the same extent as the biological and social sciences. Currently, however, the physical sciences seem to be making increasing use of statistics, especially in astronomy, chemistry, engineering, geology, meteorology, and certain branches of physics.E. Statistics and Research
Statistics is indispensable in research work. Most of the advancement in knowledge has taken place because of experiments conducted with the help of statistical methods. For example, experiments about crop yields and different types of fertilizers and different types of soils, or the growth of animals under different diets and environments are frequently designed and analyzed with the help of statistical methods. Statistical methods also affect research in medicine and public health. In fact, there is hardly any research work today that one can find complete without statistical data and statistical methods. Also, it is impossible to understand the meaning and implications of most of the research findings in various disciplines of knowledge without having at least a speaking acquaintance with the subject of statistics.F. Statistics and Other Uses
I have discussed the significance of statistics in some important fields. Besides these, statistics are useful to various institutions such as bankers, broker’s insurance companies, auditors, social workers, labor unions, trade associations, and chambers of commerce. The banks have to make a very careful study of the cash requirements otherwise they may find they are short of cash and their existence is at stake. Similarly, the premium rates of life insurance companies are based upon a very careful study of the expectation of life.
Statistics are immensely useful to politicians and their supporters. They want to find out the prospects of winning the election and the efforts required for it. By sampling a certain percentage of voters prior to the election, one can work out the percentage of votes the candidates is likely to receive in the election. In the applications of statistics are so numerous that statistics today have risen from the science of statecraft to the science of universal applicability. It is instrumental in enhancing human welfare and is such a master key that enables solving the problems of mankind almost in every field.
The reader must understand that statistics is not a dry, abstract, and unrealistic pursuit followed by a small group of highly trained mathematicians, but rather a vitally important part of the economic and business life of the community. The usefulness of statistics to the reader depends to a great extent on his ability to use his imagination in applying the various statistical tools to his own particular situation.
Statistics are immensely useful to politicians and their supporters. They want to find out the prospects of winning the election and the efforts required for it. By sampling a certain percentage of voters prior to the election, one can work out the percentage of votes the candidates is likely to receive in the election. In the applications of statistics are so numerous that statistics today have risen from the science of statecraft to the science of universal applicability. It is instrumental in enhancing human welfare and is such a master key that enables solving the problems of mankind almost in every field.
The reader must understand that statistics is not a dry, abstract, and unrealistic pursuit followed by a small group of highly trained mathematicians, but rather a vitally important part of the economic and business life of the community. The usefulness of statistics to the reader depends to a great extent on his ability to use his imagination in applying the various statistical tools to his own particular situation.
G. Statistics and the Computer
It may be interesting to note that the development of statistics has been closely related to the evolution of electronic computing machinery. Statistics is a form of data processing, a way of converting data into information useful for decision-making. Processing of “raw data” is extensively required in the application of many statistical techniques. Statistical theory is generally expressed in the form of mathematical equations. However, the applications of this theory require the processing of real data.
As statistical theories become more complex, it becomes increasingly difficult to perform the calculations needs to apply these theories. Hence, in one sense the development of statistical theory and electronic computers reinforce each other. As statisticians devise new ways of describing and using data for decisions, computer scientists respond with newer more efficient ways of performing these operations. Conversely, with the evolution of more powerful computing techniques, people in statistics are encouraged to explore new and more sophisticated methods of statistical analysis. Computers can process large amounts of data quickly and accurately. This is a great benefit to businesses and other organizations that must maintain records of their operations. The computer brings efficient data processing to familiar operations such as payroll calculations, inventory management, and airline reservation system.
sources: S.P.Gupta and M.P.Gupta, 2004. Business Statistics.
As statistical theories become more complex, it becomes increasingly difficult to perform the calculations needs to apply these theories. Hence, in one sense the development of statistical theory and electronic computers reinforce each other. As statisticians devise new ways of describing and using data for decisions, computer scientists respond with newer more efficient ways of performing these operations. Conversely, with the evolution of more powerful computing techniques, people in statistics are encouraged to explore new and more sophisticated methods of statistical analysis. Computers can process large amounts of data quickly and accurately. This is a great benefit to businesses and other organizations that must maintain records of their operations. The computer brings efficient data processing to familiar operations such as payroll calculations, inventory management, and airline reservation system.
sources: S.P.Gupta and M.P.Gupta, 2004. Business Statistics.