CHAPTER 1

INTRODUCTION

1.1 Origin of Statistics:

The word Statistics seems to have been derived from Latin word ‘Status’, German word
‘Statistik’ or Italian word ‘Statista’. Each of these means “Political State’. In ancient time
governments used to collect the information regarding the population & the property of the
State.
In India an efficient system of collecting official and administrative statistics existed even
more than 2000 Years ago, in particular, during the period of Chandra Gupta Maurya (324
– 300 BC). From Kautilay’s Arthashastra it is known that even before 300 BC a very good
system of collecting Vital Statistics and registration of Births and Deaths was in vogue. Raja
Todormal (1556-1605 AD), the land & revenue minister of Akbar, maintained good records
of Land and Agriculture Statistics.
In Germany, the Systematic collection of official statistics originated towards the end of 18th
century. They collect data to have an idea of the relative strength of different German states,
information regarding population, output of Industrial & Agricultural sector.

In England
Statistics were the outcomes of Napoleonic war.

Vital Statistics Originated at 17th century. Captain John Graunt (of London) (1620-1674) –
Father of Vital Statistics, the first man who studied about the statistics of Births & Deaths.
Computation of mortality tables and the calculation of Expectation of life of different ages
by a number of persons, viz. Casper Newman, Sir William Petty, James Dodson, Dr. William
Price.
In 1698, the first Life Insurance was found in London.

1.2 Developments of Statistics:

The theoretical development of so-called modern Statistics came during the mid 17th century
with the introduction of ‘Theory of Probability’ and ‘theory of Games & Chance’. The chief
contributors are being Mathematicians & Gamblers of France, Germany and England.

Problems of Points – The France Mathematician Pascal (1623-1662) after long

correspondence with another France Mathematician P. Fermat (1601-1665) solved it. That

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was posed by a gambler Chevalier de Mere. This study was the foundation of the theory of
probability, which is the backbone of the modern theory of Statistics.

Franchis Galton (English man) - The pioneer of Regression analysis & Normal Distribution.

Karl Pearson (Founder of the greatest Statistical Labouratory in English) – The pioneer of
Correlation analysis, & Chi-square test, which is the most important in modern test of
Significance.
Bernoulli Distribution: Introduced by James Bernoulli.

Student’s t- distribution: Discovered in 1908 by W. S. Gosset (Psedonym - Student’s).

Sir Ronald A. Fisher (1890-1962) – Known as the Father of Statistics. He placed Statistics
on a very sound footing by applying it to various diversified fields, such as; Genetics,
Biometry, Education, Agriculture, etc.. He is the pioneer in introducing the concept of Point
Estimation.

1.3 Definitions of Statistics:

Different authors have defined statistics differently from time to time. The reasons for a
variety are primarily two.
Firstly: In modern times the field of study of Statistics has widened considerably. In ancient
time it was confined with only the affairs of the state but now it embraces almost every
sphere of human activity. Hence a number of old definitions which were confined a very
narrow field of enquiry were replaced by new definitions.
Secondly: Some writers defined it as “statistical data” i.e., numerical statement of facts,
while others define it as a “statistical method”, i.e., complete body of the principles and
techniques used in collecting and analyzing such data.

Some important definitions are:

Statistics as Statistical data

Webster defined Statistics as “Classified 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 arrangements”.

Bowley defined Statistics as “numerical statement of facts in any department of enquiry

placed in relation of each other”.

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The more exhaustive definition is given by

Prof. Horace Secrist defines Statistics as, “By Statistics we mean aggregates of facts
affected to a marked extent by multiplicity of causes, numerically expressed, enumerated or
estimated for a predetermined purpose and placed in relation to each other”.

Statistics as Statistical Method

Bowley himself defines Statistics in the following three different ways.
i. Statistics may be called the science of counting.
ii. Statistics may rightly call the science of average.
iii. Statistics is the science of the measurement of social organism, regarded as a whole
in all its manifestations.

Bodington defines Statistics as, “Statistics is the science of estimates and probabilities”.

R. A. Fisher defines Statistics as, “It is a part of applied mathematics”.

Professor Croxton and Cowden give the best definition. His said, it may be defined as “the
science, which deals with the collection, analysis and interpretation of numerical data”.

1.4 Importance and Scope of Statistics

 Statistics and Planning: For different Kinds of Govt. planning.
 Statistics and Economics: For solving various economic problems, such as wages,
prices, and analysis of time series and demand analysis.
 Statistics and Business: The success of a businessman more or less depends upon the
accurate and precision of his statistical forecasting, production control, and process
control.
 Statistics and industry: It is very useful in Quality Control, Production Engineering,
Inspection Plans, and Control Charts.
 Statistics and War: Statistics on Soldiers, no. of deaths in a war, prediction of the cost of
war, etc.

1.5 Limitations of Statistics

i. It is not suited to the study of qualitative phenomenon.
ii. It does not study individuals. (It deals with an aggregate of objects.)
iii. Statistical laws are not exact (like Mathematics). It is based on average.
iv. Statistics are liable to be misused.

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2. Types of Statistics
i. Descriptive Statistics
ii. Inferential Statistics

Descriptive Statistics: Methods of organizing, summarizing, and presenting data in an

informative way.
 EXAMPLE 1: A Gallup poll found that 49% of the people in a survey knew the name of
the first book of the Bible. The statistic 49 describes the number out of every 100 persons
who knew the answer.

 EXAMPLE 2: According to Consumer Reports, General Electric washing machine

owners reported 9 problems per 100 machines during 2002. The statistic 9 describes
the number of problems out of every 100 machines.

Inferential Statistics: A decision, estimate, prediction, or generalization about a population,

based on a sample.
A population is a collection of all possible individuals, objects, or measurements of interest.
A sample is a portion, or part, of the population of interest.

Examples of inferential statistics

 EXAMPLE 1: TV networks constantly monitor the popularity of their programs by
hiring Nielsen and other organizations to sample the preferences of TV viewers.
 EXAMPLE 2: The accounting department of a large firm will select a sample of the
invoices to check for accuracy for all the invoices of the company.
 EXAMPLE 3: Wine tasters sip a few drops of wine to make a decision with respect
to all the wine waiting to be released for sale.

3. Types of Variable:
There are two types of variables
i. Qualitative or Attribute variable
ii. Quantitative variable
For a Qualitative or Attribute variable the characteristic being studied is nonnumeric.
 EXAMPLES: Gender, religious affiliation, type of automobile owned, state of birth,
eye color are examples.

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In a Quantitative variable information is reported numerically.

 EXAMPLES: balance in your checking account, minutes remaining in class, or
number of children in a family.

Classification of quantitative variable

There are two types of quantitative variables:
i. Discrete variable
ii. Continuous variable

Discrete variables: can only assume certain values and there are usually “gaps” between
values.
 EXAMPLE: the number of bed rooms in a house, or the number of hammers
sold at the local Home Depot (1,2,3,…,etc).

Continuous Variable: A continuous variable can assume any value within a specified range.
Examples: The pressure in a tire, the weight of a pork chop, or the height of students in a
class.

3.1 Levels of Measurement: There are four levels of data.

i. Nominal level
ii. Ordinal level
iii. Interval level
iv. Ratio level

Nominal level: Data that is classified and counted.

 EXAMPLES: eye color, gender, religious affiliation.

Mutually exclusive: An individual, object, or measurement is included in only one category.

Exhaustive: Each individual, object, or measurement must appear in one of the categories.

Ordinal level: involves data arranged in some order, but the differences between data values
cannot be determined or are meaningless.
 EXAMPLE: During a taste test of 4 soft drinks, Mellow Yellow was ranked number
1, Sprite number 2, Seven-up number 3, and Orange Crush number 4.

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Interval level is similar to the ordinal level, with the additional property that meaningful
amounts of differences between data values can be determined. There is no natural zero point.
 EXAMPLE: Temperature on the Fahrenheit scale.

Ratio level is the interval level with an inherent zero starting point. Differences and ratios
are meaningful for this level of measurement.
 EXAMPLES: Monthly income of surgeons, or distance traveled by manufacturer’s
representatives per month.

4. Data:
- Plural of datum, which means fact. Data are collection of any number of related
observations.

Why we use data?

- Data can assist decision makers in educated gausses about the causes and therefore,
the probable effects of certain characteristics in the given situations.
- Using the previous data decision makers’ can predict for future.
Information: Information is processed data.

4.1 Sources of data:

Data can be obtained mainly from two sources. They are
- Internal data
- External data

Internal data: Internal data refers to the measurements that are the by product of routine
business record keeping like accounting, finance, production, personnel, quality control,
sales, etc.
External data: External data were collected from outside the organization. External data
may be collect in two ways, they are:
- Secondary source
- Primary source

Secondary data: when an investigator uses the data which has already been collected by
others, such data are called secondary data. Secondary data can be obtained from journals,
reports, govt. publications, publication of research organizations, etc.

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Primary data: Data that collect for the first time is primary data. When data required for
a particular study can neither in the internal records of the enterprise, nor in published
sources, it may become necessary to collect original data, i.e., to conduct first-hand
investigation.

Precautions should take before using Secondary data:

Before using secondary data, an investigator should examine the following aspects:
a) Whether the data are suitable for the purpose of investigation.
b) Whether the data are adequate for the purpose of investigation.
c) Whether the data are reliable.
i) Was the collecting agency unbiased?
ii) Was the sample representative?
iii) Were enumerators capable & properly trained?
iv) Was the proper check on the accuracy of fieldwork?
v) Were the editing, tabulating & analyzing the data carefully?
vi) What degree of accuracy was directed by the compiler?

4.2 Methods of collecting primary data:

There are two basic methods, i) Questioning, and ii) Observation.

i) Questioning Method:
Data collected by asking questions from respondents. Questions may be asked in persons
on written. A formal list of such questions is called a Questionnaire.

Techniques of communication with questionnaire:

- Personal interview
º By investigator himself
º By recruiting some trained personnel
- Mail
- Telephone
- News paper
- Internet

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ii) Observation Method:

Data are collected by observation, the investigator asks no questions.
Steps in constructing a Questionnaire:
Three primary steps are:
- designing a questionnaire
a) covering letter
b) types of information
c) types of questionnaires
d) form of response
e) no of questions
f) types of questions
- pre-testing a questionnaire
- editing a questionnaire

Business Statistics Chapter 1

Introduction