Business Statistics – Session 1

Introduction to Statistics
 Session 1:

Introduction to Statistics
 Faculty Intro
• Current
– VP & Head, Strategy and Corporate Communication, V-Mart Retail
– Co-founder and Mentor, Liferenew, a fitness and sports events, CSR and employee volunteering, and training solutions
provider to leading corporates like Adobe, Jubilant Foodworks, Tech Mahindra and ST Micro
– Corporate trainer and advisor to CXOs in project management, business intelligence and strategic management
• Professional background
– Sixteen-plus years of corporate experience across research and analytics, brand management and sales, and retail. Ten-plus
years of entrepreneurial and P&L leadership experience in building global delivery centres
– Twelve-plus years of experience as visiting faculty at b-schools; 7+ years of corporate training experience in financial
analysis, storyboarding, business writing, logical thinking and problem-solving, and data analysis skills
– Worked with companies like Religare group, RocSearch, Ranbaxy, Eli Lilly and Wimpy’s
• Academic background
– Dissertation (4th) year in Executive PhD program from IIM Lucknow. 4 papers published in international peer-reviewed
ABDC category journals; several papers presented at international conferences
– PGDM (MBA) from IIM Lucknow, concentration in Marketing and Strategy
– Hotel Management from IHM Lucknow; BA in Pol Science and English
– My alter ego

– Avid trekker and nature enthusiast, Hatha yoga practitioner, amateur chef and travel buff
 Agenda for Today!
 Hypergeometric distribution
 P value, z value, t test, F distribution
 Kruskal-Wallis test – non-parametric alternative
to one-way ANOVA
 Discrete & continuous random variables
 Chebyshev’s theorem
 Negative Binomial distribution
 Tukey pairwise comparison test
 Mann-Whitney U test
 Wilcoxon Signed-Rank test
 Contingency table analysis – Chi square test
 Spearman rank correlation coefficient
 Expected values of Statistics MSTR
& MSE under null hypothesis
 Standard errors of regression
estimators
 Point Bi-serial correlation
 Variance-stabilizing transformations
 Residual Autocorrelation & Durbin-
Watson test
 Taguchi methods, R chart, s chart, c
chart
 Kolmogorov-Smirnov One sample
test
 Poisson distribution
 Mortality statistics and survival
analysis
That was ‘Sadistics’, not ‘Statistics’
 Perspectives on statistics…

There are lies, damned lies, and then there

is statistics

Statistics don’t lie. It is just that people

torture data to such an extent that it
confesses whatever they want it to !!!
 Session Outline: the “Real” agenda for today

11 Origin and role of statistics

22 Classification of statistics

33 Functions and limitations

A timely reminder before we start: best way to learn
 Learning Objectives

After studying this chapter, you should be able to:

 Understand the development, importance and role of statistics

 Explain the basic concept of statistical studies

 Understand the application of statistics in business and management

 Learn about functions and limitations of statistics

 How did statistics originate? (1/2)

STATO STATISTA STATISTICS

• The word statistics is derived from the Italian word stato, which means “state”
• Statista refers to a person involved with the affairs of state. Therefore, statistics originally meant the collection of facts
useful to the statista. Statistics in this sense was used in 16th-century Italy and then spread to France, Holland, and
Germany
• There is an evidence of use of some of the principles of statistics by ancient Indian civilization. Some of the techniques
find their mention in Vedic Mathematics. However, the modern statistical methods spread from Italy to France, Holland
and Germany in 16th century
• Theoretical development of modern statistics was during the mid-seventeenth centuries with the introduction of
‘Theory of Probability’ and ‘Theory of Games and Chance’
 How did statistics originate? (2/2)

• Many famous problems like ‘the problem of points’ (posed by Chevalier de-Mere), ‘the gambler’s ruin’, etc.
posed by professional gamblers were solved by mathematicians. These solutions laid the foundation to the theory
of probability and statistics. Some of the notable contributors in the development of statistics are: Pascal, Fermat,
James Bernoulli, De-Moivre, Laplace, Gauss Euler, Lagrange, Bayes, Kolmogorov, Karl Pearson and so on. One
of the most significant works in modern times is by Ronald A. Fisher (1890-1962), who is considered to be the
‘Father of Statistics’ by the community of statisticians all over. He applied statistics to diversified fields such as
education, agriculture, genetics, biometry, psychology, etc. He also pioneered ‘Estimation Theory’, ‘Exact
sampling distribution’, ‘Analysis of variance’ and ‘Experimental Design’
• Significant contribution has also been made by Indians in the field of statistics. Prof Prasant Chandra
Mahalanobis, is the first to pioneer the study of statistical science in India. He founded the Indian Statistical
Institute (ISI) in 1931
 Defining Statistics… let’s review these definitions

• “Statistics are the classified facts representing the conditions of the people in the state…. specially those facts which
can be stated in number or in table of numbers or in any tabular or classified arrangement”. – Webster
• “By statistics we mean quantitative data affected to a marked extent by multiplicity of causes”. –Yule and Kendall
• “Statistics is a science of estimates and probability”. – Boddington
• “Statistics is a method of decision-making in the face of uncertainty on the basis of numerical data and calculated
risk”. – Prof. Ya-Lun-Chou
• “Statistics may be defined as the science of collection, presentation, analysis and interpretation of data”. – Croxton
and Cowden
• “Statistics is the science and art of handling aggregate of facts– observing, enumerating, recording, classifying and
otherwise systematically treating them”. – Harlow
• “Statistics are measurements, enumerations or estimates of natural phenomenon, usually systematically arranged,
analyzed and presented as to exhibit important inter-relationships among them”. – A.M. Tuttle
 Why do we need statistics?

• Summarize sample data and convert it into useful information

• To decide how inference can be made for the entire population based on sample data
• Measure the extent of error and risk associated with the use of sample data and stochastic processes

The key distinction between normative (or judgmental) techniques and statistical techniques is of estimate of level of
confidence in decision. Statistical methods are explicit in nature and provide clearly defined measure of error.

On the other hand, normative techniques based on the judgment and rule of thumb, although help in effective
decision-making but fail to specify estimate of error.
 Activity 1: Role of Statistics

Making decisions: Normative vs. Judgemental Techniques

• Consider these scenarios
o The brand manager of Horlicks has to launch a new flavour targeted at adults Role of
Statistics
o A pharma company wants to test the safety and efficacy of a drug in
Business
o A telecom service provider wants to measure customer satisfaction of its B2B clients
o An ecommerce site wants to test a new promotional campaign
Put yourself in the shoes of the decision-maker in each of these scenarios.
What will you do?
Why? Role of
Statistic Role of
What challenges and limitations are you faced with in taking these decisions? Statistics in
s
in Research
Decision
Making
 DCOVA: The decision-making life cycle in statistics

DEFINE COLLECT ORGANIZE VISUALIZE ANALYZE

• Define the variables that you want to study in order to solve a business problem or meet a business objective
• Collect the data from appropriate sources
• Organize the data collected by developing tables
• Visualize the data by developing charts
• Analyze the data by examining the appropriate tables and charts, and other statistical methods to reach conclusions
 Session Outline

11 Origin and role of statistics

22 Classification of statistics

33 Functions and limitations

 Classification of statistics

APPLIED

DESCRIPTIVE INFERENTIAL ANALYTICAL

 Descriptive Statistics

• When statistical methods are used, a problem is always formulated in terms of ‘population’ or ‘universe’, which is
defined as all the elements about which conclusions or decisions are to be made. In statistics, there is a specific
meaning to the words population and universe. We shall discuss exact definitions subsequently
o For example, if we want to find customer satisfaction, all our customers represent the population. If
information or data is taken from each and every element of the population, we are dealing with ‘Descriptive
Statistics’. In research vocabulary, such a process is called ‘Census’
o This includes methods for collection, collation, tabulation, summarization and analysis of the data on entire
population. Averages, trends, index numbers, dispersion and skewness, help in summarizing and describing
the main features of the statistical data. This is primarily to present the data in the form easily understandable
to the decision-maker. One example is the national census conducted every 10 years.
 Analytical Statistics

• This deals with establishing relationship between two or more variables. This includes methods like correlation
and regression, association of attributes, multivariate analysis, etc., which help establishing relationship between
variables
• This facilitates comparison, interpolation, extrapolation and relationships. In these cases, we require multiple
samples on different populations or same population, for example, sales of a product before and after launch of
promotion campaign.

Inductive Statistics

• Decision-making in most business situations requires estimates about future like trends and forecast. Inductive
statistics include methods that help in generalizing the trends based on the random observations
• This process provides estimation indirectly on the basis of partial data or method of forecasting based on past
data, for example, future share price of a share based on the inflow of funds by FII.
 Inferential Statistics

• Another way, in which conclusions or decisions are made, is using a portion of population or sample from the
universe. The sample data is analyzed. Then based on the sample evidence, conclusions are generalized about the
target population
• Exit poll during elections is an example of sample survey. This method is referred to as ‘Statistical Inference’.
Hypotheses and significance tests form an important part of inferential statistics

Applied Statistics

• It is the application of statistical methods and techniques used for solving the real life problems. Quality control,
sample surveys, inventory management, simulations, quantitative analysis for business decision-making, etc.,
form a part of this category.
 Session Outline

11 Origin and role of statistics

22 Classification of statistics

33 Functions and limitations

 Functions of Statistics (1/3)

Condensation
• Statistics compresses mass of figures to small meaningful information, for example, average sales, BSE index
(SENSEX), growth rate. It is impossible to get a precise idea about the profitability of a business from a record of
income and expenditure transactions. The information of Return on Investment (ROI), Earnings per Share (EPS),
profit margins, etc., however, can be easily remembered, understood and used in decision-making
Comparison
• Statistics facilitates comparing two related quantities for example, Price to Earning Ratio (PE Ratio) of Reliance
Industries stood at 17.5 as compared to the industry figure of 13 showing the confidence of investors
 Functions of Statistics (2/3)

Forecast
• Statistics helps in forecast by looking at trends. These are essential for planning and decision-making. Predictions
based on the gut feeling or hunch could be harmful for the business. For example, to decide the refining capacity
for a petrochemical plant, we need to predict the demand of petrochemical product mix, supply of crude, cost of
crude, substitution products, etc., over next 15 to 25 years, before committing an investment
Hypotheses Testing
• Hypotheses are statements about the population parameters based on our past knowledge or information that we
would like to check its validity in the light of current information. Inductive inference about the population based
on the sample estimates involves an element of risk. However, sampling keeps the costs of decision-making low.
Statistics provides quantitative base for testing our beliefs about the population.
 Functions of Statistics (3/3)

Forecast
• Statistics present facts precisely in quantitative form. Statement of facts conveyed in exact quantitative terms are
always more convincing than vague utterances. For example, ‘increase in profit margin is less in year 2006 than in year
2005’ does not convey a definite piece of information. On the other hand, statistics presents the information more
definitely like “profit margin is 10% of the turnover in year 2006 against 12% in year 2005”
Expectation
• Statistics provides the basic building block for framing suitable policies. For example, how much raw material should
be imported, how much capacity should be installed, or manpower recruited, etc., depends upon the expected value of
outcome of our present decisions.
 Activity 2: Functions of Statistics

Condensation Comparison
Guidelines Condensation Comparison
• Refer to the dataset, ‘Bulbs’
• What is the information provided here?
Testing of
• How can you use this information Forecast Testing of
Forecast Hypotheses
“statistically”? Hypotheses

Preciseness Expectation
Preciseness Expectation
 Laws of Statistics

The Law of Statistical Regularity:

The Law of Statistical Regularity:
This law states, “A moderately large number of items, chosen at random from a large group, are almost sure on an
This law states, “A moderately large number of items, chosen at random from a large group, are almost sure on an
average to possess the characteristics of the large group.” For example, it is difficult to predict failure of an
average to possess the characteristics of the large group.” For example, it is difficult to predict failure of an
individual machine or an accident on express way but not difficult to indicate what percentage of large number of
individual machine or an accident on express way but not difficult to indicate what percentage of large number of
machines might suffer from a breakdown in given period. Similarly, average number of accident on expressway
machines might suffer from a breakdown in given period. Similarly, average number of accident on expressway
would remain stable over a fairly long period of time unless the conditions have changed drastically
would remain stable over a fairly long period of time unless the conditions have changed drastically
The Law of Inertia of Large Number
The Law of Inertia of Large Number
It states, ‘Other things being equal, as the sample size increases the result tends to be more reliable and accurate.’ As
It states, ‘Other things being equal, as the sample size increases the result tends to be more reliable and accurate.’ As
the sample size increases, the possibility of the effect of extreme values in data reduces due to the compensation on
the sample size increases, the possibility of the effect of extreme values in data reduces due to the compensation on
the both sides. Thus, as the sample size increases chances of stability of results enhance and confidence in our
the both sides. Thus, as the sample size increases chances of stability of results enhance and confidence in our
estimate of the population increases. In the limiting case if the sample size reaches to the population size we can
estimate of the population increases. In the limiting case if the sample size reaches to the population size we can
exactly describe the characteristics of the population
exactly describe the characteristics of the population
Limitations of Statistics

COMMON STATISTICAL ISSUES

DISTRUST OF STATISTICS

MISUSE OF STATISTICS
 Limitations of Statistics

Statistical techniques, because of their flexibility and economy, have become popular and are used in numerous
fields. But statistics is not a cure-all technique and has limitations. It cannot be applied to all kinds of situations and
cannot be made to answer all queries.

The major limitations are:

• Deals with only those problems, which can be expressed in quantitative terms and amenable to mathematical and
numerical analysis. These are not suitable for qualitative data such as customer loyalty, integrity of employee,
emotional bonding, motivation, initiative, etc.
• Deals only with collection of data and no importance is attached to an individual item
• Results are only approximate and not mathematically correct. There is always a possibility of random errors
• If used wrongly, can lead to misleading conclusions, and therefore, should be used only after complete
understanding of the process and conceptual base
Summary

 Managerial decision-making can be made efficient and effective by analyzing

available data using appropriate statistical tools. Statistical tools not only have

application in research (marketing research included) but also in other

functional areas like quality management, inventory management, financial

analysis, human resource planning and so on

 The word statistics is derived from the Italian word ‘Stato’ which means ‘state’; and

‘Statista’ refers to a person involved with the affairs of state. Thus, statistics originally was

meant for collection of facts useful for affaires of the state, like taxes, land records,

population demography, etc.

Cont….
 Significant contribution has also been made by Indians in the field of

statistics. Prof Prasant Chandra Mahalanobis, is the first to pioneer

the study of statistical science in India. He founded the Indian

Statistical Institute (ISI) in1931. Mahalanobis viewed statistics as a

tool in increasing the efficiency of all human efforts and also

concentrated on sample surveys

 Statistics is the classified facts representing the conditions of the

people in the state…. specially those facts which can be stated in

number or in table of numbers or in any tabular or classified

arrangement

 Statistical methods are broadly divided into five categories. These are

Descriptive Statistics, Analytical Statistics, Inductive Statistics,

Cont….

Inferential Statistics and Applied Statistics

 Statistics is an indispensable tool of production control and market research. Statistical

tools are extensively used in business for time and motion study, consumer behaviour

study, investment decisions, performance measurements

and compensations, credit ratings, inventory management, accounting, quality control,

distribution channel design, etc.

 Statistical analysis is a vital component in every aspect of research. Social surveys,

laboratory experiment, clinical trials, marketing research, human resource planning,

inventory management, quality management, etc., require statistical treatment before

arriving at valid conclusions

 Functions of statistics are Condensation, Comparison, Forecast, Testing of

hypotheses, Preciseness and Expectation

Cont….
 Statistical techniques, because of their flexibility and economy, have become popular and are

used in numerous fields. But statistics is not a cure-all technique and has limitations. It cannot

be applied to all kinds of situations and

cannot be made to answer all queries.

 More dangerous than distrust is misuse of statistics to draw convenient conclusions to satisfy

selfish or ulterior motives. Arguments and analysis

supported by facts, figures, charts, graphs, index numbers, etc. are indeed very

appealing and convincing. They can be used to intimidate opposing views. Hence,

statistics is open to manipulation.

 LET US SUM UP

 Statistical techniques, because of their flexibility and economy, have become popular and are

used in numerous fields. But statistics is not a cure-all technique

and has limitations. It cannot be applied to all kinds of situations and cannot be

made to answer all queries.

 More dangerous than distrust is misuse of statistics to draw convenient conclusions

to satisfy selfish or ulterior motives. Arguments and analysis supported by facts,

figures, charts, graphs, index numbers, etc. are indeed very appealing and

convincing. They can be used to intimidate opposing views. Hence, statistics is open

to manipulation.