Business Statistics

Sem I
IMPORTANCE OF STATISTICS
Competition, Globalization and Liberalization has focused on
Quantitative Techniques in Management
Application of Q.T. involves fixation of basic parameters.
Theses parameters are objectively based on Data collected in
numerical terms
Hence Data Collection, Analysis and Inference is important.
So Statistics is the first step for Q.T. in management.
Data also used for Decision-making
All of us are either Data Producer or Data User.
Extract relevant information and become effective Data user.
Statistics --- Status --- State --- Political State and
So closely linked with Administrative affairs
Statistics
Descriptive
Statistics
Inferential
Statistics
Collecting
Organizing
Summarizing
Presenting Data
Making Inference
Hypothesis Testing
Determining relationships
Making predictions
BASIC CONCEPTS
-------------------
WHAT IS STATISTICS
Statistics in plural form means

Numerical Facts about Objects.


Statistic in singular form means

Science of
Collection, Organization, Analysis and Interpretation
of Numerical Facts
Characteristics of Statistics
Characteristics of statistics

Aggregate of facts Collection of facts. Facts can be analyzed
statistically only when they are more than one.
Affected to a marked extent by multiplicity of causes.
Numerically expressed only numerical facts can be
statistically analyzed.
Enumerated / Estimated according to reasonable standard of
accuracy.
Collected in systematic manner.
Collected for pre-determined purpose.
Statistics are placed in relation to each other.

Functions of Statistics
Simplifies complexity of the Data
Reduces bulk of the Data
Adds precision to thinking
Helps in comparing different sets of figures
Guides formulation of policies & helps in planning
Indicates trends & tendencies
Helps in studying relationship between different
factors
Branches and Scope
Branches of Statistics
1. Statistical Methods
2. Applied Statistics Biometry
Demography
Econometrics
Statistical Quality Control
Psychometry
Scope and Application of Statistics
Biology Agriculture
Medicine Business
Economics Commerce
Limitations of Statistics
Does not deal with qualitative data
Does not deal with individual fact
Statistical inferences are not exact.
These are probabilistic statements.
Statistics can be misused
Common people can not handle statistics
properly.

Some Basic Definitions

Units / Individuals / Elements These are Objects whose
characteristics we study.
Population / Universe Collection of all Units.
Finite Population contains finite number of Units.
Infinite Population contains infinite number of Units.
Quantitative Characteristic Numerically measurable
Qualitative Characteristic Numerically not measurable
Variable - Quantitative Characteristics which varies from unit
to unit.
Attribute Qualitative Characteristics which varies from unit
to unit.
Discrete Variable Assumes some specified values in range.
Continuous Variable assumes all the values in the given
range.
Classification and Tabulation
Units having common characteristics are grouped together.
Functions of Classifications
Reduces the bulk of data
Simplifies the data
Facilitates comparison of characteristics
Renders data ready for statistical analysis
Types of classification
Quantitative (with regard to variable)
Qualitative (with regard to attribute)
Spatial (Geographical)
Temporal (Chronological)
Classification of units on the basis of a characteristic into two
classes is called Dichotomy (Men / Women)
Classification and Tabulation
Types of classification
Quantitative (with regard to variable)
Qualitative (with regard to attribute)
Spatial (Geographical)
Temporal (Chronological)
Classification of units on the basis of a characteristic into two
lasses is called Dichotomy (Men / Women)
Classification on the basis of
Single characteristic is called Simple or One-way
classification.
Two characteristic is called Two-way classification and
More characteristics is called Manifold classification
Summarization of Data
Frequency Distribution

Frequency is the number of units associated with each value
of variable
Frequency Distribution is systematic presentation of values
taken by variable and the corresponding frequencies
Values may be discrete or continuous
If the number of values is more,
range of variable is divided into
mutually exclusive sub-ranges called class intervals.
Lower Class Limit Upper Class Limit
Width of class Difference between the class limits.
Frequency Distribution
Class mark or Class Mid-value Central value of class interval.
Continuous Frequency Distribution
Discrete Frequency Distribution
Inclusive Class Interval Lower & Upper limits of class interval
are included in the same class interval.
Exclusive Class Interval Lower class limit is included in the
same class interval & upper class limit is included in
succeeding class interval.
While analyzing Frequency Distribution Inclusive class interval
should be converted into Exclusive class interval. (09, 10
19, 2029 will become -0.59.5, 9.519.5, 19.529.5 )
Values 0.5, 9.5, etc. are called Class Boundaries
Frequency Distribution
Open End Class when class intervals at extremities
do not have one limit.
Univariate Frequency Distribution Single variable
Bivariate Frequency Distribution Two variables
Multivariate Frequency Distribution More than one
variables
Frequency density of the class = Frequency of the
Class / Width of the Class
Graphical Presentation
Graphs -
Bar Graphs
Simple Sub-divided (Component) Multiple
Dot Chart
Pictograph
Pie Chart
Percentage share of each category is represented as
percentage of 360 degrees on a circle
Segments are drawn in order of their size from largest to
smallest in clockwise direction
Line Graph
Graphic Representation of
Frequency Distribution
Histogram
On X-axis class limits / class marks are marked.
On Y-axis class frequencies are marked.
Rectangular bars are drawn for each class interval
and its frequency.
For unequal class interval Y-axis measures Frequency
Density and not Class Frequency.
So if one class interval is three times the others, then
its height is reduced to 1/3.
Graphic Representation of
Frequency Distribution
Frequency Polygon
Mark dots on the mid-point of
top of each rectangle of
histogram
Join these points by straight lines.
Polygon thus formed, is closed by
joining to the mid-point falling on
the X-axis of the next outlying
interval with zero frequency.
It can be drawn without drawing
Histogram by only marking the
points.

0
10
20
30
40
50
60
70
80
90
100
1
s
t

Q
t
r
2
n
d

Q
t
r
3
r
d

Q
t
r
4
t
h

Q
t
r
No. of
patients
Graphic Representation of
Frequency Distribution
Cumulative Frequency Curve or Ogive
Less than Type or More than Type
Y-axis represents total frequency
X-axis is labeled with upper class limit in case of Less than
Ogive
and with lower class limit in case of More than Ogive
Cumulative curve has quick adaptability for interpretation.
Point of intersection of two curve is Median.
Two sets of Ogives can be compared on percentage basis.

Graphic Representation of Frequency Distribution

f f
c
f f
c


Less than 59 6 6 50 or more 6 80

Less than 69 9 15 60 or more 9 74

Less than 79 15 30 70 or more 15 65

Less than 89 25 55 80 or more 25 50

Less than 99 13 68 90 or more 13 25

Less than 109 7 75 100 or more 7 12

Less than 119 5 80 110 or more 5 5


MEASURE OF CENTRAL TENDENCY
Generally in a Frequency Distribution values cluster around a
central value.
This is called as Central Tendency.
The central value around which there is a concentration is
called Measure of Central Tendency or average
Averaging is done to arrive at a single value representing
entire data.
Objectives of Averaging
To find out one value that represents the whole data.
To enable comparison
To establish relationship
To derive inferences about a universe from a sample
MEASURE OF CENTRAL TENDENCY
These Measures of central tendency are
Mathematical Averages
Arithmetic Mean
Geometric Mean
Harmonic Mean
Positional Averages
Median
Mode
Arithmetic Mean, Median & Mode are most
widely used.
Arithmetic Mean
When Mean is calculated for entire population, it is population
Arithmetic Mean ( ) and N is number of observations in
population.

N
x

=
Calculation of Mean from Grouped data (Frequency Distribution)
- Required when number of observations is large
- This is estimate of value of Mean
- Not as accurate as obtained from all observations
Arithmetic Mean
Steps in calculation of Mean from Grouped data
Mid-point (ClassMark) = x
= (Lower Limit + Upper Limit) / 2

= x)/n * (f X

Where f = number of observations in each class
Example
Calculate the Mean
weight of the
population




=63.79

Wt in
kg
Frequ
ency
(f)
Class-
mark
(X)
f*X
60-61 10 60.5 605
61-62 20 61.5 1230
62-63 45 62.5 2812.
5
63-64 50 63.5 3175
64-65 60 64.5 3870
65-66 40 65.5 2620
66-67 15 66.5 997.5
Total 240 15310
240
15310
f
X f
X =

Arithmetic Mean
Change of origin and scale
If origin is shifted to A & scale changed by c, then
d = (x A) / c or X = A + cu and
u c A x + =

This formula is used for avoiding calculations with large figures.
Properties of Arithmetic Mean
1. 0 ) ( =

X X
2. Sum of squares of deviations of set of values is minimum
when deviations are taken around arithmetic mean.
3. Arithmetic Mean of two sets =Combined arithmetic Mean =
2 1
2
2 1 1
n n
x n x n
X
+
+
=

Arithmetic Mean
Advantages of Mean
Familiarity
Easy to understand
Easy to calculate
It is rigidly defined
Good basis for comparison
Adaptable for further statistical analysis
Based on all values
More stable
Can be calculated even if some values are zero or negative.
Disadvantages of Mean
Extreme isolated observation affects mean; hence sometimes
extreme values are omitted.
It may be a value not assumed by any variable
Can not be calculated even if one value is missing
Weighted Arithmetic Mean


Considers relative importance of each value
Ex. Labour rate for a product using three classes of labour
Weighted Arithmetic Mean ( )

=
w
S X w
w
X / *
w = weight allocated
S
w
= Sum of all weights
MEDIAN
This is the middle value of series when arranged in the order of
magnitude.
Median establishes a dividing line between 50% of higher values
and 50% of lower values.
In case of even number of terms Median is average of two middle
terms.
If number of terms, n , is odd, then Median is the value of
( )
2
1
th
n +
term.
If number of terms is even i.e. 2n , then Median is average of n
th

and (n+1)
th
term.
This is applicable also for Simple Frequency distribution of
Discrete random variable x
Median for Grouped Data
Locate the class in which Median lies.
Median = L
m
+ [(N/2) -F] * w/ F
m

Where, L
m
= Lower limit of Median class
W = Width of class interval
F = Cumulative frequency up - to lower limit of Median
class


F
m
= Fr equency of the Median class
N = total Frequency

Median
The sum of the deviations from Median, ignoring signs, is the
least.
Advantages and Disadvantages of Median
Not strongly affected by extreme values
Easy to understand
Easy to calculate
Can also be used for qualitative data
But
Time-consuming in arranging data in order
Difficult to arrange data for large number of observations
MODE
Mode is the value of variable which occurs most frequently.
For ungrouped data, check value that occurs most frequently.
For Grouped data Mode is located in the class with maximum
frequency
Mode = M
o
= L
Mo
+ w
d d
d
*
2 1
1
|
|
.
|

\
|
+

Where, L
Mo
= Lower limit of the Modal class
d
1
= Frequency of Modal class frequency of the class
preceding modal class
d
2
= Frequency of Modal class frequency of the class
succeeding modal class
w = Width of Modal class
MODE
Advantages & Disadvantages of Mode
Can be used for qualitative data
Not affected by extreme values
In case of symmetrical distribution, Mean, Median & Mode
coincide.
If the distribution is moderately asymmetrical, then
3 (Mean- Median) = Mean Mode
Or 3 Median = 2 Mean + Mode
GEOMETRIC MEAN
Geometric Mean =
n
values all of product

More applicable in calculating Growth rate over years
Growth Factor = 1 + Growth Rate/100
And Geometric Mean = Average Growth Factor

HARMONIC MEAN
H. M. is the Reciprocal of Arithmetic Mean of a series formed by
reciprocals of given values.
H.M. =
n
x x x
N
1
...
1 1
2 1
+ + +

Ex. When equal distances are traveled at different speeds, the
average speed of total travel is given by harmonic Mean of all the
speeds.
Weighted Harmonic Mean WHM =

X W
W
/

Foe any set of positive values of variables
A. M. > G. M. > H. M.
A.M. x H.M. = (G.M.)
2

Appropriate Situations for
Use of various Averages
Arithmetic Mean
In depth study of the variable is needed
The variable is continuous and additive in nature
The data are in the interval or ratio scale
The distribution is symmetrical
Geometric Mean
The rate of growth, ratios and percentages are to be studied
The variable is of multiplicative nature
Harmonic Mean
The study is related to speed , time
Average of rates which produces equal effects are to be found
Appropriate Situations for
Use of various Averages
Median
The variable is discrete
There exists abnormal values
The distribution is skewed
The extreme values are missing
The characteristics studied are qualitative
The data are on the ordinal scale
Mode
The variable is discrete
There exists abnormal values
The distribution is skewed
The distribution is skewed
The characteristics studied are qualitative
Positional Averages
Lower Quartile Q
1
=
th
observation.

Upper Quartile Q
3
= 3
th
observation.
For grouped Data

Q
1
= L
1
+ Q
3
= L
3
+

L
1
= Lower boundary of first quartile class
L
3
= Lower boundary of third quartile class
N = Total cumulative frequency
f = Frequency of quartile class
h = Class interval (width)
c = cumulative frequency of the class just above the quartile
class
4
1 + N
4
1 + N
h
F
C N

4
1
h
F
C N

4
3
Percentile
They are values of the variables which divide
the total observations by an imaginary line
into two parts, expressed in percentage as 10
% and 90 %, etc.
It can be used for comparing one percentile
value of two samples/ populations
Percentile


0
20
40
60
80
100
120
7 8 9 10 11
Indian
American
MEASURE OF DISPERSION
One more Characteristic of Dataset is
How it is distributed?
How far each element is from Measure of Central
tendency
The Measures for this Dispersion are
RANGE
INTER-QUARTILE RANGE
QUARTILE DEVIATIONS
MEAN DEVIATION
VARIANCE
STANDARD DEVIATION
RANGE
Range is the difference between the value of the Smallest
observation & Largest observation present in the distribution.
RANGE = L S
L Largest Value S Smallest Value
For Grouped Data
RANGE = Upper Limit of Highest Class
Lower Limit of Lowest Class
Co-efficient of Range Range of weight in Kgs & Height in cms
are not comparable.
To have comparison a relative measure of Range called Co-
efficient of Range is defined as
Co-efficient of Range =
S L
S L
+

Merits & Limitations of Range
Merits
Simple to understand
Easy to calculate
Demerits
Not based on all the observations
Influenced by extreme values
Can not be computed for Frequency Distribution with
Open end class
No indication about Characteristics of distribution
within L & S.
Use of Range
For Quality Control

INTER-QUARTILE RANGE
Inter-quartile Range is the Range calculated
based on middle 50% of the observations.
INTER-QUARTILE RANGE = Q
3
Q
1
Q
1
, Q
2
, Q
3
are highest value in each of the
first three quartile.
QUARTILE DEVIATION
= (Q
3
Q
1
)/2

QUARTILE DEVIATION
Co-efficient of Quartile Deviation =
1 3
1 3
Q Q
Q Q
+

Lower Quartile Q
1
=
4
1 + N

th
observation.
Upper Quartile Q
3
= 3
4
1 + N

th
observation.
For grouped Data
Q
1
= L
1
+ h
F
C N

4
1

Q
3
= L
3
+ h
F
C N

4
3

QUARTILE DEVIATION
L
1
= Lower boundary of first quartile class
L
3
= Lower boundary of third quartile class
N = Total cumulative frequency
f = Frequency of quartile class
h = Class interval (width)
c = cumulative frequency of the class just
above the quartile class
Merits and Limitations of
Quartile Deviation
Merits
Can be used for Open-ended Class distribution
Better measure for highly skewed distribution or
distribution with extreme values
Limitations
Since it uses only 50 % observations, it can not be
considered as good measure
Q.D. is only positional and not real measure.

MEAN DEVIATION
This is Absolute Mean Deviation of each observation from Mean.
Absolute Mean Deviation =
N
x

for population, and
Absolute Mean Deviation =
n
x X

for sample
Where, x = value of observation
= The Mean of population
N = number of observations in population
x = sample mean
N = number of observations in sample
Mean Deviation
M. D. (about the mean x ) =

x x f
N
1

=

d f
N
1

X = mid-value of the class interval
f = corresponding frequency
d = deviation
Merits and De-merits of absolute Mean Deviation
- Simple and Easy
- More comprehensive as it depends on all observations
- True measure as it averages all deviations
But
- Less reliable as it ignores sign
- Not conducive to algebraic operation
- Not useful for open end class
VARIANCE
Here deviations are squared to make them positive.
Variance =
( )
N
x x

=
2
2
o
=
2
2
x
N
x

For grouped data,

( )
N
x
i
X
i
f

=
2
2
o
=
2
2
x
N
fx

f
i
= frequency of class and
X
i
= value of class mark
This is about population.
For sample, variance = s
2
=
( )
1
2

n
X X
=
1 1
2
2

n
X n
n
X

STANDARD DEVIATION
S.D.
=

Variance
= o
Properties of standard deviation
-

S.D. is independent of change of origin i.e. if all the
observation values are increased / decreased by a constant
quan tity, S.D. does not change.
-

S.D. is dependent on change of scale i. e. if each observation
value is multiplied / divided by a constant quantity, S.D. will
also be similarly affected.

STANDARD DEVIATION
- Combined S.D. of two or more groups (
12
o )
2 1
2
2 2
2
1 1
2
2 2
2
1 1
12
n n
d n d n n n
+
+ + +
=
o o
o

d
1
= x X
1
; d
2
= x X 2 and
( ) ( )
2 1 2 2 1 1
/ n n x n x n x + + =

Co-efficient of variation = S.D. / Mean
This is generally expressed in percentage.
Example
Calculate IQ of 50 boys from
the data given


= 91. 2





IQ Fre. Class-
mark(X)
f*X f*X
2
0-20 3 10 30 300
20-40 4 30 120 3600
40-60 3 50 150 7500
60-80 4 70 280 19600
80-100 13 90 1170 105300
100-120 12 110 1320 145200
120-140 8 130 1040 135200
140-160 3 150 450 67500
Total 50 4560 484200

=
f
X f
X
n
X n X f

2 2

=
97 . 36
50
68328
50
) 2 . 91 ( 50 484200
2
= =

=
RELATIVE DISPERSION
Absolute Measures are expressed in same
units as original data
To compare dispersion of data in different
units, Relative Measures of dispersion are
used
Relative Measures are Absolute measures
expressed as percentage of Measure of
Central tendency

SKEWNESS
The Measure of Central tendency and Measure of Dispersion
are characteristics of Frequency Distribution
Third important characteristic of Frequency Distribution is its
Shape
A Frequency Distribution is said to be Symmetrical when the
values of the variable equidistant from mean have equal
frequencies
When F.D. is not Symmetrical, it is said to be Asymmetrical or
Skewed
Amy deviation from symmetry is called Skewness
Skewness may be Positive or Negative
SKEWNESS
Positively skewed
If the frequency curve has a longer tail towards
the higher values of X
In positively Skewed distribution Mode is
minimum and Mean is maximum out of Mean,
Median and Mode.
Negatively skewed
If the frequency curve has a longer tail towards
the lower values of X
In Negatively skewed distribution, mean is
minimum and Mode is maximum

Positively Skewed Negatively skewed
Measures of Skewness
Pearsons first measure
Skewness = (Mean Mode) / S.D.

Pearsons second measure
Skewness = 3(Mean Median) / S.D.

Bienayme Chebyshevs Rule
It states that whatever may be the shape of distribution, at
least 75 % of the values in the population will fall within + 2
standard deviation from the mean and at least 89 per cent will
fall within + 3 standard deviation from the mean.
The rule states that the percentage of the data observation
lying within +/- k standard deviation of the mean is at least
(1 1 / k
2
)*100
In case of symmetrical bell-shaped distribution, we can say that
Approximately 68 % of the observations in the population fall
within +/- 1 s.d. from the mean
Approximately 95 % of the observations in the population fall
within +/- 2 s.d. from the mean
Approximately 99 % of the observations in the population fall
within +/- 3 s.d. from the mean