Statistic UNIT 1
Statistic UNIT 1
UNIT 1 – INTRODUCTION
1.1. Meaning and Definition of Statistics
The word ‘statistics’ has been derived from the Latin word ‘status’. In the plural sense it means a
set of numerical figures called ‘data’ obtained by counting, or, measurement. In the singular
sense it means collection, classification, presentation, analysis, comparison and meaningful
interpretation of ‘raw data’. It has been defined in different ways by different authors. Croxton
and Cowdon defined it as ‘the science which deals with the collection, analysis and interpretation
of numerical data’. In our daily life we use numerical facts and statements to take decision. In
this usage, the term statistics refers to numerical facts such as averages, medians, percents, and
index numbers that help us understand a variety of business and economic situations. However,
as you will see, the field, or subject, of statistics involves much more than numerical facts. In a
broader sense, statistics is defined as the art and science of collecting, analyzing, presenting, and
interpreting data. Particularly in business and economics, the information provided by collecting,
analyzing, presenting, and interpreting data gives managers and decision makers a better
understanding of the business and economic environment and thus enables them to make more
informed and better decisions. In this text, we emphasize the use of statistics for business and
economic decision making.
Plural sense: Statistics are collection of facts (figures). This meaning of the word is widely used
when reference is made to facts and figures on sales, employment or unemployment, accident,
weather, death, education, etc. In this sense the word Statistics serves simply as data. But not all
numerical data are statistics. In order for the numerical data to be identified as statistics, it must
possess certain identifiable characteristics. Some of these characteristics are described as
follows:
Plural sense: Statistics are collection of facts (figures). This meaning of the word is widely used
when reference is made to facts and figures on sales, employment or unemployment, accident,
weather, death, education, etc. In this sense the word Statistics serves simply as data. But not all
numerical data are statistics. In order for the numerical data to be identified as statistics, it must
possess certain identifiable characteristics. Some of these characteristics are described as
follows:
1. Statistics are aggregate of facts. Single or isolated facts or figures cannot be called
statistics as these cannot be compared or related to other figures within the same framework.
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Statistics for Management I, Unit One, Handout By Abdi M.2015/2023
Oda Bultum University College of business & Economics Department of Management
Accordingly, there must be an aggregate of these figures. For example, if a person says that
“I earn Birr 30,000 per year”, it would not be considered as statistics.
2. On the other hand if we say that the average salary of a professor at our university is Birr
30,000 per year, then this would be considered as statistics since the average has been
computed from many related figures such as yearly salaries of many professors.
3. Statistics, generally, are not the outcome of a single cause but a ected by multiple causes.
There are a number of forces working together that a ect the facts and figures. For example,
when we say the crime rate in a certain city has increased by 15% over the last year, a
number of factors might a ect these change. These factors may be general level of economy
such as economic recession, unemployment rate, extent of use of drugs, extent of legal e
ectiveness and so on. While these factors can be isolated by themselves, the e ect of these
factors cannot be isolated and measured individually. Similarly, a marked increase in food
grain production in a certain country may have been due to combined e ect of many factors
such as better seeds, more extensive use of fertilizers, governmental and banking support,
adequate rainfall and so on. It is generally not possible to segregate and study the e ect of
each of these forces individually.
4. Statistics are numerically expressed. All statistics are stated in numerical figures only.
Qualitative statements cannot be called statistics. For example, such qualitative statements
as ‘Ethiopia is a developing country’ or ‘Jack is very tall’ would not be considered as
statistical statements. On the other hand, comparing per capita income of Ethiopia with that
of Kenya would be considered statistical in nature. Similarly, Jack’s height in numbers
compared to average height in Ethiopia would also be considered as statistics.
5. Statistical data are collected in a systematic manner for predetermined purpose. The
purpose and objective of collecting pertinent data must be clearly defined, decided upon and
determined prior to data collection. Also the proce-dures for collecting data should be
predetermined and well planned. These would facilitate the collection of proper and relevant
data.
6. Statistics are enumerated or estimated according to reasonable stan-dard of accuracy.
There are basically two ways of collecting data. One is the actual counting or measuring,
which is the most accurate way. The second way of collecting data is by estimation and is
used in situations where actual counting or measuring is not feasible or where it involves
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Statistics for Management I, Unit One, Handout By Abdi M.2015/2023
Oda Bultum University College of business & Economics Department of Management
prohibitive costs. Estimates, based on samples cannot be as precise and accurate as actual
counts or measurements,
Singular sense: Statistics is the science that deals with the methods of data collection, organization,
presentation, analysis and interpretation of data. It refers the subject area that is concerned
with extracting relevant information from available data with the aim to make sound
decisions. According to this meaning, statistics is concerned with the development and
application of methods and techniques for collecting, organizing, presenting, analyzing and
interpreting statistical data.
According to the singular sense definition of statistics, a statistical study (statistical inves-tigation)
involves five stages: collection of data, organization of data, presentation of data, analysis of data
and interpretation of data.
1. Collection of Data: This is the first stage in any statistical investigation and involves the
process of obtaining (gathering) a set of related measurements or counts to meet
predetermined objectives. The data collected may be primary data (data collected di-rectly by
the investigator) or it may be secondary data (data obtained from intermediate sources such as
newspapers, journals, o cial records, etc).
2. Organization of Data: It is usually not possible to derive any conclusion about the main
features of the data from direct inspection of the observations. The second pur-pose of
statistics is describing the properties of the data in a summary form. This stage of statistical
investigation helps to have a clear understanding of the information gath-ered and includes
editing (correcting), classifying and tabulating the collected data in a systematic manner.
Thus, the first step in the organization of data is editing. It means correcting (adjusting)
omissions, inconsistencies, irrelevant answers and wrong compu-tations in the collected data.
The second step of the organization of data is classification that is arranging the collected
data according to some common characteristics. The last step of the organization of data is
presenting the classified data in tabular form, using rows and columns (tabulation).
3. Presenting of Data: The purpose of data presentation is to have an overview of what the data
actually looks like, and to facilitate statistical analysis. Data presentation can be done using
Graphs and Diagrams which have great memorizing e ect and facilitates comparison.
4. Analysis of Data: The analysis of data is the extraction of summarized and com-prehensive
numerical description in order to reach conclusions or provide answers to a problem. The problem
may require simple or sophisticated mathematical expressions.
5. Interpretation of Data: This is the last stage of statistical investigation. Interpre-tation
involves drawing valid conclusions from the data collected and analyzed in order to make
rational decision.
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Statistics for Management I, Unit One, Handout By Abdi M.2015/2023
Oda Bultum University College of business & Economics Department of Management
Statistics is defined as the art and science of collecting, analysing, presenting, and
interpreting data.
Statistical methods date back at least to the 5th century BC. The earliest known writing on
statistics appears in a 9th century book entitled Manuscript on Deciphering Cryptographic
Messages, written by Al-Kindi. In this book, Al-Kindi provides a detailed description of how
to use statistics and frequency analysis to decipher encrypted messages. This was the birth of
both statistics and cryptanalysis, according to the Saudi engineer Ibrahim Al-Kadi.
The Nuova Cronica, a 14th century history of Florence by the Florentine banker and official
Giovanni Villani, includes much statistical information on population, ordinances, commerce,
education, and religious facilities, and has been described as the first introduction of statistics
as a positive element in history. Its mathematical foundations were laid in the 17th century
with the development of the probability theory by Blaise Pascal and Pierre de Fermat.
Probability theory arose from the study of games of chance. The method of least squares was
first described by Carl Friedrich Gauss around 1794. The use of modern computers has
expedited large-scale statistical computation, and has also made possible new methods that
are impractical to perform manually.
However, the terms statistics means the study of the collection, organization, analysis,
interpretation, and presentation of data. It deals with all aspects of this, including the
planning of data collection in terms of the design of surveys and experiments. A statistician is
someone who is particularly well-versed in the ways of thinking necessary to successful
applies statistical analysis. Such people often gain experience through working in any of a
wide number of fields. A discipline called mathematical statistics studies statistics
mathematically.
1.2. Classification of Statistics
In applying statistics to a scientific, industrial, or societal problem, it is necessary to begin
with a population or process to be studied. Populations can be diverse topics such as "all
persons living in a country" or "every atom composing a crystal". A population can also be
composed of observations of a process at various times, with the data from each observation
serving as a different member of the overall group. Data collected about this kind of
"population" constitutes what is called a time series. For practical reasons, a chosen subset of
the population called a sample is studied—as opposed to compiling data about the entire
group (an operation called census). Once a sample that is representative of the population is
determined, data is collected for the sample members in an observational or experimental
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Statistics for Management I, Unit One, Handout By Abdi M.2014/2021
Oda Bultum University College of business & Economics Department of Management
setting. This data can then be subjected to statistical analysis, serving two related purposes:
description and inference.
A.Descriptive statistics summarize the population data by describing what was observed in
the sample numerically or graphically. Numerical descriptors include mean and standard
deviation for continuous data types (like heights or weights), while frequency and percentage
are more useful in terms of describing categorical data (like race).
B. Inferential statistics uses patterns in the sample data to draw inferences about the
population represented, accounting for randomness. These inferences may take the form of:
answering yes/no questions about the data (hypothesis testing), estimating numerical
characteristics of the data (estimation), describing associations within the data (correlation)
and modelling relationships within the data (for example, using regression analysis).
Inference can extend to forecasting, prediction and estimation of unobserved values either in
or associated with the population being studied; it can include extrapolation and interpolation
of time series or spatial data, and can also include data mining.
1.3 Classification of variables
Variable is any phenomena or an attribute that can assume di erent values. The most impor-
tant single distinguishing feature of a variable is that it varies; that is, it can take on di erent
values. Based on the values that variables assume, variables can be classified as
1. Qualitative variables: A qualitative variable has values that are intrinsically
nonnumerical (categorical)
Example: Gender, Religion, Color of automobile, etc.
2. Quantitative variables: A quantitative variable has values that are intrinsically nu-merical.
Example: Height, Family size, Weight, etc.
1.4 Importance of variables
To reduce and summarize masses of data and to present facts in numerical and definite form.
Statistics condenses and summarizes a large mass of data and presents facts into a few
presentable, understandable and precise numerical figures. The raw data, as is usually
available, is voluminous and haphazard. It is generally not possible to draw any conclusions
from the raw data as collected. Hence it is necessary and desirable to express these data in a
few numerical values.
To facilitate comparison: statistical devises such as averages, percentages, ratios, etc are used
for this purpose.
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Statistics for Management I, Unit One, Handout By Abdi M.2014/2021
Oda Bultum University College of business & Economics Department of Management
For formulating and testing hypotheses: For instance, hypothesis like whether a new
medicine is e ective in curing a disease, whether there is an association between
variables can be tested using statistical tools.
For forecasting: Statistical methods help in studying past data and predicting future
trends.
1.5. Application of Statistics
Statistics is the branch of science that has application in multiple disciplines and its
importance ranges from military operations to medical science and business applications to
space studies. However, the application of statistics in business and economics cannot be
undermined. In today’s global business and economic environment, anyone can access vast
amounts of statistical information. The most successful managers and decision makers
understand the information and know how to use it effectively. In this section, we provide
examples that illustrate some of the uses of statistics in business and economics.
Accounting: Public accounting firms use statistical sampling procedures when conducting
audits for their clients. For instance, suppose an accounting firm wants to determine whether
the amount of accounts receivable shown on a client’s balance sheet fairly represents the
actual amount of accounts receivable. Usually the large number of individual accounts
receivable makes reviewing and validating every account too time-consuming and expensive.
As common practice in such situations, the audit staffs select a subset of the accounts called a
sample. After reviewing the accuracy of the sampled accounts, the auditors draw a conclusion
as to whether the accounts receivable amount shown on the client’s balance sheet is
acceptable.
Finance: Financial analysts use a variety of statistical information to guide their investment
recommendations. In the case of stocks, the analysts review a variety of financial data
including price/earnings ratios and dividend yields. By comparing the information for an
individual stock with information about the stock market averages, a financial analyst can
begin to draw a conclusion as to whether an individual stock is over- or underpriced. For
example, Barron’s (February 18, 2008) reported that the average dividend yield for the 30
stocks in the Dow Jones Industrial Average was 2.45%. Altria Group showed a dividend
yield of 3.05%. In this case, the statistical information on dividend yield indicates a higher
dividend yield for Altria Group than the average for the Dow Jones stocks. Therefore, a
financial analyst might conclude that Altria Group was underpriced. This and other
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Statistics for Management I, Unit One, Handout By Abdi M.2014/2021
Oda Bultum University College of business & Economics Department of Management
information about Altria Group would help the analyst make a buy, sell, or hold
recommendation for the stock.
Marketing: Electronic scanners at retail checkout counters collect data for a variety of
marketing research applications. For example, data suppliers such as ACNielsen and
Information Resources, Inc., purchase point-of-sale scanner data from grocery stores, process
the data, and then sell statistical summaries of the data to manufacturers. Manufacturers
spend hundreds of thousands of dollars per product category to obtain this type of scanner
data. Manufacturers also purchase data and statistical summaries on promotional activities
such as special pricing and the use of in-store displays. Brand managers can review the
scanner statistics and the promotional activity statistics to gain a better understanding of the
relationship between promotional activities and sales. Such analyses often prove helpful in
establishing future marketing strategies for the various products.
Production: Today’s emphasis on quality makes quality control an important application of
statistics in production. A variety of statistical quality control charts are used to monitor the
output of a production process. In particular, an x-bar chart can be used to monitor the
average output. Suppose, for example, that a machine fills containers with 12 ounces of a soft
drink. Periodically, a production worker selects a sample of containers and computes the
average number of ounces in the sample. This average, or x-bar value, is plotted on an x-bar
chart. A plotted value above the chart’s upper control limit indicates overfilling, and a plotted
value below the chart’s lower control limit indicates under filling. The process is termed “in
control” and allowed to continue as long as the plotted x-bar values fall between the charts’s
upper and lower control limits. Properly interpreted, an x-bar chart can help determine when
adjustments are necessary to correct a production process.
Economics: Economists frequently provide forecasts about the future of the economy or
some aspect of it. They use a variety of statistical information in making such forecasts. For
instance, in forecasting inflation rates, economists use statistical information on such
indicators as the Producer Price Index, the unemployment rate, and manufacturing capacity
utilization. Often these statistical indicators are entered into computerized forecasting models
that predict inflation rates. Applications of statistics such as those described in this section are
an integral part of this text. Such examples provide an overview of the breadth of statistical
applications. To supplement these examples, practitioners in the fields of business and
economics provided chapter-opening Statistics in Practice articles that introduce the material
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Statistics for Management I, Unit One, Handout By Abdi M.2014/2021
Oda Bultum University College of business & Economics Department of Management
covered in each chapter. The Statistics in Practice applications show the importance of
statistics in a wide variety of business and economic situations.
Characteristics of Statistics
A. Statistics studies a group but not an individual.
B. Statistics cannot be applied to study the qualitative phenomenon.
C. Statistical decisions are true on an average only. For better results a large number of
observations are required.
D. Statistical data collected for a given purpose are best suitable only for that purpose.
E. A statistical enquiry has four phases:
i. Collection of data
ii. Classification and tabulation of data
iii. Analysis of data
iv. Interpretation of data.
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