First semester MBA 2008-09

STATISTICS FOR MANAGEMENT

 WELCOME TO
Brainstorming world
OF STATISTICS
 MODULE 1

Introduction to statistics
 Incident 1:
Every 4 years, Americans suffer through an affliction known
as the Presidential election. Month before the election,
television, radio, and newspaper broadcasts inform us that “a
poll conducted by XYZ opinion Research shows that the
Democratic(Republican) candidate has the support of 54% of
voters with a margin of error of plus or minus 3%”.
 What does this statement mean?
 What is meant by the term margin error?
 Who has actually done the polling?
 How many people did they interview and how many should
they have interviewed to make this assertion?
 Can we rely on the truth of what they reported?
 Polling is a big business and many companies conduct
polls for political candidates, new products, and even for
TV shows.
you have an ambition to become president, run a
company, or even star in a TV shows, you need to know
something about statistics and statisticians.
Incident 2:
The Food and Drug Administration is in final testing of a
new drug that cures Prostate Cancer in 80% of clinical
trials, with only a 2% incidence of undesirable side effects.
Prostate cancer is the second largest medical killer of men
and there is no present cure. The Director of Research
must forward a finding on whether to release the drug for
general use. She will do that only if she can be more than
99% certain that there won’t be any significant difference
between undesirable side effects in the clinical tests and
those in the general population using the drug. There are
statistical methods that can provide her a basis for making
this important decision.
Each of these people is using the word correctly, yet each
person uses it in a different way.
All of them are using statistics to help them make decisions.

Statistics existed from Latin word “stata” means political

state.
In ancient times the scope of statistics was primarily limited
to the collection of the following data by the governments for
framing military and fiscal policies;
1) Age and sex-wise population of the country
2) Property and wealth of the country
Sir Ronald. A. Fischer (1890-1962) is pioneer who
applied statistics to a variety of diversified fields such
as genetics, biometry, psychology and education,
agriculture, etc and who is rightly termed as ‘Father of
statistics’.
Indian statisticians also did valuable contributions
like-
 C.R. Rao (statistical inference),
 Parthasarathy (theory of probability)
 S .N. Roy (Multivariate analysis)
 R.C.Bose, K.R.Nair and others.
To only a few have placed India’s name in the world
map of statistics.
Definition :
“ A science of collection, presentation,
analysis and interpretation of
numerical data”
-Croxton and Crowdon
“ Statistics is the science of estimates and probabilities.”
- Boddington

“ Aggregate of facts affected to a marked extent by multiplicity

of causes, numerically expressed, enumerated or estimated
according to a reasonable standard of accuracy, collected in a
systematic manner, for a predetermined purpose and placed in
relation to each other.”
- Prof. Horace Secrist
i. Aggregate of Facts- single fact
ii. Affected by Multiplicity of causes – price of
commodity, yield of particular crop
Numerically expressed
iii. Enumerated or estimated according to
reasonable standard of accuracy- distance
b/n two places
iv. Collected in a systematic manner
v. Collected for predetermined purpose-
objective
vi. Comparable –population of a country for
different years
“ All statistics are
numerical statements of
facts, but all numerical
statements of facts are
not statistics”
-S.C Guptha
Importance and scope of statistics :
Statistics in Planning
Statistics in State
Statistics in Mathematics
Statistics in Economics
Statistics in Business and Management
Statistics in Accountancy and Auditing
Statistics in Industry
Statistics in Insurance
Statistics in Astronomy
Statistics in Physical Sciences
Statistics in Social sciences
Statistics in Biology and Medical sciences
Statistics in Psychology and Education
Statistics in war
1 Statistics in Planning
a. Statistics is indispensible in planning – may it be in
business, economics or government level.
b. statistical data relating to production, consumption,
prices, investment, income, expenditure and so on., and
the advanced statistical techniques such as index numbers,
time series analysis, demand analysis and forecasting
techniques for handling such data are paramount of
importance.
 2. Statistics in State (government)
for planning future economic programs.
 birth and death statistics according to age and sex
distribution provide for overall planning and evaluation of
economic and social development programs.
Mortality statistics serve as guide to the health authorities
for sanitary improvements, improved medical facilities and
public cleanliness.
In most countries today, state (government) is the single unit
which is the biggest collector and user of statistical data.
In addition to Ministries and govt dept in Centre and States the main statistical
Agencies are :

1. Central Statistical Organization (C.S.O.)

2. National Sample Survey Organization
(N.S.S.O.)
3. Registrar General of India (R.G.I.)
3 . Statistics in Mathematics :
The modern theory of statistics has its foundations on
 Theory of probability - Mathematical theory of
Measure and Integration.
Mathematical tools used in statistics
 Integration,
 Differentiation,
 Algebra
 Trigonometry,
 Matrix theory and so on.
The increasing role of mathematics in statistics led to
development of new branch ‘mathematical statistics’
Stalwarts in theory of modern statistics , are :
Laplace,
Bernoulli,
Pascal,
gauss,
R.A.Fischer,
S.N.Roy,
R.C.Bose,
H.Cramer and C.R.Rao.
4. Statistics in Economics:
 formulation of economic theories and economic policies.
 solution of a variety of economic problems
 consumption statistics
 production statistics
 Prices
 Exchange statistics
 Gross National Product(GNP)

 Time series analysis, Index Numbers, Forecasting techniques

Demand analysis
5. Statistics in business and management

Prior to industrial revolution - After revolution

effective manager and his team
Mgmt become specialized job.
 Management using effective statistical tools like, probability,
sampling techniques, estimation theory, forecasting
techniques and so on.
Time series analysis very imp in business for study of,
 Trend
 Seasonal and cyclical movements for determining “business
cycles”.
 Index Numbers of prices enable to have idea about the
purchasing power of money.
Demand analysis helps businessman to balance between
supply and demand.
Widely used by business organisations in:
 Marketing decisions
 Investment
 Personnel administration
 Credit policy
 Inventory control
 Accounting
 Sales control
6)Statistics in Accountancy and auditing:
 revaluating the accounting records using Price Index Number

 Correlation analysis and Regression analysis theory is

immense help in cost accounting in forecasting cost or price
for any given value of the dependent variable and relation
between them.

 In auditing , sampling techniques are used widely for test

checking.
7) Statistics in Insurance :
Probability theory is the backbone of Insurance.

Idea of life insurance existed at the end of 17th century

after preparation of life tables by Edmund Hally in 1961
first life insurance institution was founded in London
in 1968.

Probability and mathematical expectation are basic

statistical tools used for preparation of life tables.
Life tables form the basis for determining the rate of
premiums and annuity necessary to various amounts of
life insurance.
 8) Statistics in Astronomy :
Astronomers made recordings about movements of
heavenly bodies like stars and planets for the study of
eclipses.

Gauss used normal curve to describe the theory of

accidental errors of measurements involved in
calculation of orbits of heavenly bodies.
 9) Statistics in Physical Sciences :
physical sciences like, Astronomy, geology,
engineering, physics and meteorology.
Science express facts in quantitative form.
10) Statistics in social sciences:
Every social phenomenon is affected to a marked
extent by a multiplicity of factors which bring about
variation in observations from time to time, place to
place and object to object.
Correlation and regression
Sampling techniques and estimation theory for survey
Important application of sociology is in the field of
Demography for studying mortality, fertility,
marriages, population growth and so on.
11) Statistics in psychology and
education:
In scaling of mental tests and psychological data
For determining I.Q.
Measuring the reliability and validity of test scores.
Leads to new discipline “psychometry”.
12) Statistics in biology and medical
sciences
 it is impossible for the evolutionist to proceed without
statistics
In medical sciences to maintain patient records, health
related case studies.
13) Statistics in war :
Impossible to face the war without factual data
concerning the military strength of the enemy in
terms of manpower, military tanks, war aero planes,
missiles, ammunition, etc.
 statistical data obtained after war useful in planning
future military strategies in the country.
Theory of decision functions propound by A. Wald can
to plan maximum destruction of enemy with
minimum effort.
Limitations of statistics :
1. Statistics does not study qualitative phenomenon
 Numerical data measured quantitatively
 Quality characters like health, beauty, welfare, poverty,
honesty etc.
2. Statistics does not study individuals
 Aggregate of facts
3. Statistical laws are not exact
 Laws are true only on the average
4. Statistics is liable to be misused
 It must be used by experts
 Most dangerous tools in the hands of in-experts.
Collection of Data :
For any statistical enquiry the basic step is collection of
data.
Before start collection of data for statistical enquiry or
statistical investigation following points to be examined
carefully :
i. Objectives and Scope of the Enquiry
ii. Statistical units to be used-specific, stable,
appropriate.
iii. Sources of information
iv. Method of data collection
v. Degree of accuracy aimed at in the final results
vi. Types of enquiry
The statistical enquiries may be of different types as
outlined below :
 Official, Semi-official or Un-official
 Initial or Repetitive
 Confidential or Non-confidential
 Direct or Indirect
 Regular or Ad-hoc
 Census or sample
 Primary or secondary
SOURCES OF DATA
COLLECTION
 PRIMARY DATA
 SECONDARY DATA
PRIMARY DATA
- the data which are originally collected by an
investigator or agency for the first time for any
statistical investigation and used by them in the
statistical analysis are termed as primary data
SECONDARY DATA
- the data(published or un published) which have already
been collected and processed by some agency or person
and taken over from there and used by any other agency
for their statistical work are termed as secondary data.
Choice between primary & secondary data
best to save ourselves from errors
Fairley published data on a large number of diversified
fields are now available in publications of govt. ,
private organizations, research institutions,
international agencies, periodicals and magazines.
Primary data will be collected if, there is insufficiency
of available secondary data and it depends on nature,
objectives of statistical enquiry.
sources of collecting Primary Data
1. Direct personal Investigation
2. Indirect oral interviews
3. Information received through local Agencies
4. Mailed questionnaire method
5. Schedules sent through enumerators

6. Direct personal Investigation

• Collection of data personally
• Go to the field personally
• This method should be used only if investigation is
generally local-confined to a single locality, region or area.
• Technique is suitable only if the enquiry is intensive rather
than extensive.
• Information gather is original in nature.
2. Indirect Oral Investigation :

collection of the data through enumerators appointed

for this purpose.
Small list of questions subject to matter of the enquiry is
prepared and their replies are recorded.
Such a procedure for the collection of factual data on
different problems is usually adopted by the Enquiry
Committees, or Commissions appointed by the
government – State or Central.
 3.Information recieved through Local Agencies :
Information is not collected formally by the Investigator or the enumerators.
Collecting information through appointed Agents(Correspondents)by
investigator in different parts of field of enquiry.
Correspondents or agencies in different regions collect the information according
to their own ways, fashions, likings and decisions and then submit their reports
periodically to the central or head office where the data processed for final
analysis.
This technique usually applied by Newspaper or Periodical agencies who require
information in different fields like sports, strikes, riots, accidents, economic
trend, business stock and share market and so on.
Also by various departments of govt. where information is desired periodically
from a wide area. Ex: estimates of agricultural crops submitted by the village
school teachers.
Registration method in which any event say birth, death, incidence of disease, is
to be reported to appropriate authority appointed by govt like sarpanch, in the
village or B.D.O.’s or civil hospitals or health departments in districts or quarters.
For instance through Vital Statistics i.e. the data relating to mortality(death) and
fertility(birth) are usually collected in India through the registration technique.
 4. Mailed Questionnaire Method
This method consists in preparing “Questionnaire” which is mailed to the
respondents with request for quick response within in specified time.
a polite covering note , explaining in detail the aims and objectives of
collecting information and also the operational definitions of various
terms and concepts used in the questionnaire is attached.
Respondents are taken into confidence that collected information from
them will be kept strictly secret and confidential.
In order to get quick and better response, return postage expenses usually
bared by the investigator by sending self – addressed stamped envelope.
This method usually used by Research workers, Private individuals, non-
official agencies and sometime even by government(central or state).
Success of this method depends on skill, efficiency, care and wisdom with
which questionnaire is framed.
Economical method in terms of money, time and manpower
This method used for extensive enquiry covering a wide areas.
5. Schedules sent through Enumerators :
Questionnaire means there is list of questions which are answered
by the respondent himself in his own handwriting.
Schedule means is the device of obtaining answers to the questions
in a form which is filled by the interviewers or enumerators in a face
to face situation with the respondents.
In this method enumerators go to the respondents personally, with
the schedule(list of questions) ask them the questions there in and
record their replies.
This method is generally applied by business houses, large public
enterprise and Research institutes like
 National Council of Applied Economic Research(NCAE)
 Federation of Indian Chambers of Commerce and Industries(FICCI)
 Even by govt – for certain projects and investigations where high
degree of response is required.
 Population Census, all over the world is conducted by technique.
 Sources of Secondary Data
1. Published Sources
2. Un published Sources

A. Published Sources
i. Official publications of Central Government
ii. Publications of Semi-Government Statistical Organizations
iii. Publications of Research Institutions
iv. Publications of Commercial & Financial Institutions
v. Report of Various Committees and Commissions appointed by
Government.
vi. News papers, Magazines and Periodicals
vii. International publications
Unpublished Sources
Records maintained by private firms or business
enterprises who may not like to release their data to
any outside agency.
The researches carried out by the individual research
scholars in the universities or research institutes.

Precautions in the use of secondary data

a. The reliability of data
b. The suitability of data
c. Adequacy of data
ORGANISATION OF DATA
Organization of collected data means, present it in a
readily comprehensible and condensed form which
highlight the important characteristics of the data,
facilitates comparisons

Presentation of data broadly classified as :

1. Tabular Presentation.
2. Diagrammatic or Graphic Presentation.

Before Tabulating the data, generally, systematic

arrangement of the raw data into different homogeneous
classes is necessary to sort out the relevant and significant
details from the irrelevant and insignificant ones.
 Classification of data is
Preliminary to Tabulation
CLASSIFICATION
“ Classification is the process of arranging data into
sequences and groups according to their common
characteristics, or separating them into different but
related parts ”
- Secrist
Functions of classification
It condenses the data
It facilitates the comparisons
It helps to study the relationships
It facilitates the statistical treatment of the data.
Rules for Claffication of data
It should be unambiguous -rigid
It should be exhaustive and mutually exclusive
Exhaustive – each & every data must belong to one of the
classes and should free from residual class.
Mutually exclusive – observed values belongs to one and
only one of classes.
Ex: students in college classified by sex wise, male &
female are mutually exclusive. But if the same group is
classified as males, females and addicts to a particular
drug then classification is faulty.
Because group addict to particular drug includes both
male and female.
 In such case proper classification will be w.r.t. sex(males
and females) and further dividing the students in each of
these two classes into ‘addicts’ and ‘non addicts’ to the
given drug.
It should be stable - same pattern of classification till end.
It should be suitable for the purpose
It should be flexible
Types of Classification
1) Geographical i.e., Area-Wise or Regional
2) Chronological i.e. w.r.t. Occurrence of time
3) Qualitative i.e. w.r.t. some character or attribute
4) Quantitative i.e. w.r.t. numerical values or
magnitudes
 1. Geographical classification :

Data are classified on the basis of geographical regions

and places. For example Production of paper in India may
be classified according to states in the following way,

STATE PRODUCTION OF
PAPER(in million tonnes)
Karnataka 20
Maharashtra 18
Kerala 12
Tamil Nadu 15
Other state 45
Total 110
2. Chronological classification :
Data are classified on the basis of different points of
time. For example population of India for different
years is as follows :
 POPULATION OF INDIA (In Crores)
Year Population
1941 31.9
1951 36.1
1961 43.9
1971 54.8
1981 68.3
1991 84.4
3) Qualitative classification :
Classified according to qualitative phenomena which are
not capable of quantitative measurement like honesty,
beauty, sex, literacy, etc.,
The data classified into two groups possessing the
quality if, further grouping is required, again group of
sub classes can be made.
POPULATION

Male Female

Smoker non-smoker smoker non-smoker

4. Quantitative classification :
Quantitative measurement like age, height, prices,
income, profit, sales etc can be termed as quantitative
classification.
For example the earnings of different departmental
stores may be classified as follows,
 DAILY EARNINGS (IN ’00 RUPEES)
OF 60 DEPARTMENTAL STORES
Daily earnings Number of stores
Up to 100 6
101-200 14
201-300 16
301-400 10
401-500 8
501-600 6
VARIABLE
The quantitative phenomenon under study, like marks
in a test, heights or weights of students in a class,
wages of workers in a factory, sales in a departmental
store, etc., is termed as ‘variable’ or ‘variate’.
Different variables are measured in different units e.g.,
age measured in years, height in inches or cms;
weight in kgs, income in rupees and so on.
Variables are of two kinds :
1. Continuous variable –involves all the possible values
in a given specified range. –age from 3-15 years
range
2. Discrete variable (Discontinuous variable) – cannot
take all possible values in specified range. –test
marks in college.
 FREQUENCY DISTRIBUTION
Types :
1. Discrete or ungrouped frequency distribution
2. Grouped frequency distribution
3. Continuous frequency distribution

 ‘Array ’ means arranging of collected raw data into

ascending or descending order.
Problems on Discrete frequency
distribution :
2. Grouped Frequency Distribution :
 Condensation of data into groups
 Dividing entire range of variables into a suitable
number of classes or groups
 Then recording the number of observations in each
group

 The value of the variable classified called “classes or

class intervals”
 The length of class interval is called the “width or
Magnitude of the classes ”
Two values specifies the classes called “class limit”

 The larger value in the class interval is ‘upper limit’

 The lower value in the class interval is ‘lower limit’

 Class Interval = upper limit – lower limit

 Frequency (f) : “number of times the items referring to

a class ”
 Total no. of frequency in distribution is N = ∑ f
Continuous frequency distribution
Two types of classes arises,
1. Inclusive class or inclusive method
2. Exclusive class or exclusive method
I. Inclusive class : if the upper limit of the class is
included in that class only, then the class interval is
called ‘ Inclusive class’
ex : 10-19, 20-29, 30-39, 40-49 etc
II. Exclusive class : if the upper limit of the class is not
included in that class, but is included in the next
class, then the class interval is called ‘Exclusive class’
ex : 0-10, 10-20, 20-30, 30-40,40-50 etc
Problem no.1 :
1. Prepare a frequency distribution of the no. of letters
in a word form the following excerpt(ignore
punctuation marks)
“ In the beginning”, said a Persian poet, “Allah took a
rose, a Lilly, a dove, a serpent, a little honey, a dead
sea Apple and a handful of clay. When he looked at
the amalgam it was a woman.”
Also obtain
 The number of words with 6 letters or more ?
 The proportion of words with 5 letters or less ?
 The percentage of words with no. of letters b/w 2 &8 ?