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Importance of Statistics in Business

Importance of Statistics in Business – Business Statistics | Management Notes

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Importance of Statistics in Business

Statistics focuses on the study and manipulation of data, as well as gathering, documenting, reviewing, analyzing, and drawing conclusions from it.
The term statistics refers to the entire body of tools that are used to collect data, organize and interpret them, and, finally, draw conclusions from them.
For quantitative data to be useful, both statistical aspects need to be considered. We cannot know the right procedure to extract from data the information they contain if statistics, as a subject, is inadequate and has poor methodology.
Even if our data are deficient or inaccurate, we cannot reach the right conclusions if they are inadequate or insufficient.
In any business enterprise, statistical methods can be used for three major purposes. Among them are:
Importance of Statistics in Business

  • Operational planning

This may be done for special projects or for the recurring activities of a firm over a given period of time.

  • Setting standards

For instance, setting out standards for the size of employment, sales volume, product quality specifications, and production output.

  • Control

This involves comparing actual production with a norm or target established earlier. When production falls short of the target, it provides remedial measures so that such a lapse does not happen again.

The point to note is that, although these functions are separate in theory, in practice they are necessarily interrelated. Various authors have emphasized the importance of statistics in business.
Croxton and Cowden, for example, list several uses for statistics in business such as project planning, budgetary planning and control, inventory planning and control, quality control, marketing, production, and personnel administration.
In addition, they have specified certain areas where Statistics is extremely relevant. The author Irwing W. Burr describes a few areas where statistics can be extremely useful for an industrial organization, in a paper dealing with statistics in an organization. 

Customer wants and market research, design, development, production, quality control, packaging, transportation, sales and complaints, inventory, maintenance, and cost management, industrial engineering, and research.
Multitudinous statistical problems arise during the course of business operations. Consequently, one can do no more than highlight some of the most important ones to emphasize the importance of statistics in business.
A variety of uses can be made of statistics in the sphere of production, for instance. To ensure that quality goods are produced, statistical quality control methods are used.
By identifying and rejecting substandard or defective products, these methods ensure quality products. By using various methods of forecasting, sale targets can be fixed based on sales forecasts.
In analyzing the sales against the initial targets, we may find that one or more of the following factors account for the decreased performance:
  • by setting unrealistic targets
  • by underperforming salesmen
  • by increasing competition
  • by poor quality of the product.

Further research can be conducted on these factors.
Personnel management is another area where statistical methods can be applied. It refers to the fixing of wage rates, incentive norms, and performance appraisal of individual employees.
Productivity plays an important role here. The productivity bonus is awarded to workers based on the measurement of productivity. In order to increase industrial productivity, comparisons of wages and productivity are made.
To determine the effectiveness of a certain product, say a medicine, statistical methods could also be applied. A pharmaceutical company has developed a new medicine to treat bronchial asthma, for example.
The company wants to determine whether the medicine is effective before it is launched on the market. The experiment involves forming two comparable groups of asthmatics patients. 

The new medicine is given to one group for a specific period of time, while the other is treated with the usual medicines. For the duration of the specified period, records are maintained for both groups.
There are then differences in the recovery of each group that are analyzed to determine whether they are significant. When the statistical difference is significant, the new medicine is launched commercially.

Some of the other benefits of Statistics in Business are described in the below points:

  • Uniformity

The rendering of services must be uniform for any business to succeed. Regardless of the nature of the business, there are always ethical guidelines, laws, and even methods of operation.

With the help of Statistics, all these are encapsulated and stored as a reference. Statistics have an important role in business in that they are expressed as percentages, averages, mediums, and even raw numbers. A uniform method for calculating statistics must be used at every point.

  • Rational Decision Making

An enterprise can use statistical analysis to measure its performance and identify trends. By doing so, enterprises are able to make rational decisions, knowing that their decisions are grounded in facts and data, rather than vague assumptions. Through the statistical analysis of data and figures, better planning and predictions are possible.

The statistics of the business is of utmost importance when making a rational decision about any aspect of the business, so that the enterprise can examine the presentation of data and other information in a statistically meaningful way.

In the absence of well-defined statistics of operation over time, it seems impossible to gather all the data and information needed for making decisions.

  • Management Performance/Forecasting

With the proper skill to implement statistical methods, statistics has limitless applications in business and management. By managing work and employee performance efficiently, managers can increase the production capacity of any plant, or find the optimum production capacity, limit resource waste, etc.

Managers can use historical data, however, to analyze past successes and failures. This is known as “cause and effect analysis”.Managers use data mining and modeling techniques as well as predictive analytics to forecast future possibilities and trends based on historical data.

There’s more to it than just reporting what’s estimated to happen. Although predictive analytics can have a wide range of uses, fraud detection and security are just a few of the most common.

In particular, business statistics have limitations. The reason for this is that they only look at quantitative traits. Statisticians, then, are analysts who take numbers as factual statements.

This makes it impossible to analyze data that cannot be expressed numerically. Additionally, statistics takes aggregates rather than individuals into account.

Statistical laws are not always accurate as well. It is not possible to study the effect of these factors since statistics deals with characteristics that are affected by a large number of causes.

These limitations result in approximate rather than accurate results. Statistics can also be misused if data are placed on an inexperienced person, leading to wrong results.

Finally, it should be noted that only those who possess a fundamental understanding of statistical methodology can properly handle the data.

  • Organization and Presentation of Data

Every business processes data from sales, advertising, marketing, and other facets of its day-to-day activities. It is usually bulky and sensitive data, which needs to be organized and presented with care when needed.

Business statistics, however, provide great means of organizing and structuring these data systematically in order to present them in an effective manner. These statistics can even be used in the future to predict outcomes.

  • Historical Research of a Business

When researching the history of a company or business, the best method is to get statistics on the company/business including its activities.

A statistical approach to historical research enables nonspecialists to participate, contribute, and contribute. The most reliable data and information regarding a business can be found in Statistics.

Which of the following statistics are unbiased estimators of population parameters?

A) Sample variance used to estimate a population variance.
B) Sample proportion used to estimate a population proportion.
C) Sample mean used to estimate a population mean.
D) Sample range used to estimate a population range.
E) Sample standard deviation used to estimate a population standard deviation

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