Description

This chapter gives the introduction of Business Mathematics and Statistics and brief study a role of business
mathematics in management and Economic.

Video Link:
https://youtu.be/qO1SYFZVmhY?list=RDLVEgJbkNY1FGU

Reading Material / Monograph:

Business Mathematics and its importance
Mathematics is an important part of managing business. Business and mathematics go hand in hand this is
because business deals with money and money encompasses everything in itself. There is a need for
everyone to manage money as some point or the other to take decisions which requires everyone to know
mathematics. Business mathematics is used by commercial enterprises to record and manage business
operations. Commercial organizations use mathematics in accounting, inventory management, marketing,
sales forecasting, and financial analysis. It helps you know the financial formulas, fractions; measurements
involved in interest calculation, hire rates, salary calculation, tax calculation etc. which help complete
business tasks efficiently. Business mathematics also includes statistics and provides solution to business
problems.
Business is always surrounded with challenges which need to be dealt with in a proper fashion so that they
do no arise in future. These problems that occur on a daily basis can be effectively solved with the help of
mathematical models. Hence mathematics not only helps to calculate but also analyze business problems
and work upon them. Learning and using business mathematics enables a person to think out of the box,
sharpens one’s thinking and helps in precisely formulating and structuring relationships
Use of Business Mathematics in business
In order to known a business it requires skill more than the developing a product or providing a service. If
a business has to survive ad succeed it needs to look after the finances and make necessary arrangements
for it to prosper as well. Understanding business mathematics is important to maintain profitable operations
and accurate keeping of records. It is required right from the start for pricing products/services till the end
when we need to check if the budget was met. Let’s look at situations where business mathematics is
required:
· Production costs calculation
Before one formally starts production and establishes its business it is very important to estimate the costs
that would be incurred in relation to the manufacturing such as the cost of raw materials, machinery, rent,
administrative expenses etc. In addition to these basic expenses there are other associated costs such as
marketing, warehousing, interest and repayment of loans etc. Once all he expenses relating to production
have been included, it would be easy to estimate the profit from it to sustain and remain competitive in the
market. Accurately determining the cost associated with each item will make the base for the business
strong.
· Price determination
When you have successfully determined the costs, the next task is to price the products correctly so that it
generates right amount of cash flows for future requirements of the business. Charging the correct selling
price would ensure that the product remains profitable.
· Profit Measurement
These require determining the net profit by subtracting the operating costs from the total amount of
sales/revenue during a period of time. What also needs to deducted are the tax, depreciation, discount
expenses. This helps to find out if the products are being charged enough to continue the business operations
and expand.

STATISTICS
Statistics is the science of averages and is the foundation of sound decision making.
Statistics has been defined differently by different authors from time to time. Some writers define it as
‘Statistical data’ i.e., numerical statement of facts, while other define it as “Statistical methods” i.e.,
complete body of the principles and techniques used in collecting and analyzing such data.
The purpose of statistics with the help of mathematics is to manipulate, summarize and investigate data so
that the useful decision-making results can be obtained.
Some of the important definitions of Statistics:

• Statistics may be defined as the collection, presentation, analysis and interpretation of numerical
data.
• Statistics is the science of estimation and probabilities.
• Statistics is the science which deals with collection, classification and tabulation of numerical facts
as the basis for explanation, description and comparison of phenomenon.
• Statistics as “Classification facts representing the conditions of the people in a state, especially
those facts which can be stated in numbers or in any other tabular or classified arrangement.
• Statistics as “Numerical statements of fact in any department of enquiry placed in relation to each
other”.
• Bowley defines statistics in the following three different ways:
• Statistics may be called the science of counting.
• Statistics may rightly be called the science of averages.
• Statistics is the science of the measurement of social organism, regarded as a whole in all its
manifestations and developments.

Importance of Statistics in Business and Industry:

In past days, decisions regarding business were made only on personal judgement. However, these
days, they are based on several mathematical and statistical techniques and the best decision is arrived by
using all these techniques which is clear from the following.
• In selecting alternative course of action: When these are two or more than two alternative course
of action and we need only one course of action, statistical decision theory helps us in selecting the
required course of action by applying Bayesian decision theory and saves a lot of time.
• In removing uncertainty: When there are many possible outcomes of an event, we cannot predict
with certain that what will happen. By applying the concept of joint and conditional probability,
the uncertainty about the event can be removed very easily.
• In calculating EOL, COL: In business opportunity loss which can be defined as difference between
highest possible profit for an event and the actual profit obtained for the actual action taken.
Expected opportunity loss and conditional opportunity loss can be easily calculated by using the
concept of maximum and minimum criteria of pay- off.