MBA 532- Business Statistics 1

ASSIGMENT

Write an essay on the “Use of Statistics and Probability with

Special Reference to Business Problems”

The following terms may be included in your discussion in an

appropriate manner

• Population • Estimation

• Sample • Standard error

• Collection of data • Confidence intervals

• Measurement of central • Hypothesis testing

tendency • Correlation

• Measure of dispersion
• Regression

• Probability
• Time series

• Probability distribution
• Trend analysis

• Expected value
• Chi squared test
 “Use of Statistics and Probability with Special Reference to Business

Problems”

Statistics serves as a very useful tool in data analysis in many disciplines.

Science, Technology, social sciences, Medicine, Engineering are few of them.

Users with a business interest include decision makers and users with a

particular interest for which they want more detailed information official

statistics are an important reference, providing information on the phenomena or

circumstances their own work is focusing on. For instance, those users will take

some official statistics into consideration before launching a product, or

deciding on a specific policy or on a marketing strategy. (UNEC [UNEC], 2009)

Today due to the turbulent environment conditions in business, knowing and

applying statistical tools is essential to survival on the industry. Most of the

business organizations value the statistical tools much and use effectively in

analyzing data and in prediction.

1.1. Use of Statistics

In a data set measures of central tendency (Mean, Median Mode), Dispersion

Measures are very important in analyzing data in business. In this production

process of the statistics procedure;

1. The programming phase starts the process with investigations into the

information needs of users. The objective is the most important criteria when

program a statistical analysis.

2. The design phase is when tests and statistical surveys are designed or

redesigned and tested.

3. Data collection through statistical surveys can be done through different

processes: by mail, face-to-face interviews, telephone interviews, internet,

sample survey, sampling frame.

4. The processing phase includes data entry, control, coding and editing. Today

this phase is highly IT-dependent; CATI, Computer-assisted telephone

interviewing and CAPI, Computer-assisted personal interviewing techniques are

really useful in terms of speed.

5. Dissemination is more than the mere release of the results and statistical

products

1.2. Measurement of central Tendency

In a data set the MEAN, MEDIAN and MODE values are very important to make

decision. In our day today context, many marketers are coming with many figures

to sell their products with many numbers which seems to be reliable.

Mostly they use the average of the land value of this area is 1 Lack per perch,

But there the question arise what the minimum and maximum, what is the mode value

of the price. There many be some segments which are around 50 Lack per perch
while another segment will have 10,000 rupees per perch. When we are to buy the

land we want it is very important to analyze the data in the population.

• The mean is appropriate for interval or ratio data that is continuous,

symmetrical, and does not contain significant outliers.

• The median is appropriate for continuous data that may be skewed

(asymmetrical), based on ranks, or contain extreme values.

• The mode is most appropriate for categorical variables or for continuous

data sets where one value dominates the others. (Boslaugh & Watters, 2008)

Decision on Investments is one important area which any business will calculate

the measurements of central tendency. The average interest, the market average

and the past performance is very critical to answer the question on where to

invest. By analyzing the respective samples from the stock exchange the share

holders can decide when and where to invest capital wisely.

1.3. Use of Probability

Risk Assessing is a major discipline which uses probability theories. Risk can be

assessed in terms of statistical probabilities determined by sampling from large

populations. Risk is typically assessed in terms of both the likelihood an

adverse event will occur and the monetary impact it would have. Further

refinement through simulation analyses can provide additional insights.

Simulation approaches can be extremely complex and time-consuming, however,

leading to a search for alternatives for typical valuation work. (McKee, 2004,

para. 2)

An example of this is the way in which life insurance companies calculate the

cost of life insurance policies and is based on how many policy holders are

reasonably expected to die within a year versus revenue generated from other
policies extended. In this scenario it is important to point out that in order

for a company to mitigate the risk associated with loss of revenue it must issue

a substantial number of policies. (Zayas-Quiñones, 2006)

1.4 Hypothesis testing

When there is a hypothesis to be tested in business to make investments or to

make decisions hypotheis test is very important tool.

CASE: Discount stores often introduce new merchandise at a special low price to

induce people to try it. But in the mid-1960s a prominent psychologist predicted

that in the long run this practice would actually reduce sales. (Null Hypothesis)

With the cooperation of a discount chain, an experiment was performed in 1968 to

test this theory. A representative sample of 120 stores was chosen, and the

stores were arranged into 60 pairs, matched according to characteristics like

sales volume and location. These stores did not advertise, and displayed their

merchandise in similar ways. A new kind of cookie was introduced in all 120

stores. Within each pair of stores, one was chosen at random to introduce the

cookies at the special low price of 49 cents a box, with the price increasing to

69 cents after two weeks; the other store in the pair introduced the cookies at

the regular price of 69 cents a box. Total sales (in cases) of the cookies were

computed for each store for six weeks from the time they were introduced; the

results are given below.

pair discount standard difference

number sales sales (discount - standard)
=============================================================
1 851 916 -65
2 903 1004 -101
. . . .
. . . .
 60 787 699 +88
=============================================================
mean 854 923 -69
SD 58 157 150

The mean observed difference is Y=-69. The standard error of Y is given by

SE(Y)=150/(60^(1/2))=19.36. The two sample z-statistic is z=( observed difference

- expected difference ) / ( SE for difference ) = -69/19.36 = -3.563. In other

words the difference between discount and standard sales is about 3.5 SE's below

the value expected under the null hypothesis. Hence, we reject the null

hypothesis and accept the alternative hypothesis that the difference is real.

This is very nice example for the use of hypothesis Test . But to perform this

test the proper data sets and population selection is very critical and will

affect the results a lot.

The test assumes simple random samples, which is the case here.

The sample is large enough so due to the Central Limit Theorem the probability

histogram for each sample average and consequently of their difference follows

the normal curve. The pairing of the stores according to sales volume, location

etc allows comparing similar things and eliminates from the test procedure

potential confounding factors. (Michailides, 2001)

1.5. Regression

Whenever there is a situation where to learn more about the impact of one or more

variables has on another, then this business problem can be best understood with

the Regression. Regression deals with relationships between variables and also

with Prediction: the ability to accurately predict behavior not only makes you

more confident about decisions, but also implies an understanding of the

processes at work. Regression in all its shapes and forms remains the central

workhorse of social science research.

For a example to check the aesthetics of the product affect the buying behavior

or to check whether there is the time dependability of the customer arrival or

the buying pattern of the customer with income level, the peak hours to publish

the advertisement are few example which can be analyzed using regression. After

analyzing the decisions become logical and proven.

Forecasting is one of major area using regression analysis. When the sales are to

be projected with reference to cost of sales the “Best fit line” would give a

better preview. Especially in production planning and control Regression analysis

will provide a better base to use the resources effectively.

REFERENCES

Boslaugh , S., & Watters, P. A. (2008). Statistics in a Nutshell.

Canada: O’Reilly Media Inc.

McKee, T. (2004, January 23). A new approach to uncertainty in

business valuations. The New York State Society of CPAs, 04(04), 46.

Retrieved February 16, 2009, from

http://www.nysscpa.org/cpajournal/2004/404/essentials/p46.htm

Michailides, G. (2001, April 01). Discount Pricing. In UCLA Statistics

Case Studies (8). Retrieved February 16, 2009, from

http://www.stat.ucla.edu/cases/nielsen/

UNEC. (2009, January 16). Official Statistics. In Wikipedia. Retrieved

February 12, 2009, from http://en.wikipedia.org

Zayas-Quiñones, E. R. (2006, January 23). Defining Probability Theory

and its Use to Make Business Decisions. In Probability. Retrieved

February 16, 2009, from

http://www.securebusinessresource.com/Defining%20Probability%20Theor

y%20and%20its%20Use%20to%20Make%20Business%20Decisions.htm