Statistics is simply the quantitative representation of numerical information.Here the information can be any object, subject, activities or phenomenon. Statistics can also be defined as the aggregate of facts and a science of estimates and probabilities. Statistics, for example, provide an overview of a dataset, such as the average score on an exam. But the average does not always tell the entire story; for example, if the average score is 70, it may be because half of the students received 100s and the other half received the 40s. This would show a different story than if everyone in the class had received 70, which shows consistency.
Characteristics of statistics
- Statistics are the aggregate of facts \(\Rightarrow\) a single figure is not statistics
- Statistics depends on various factors \(\Rightarrow\) for example, sales of a product depends on its price, quality, etc.
- Statistical data must be collected in a systematic manner \(\Rightarrow\) The data should not be collected in a random manner for making the statistics reliable
- Statistics must be reasonably accurate \(\Rightarrow\) Statistics should be based on the figures that are collected accurately.
Business statistics is the science of data that helps to make business decisions under uncertainties based on some numerical and measurable values. It involves collecting, classifying, summarizing, organizing, analyzing, and interpreting data. The main objective of Business Statistics is to make conclusions about certain characteristics of a population in the business domain whether the population is people, objects, or collections of information.Statistics is used extensively in many successful businesses. Companies use statistical tools to analyze how they are doing, what processes are working correctly and what processes need attentions.
Importance of Statistics in Business
There are three major functions of statistical methods in any business enterprise. These are as follows:
- The planning of operations
This is related to either special projects or to the recurring activities of a firm over a specified period.
- The setting up of standards
This is related to the size of employment, a volume of sales, fixing of quality norms for the manufactured product,
norms for the daily output, and so on.
- The function of control
This involves comparison of actual production achieved against the target production set earlier. In case the production has fallen short of the target, it gives solutions so that such a deficiency does not occur again in future. Although these three functions look different but in practice, they are very much interrelated with each other. Different authors have different views about the importance of statistics in business. According to Croxton and Cowden, the uses of statistics in business are project planning, budgetary planning, and control, quality control, inventory planning and control, marketing, production and personnel administration. Among these also they have specified certain areas where statistics is more relevant. Another author Irwing W.Burr specified few areas where statistics is useful in business which is: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.
Applications of statistics in business
There are many applications of statistics in business. Some of them are:
- Statistics for market research
Market research is one of the most common area of statistics application in business. It aims at identifying the gap between customer needs and the products and services being provided to the customer in the market. There are two broad approaches. The quantitative approach which deals with the profile of customer, behavior, and preference of the customer while the qualitative approach deals with the attitude of customer and customers perception. No matter which approach is employed, the representativeness of the data or information collected is vital to the reliability of the survey results. As it is mostly impractical to survey the entire target population which can be very large, a representative sample will have to be drawn up using various statistical methods. We need statistics in market search rather than using common knowledge because the customers and their wants are dynamic. Customers can like some product this year and choose a different product next year.
- Statistics for forecasting
Forecasting is the technique of predicting future results or trends based on the present or past events. Theories in multiple regression and time series analysis have provided a well developed mathematical framework for business forecasting. In practice, forecasting uses a mathematical model that consists of a set of multiple regression equations that is developed from the past. Forecasting uses different statistical tools like regressions, variance, skewness, range etc. In business, forecasting is generally used to forecast sales. There are two basic forecasting models they are quantitative(focuses on data) and qualitative (focuses on users).
- Statistics for quality assurance
The quality of data, which is to say its accuracy, must be known in the decision-making processes. For this process quality control mechanism is used to ensure a set level of quality for the products and services offered by the business. This is only possible as it is produced by a valid analytical system operating in a state of statistical control. A quality assurance program should be established, which consists of quality control of the system and quality assessment of the data that are produced. To ensure this various tests like t-test and f-test are used.
Limitations of Statistics in Business
Business statistics is a powerful tool to conduct any business. However, there are some limitations in its implementation. They are:
- Difficulty of understanding \(\Rightarrow\) People feel difficulty in thinking statically
- Small sample size \(\Rightarrow\)If the sample size is small then it is hard to perform reliable predictions or forecasting
- Frequency \(\Rightarrow\) In statistics test frequency is often used that may not represent the questions we are asking.
- Outcome Bias \(\Rightarrow\) In business, while using statistics managers tend to suffer from outcome bias.
Kunda, Surinder. An Introduciton to business statistics. n.d.