Origin, Development & Application Of Statistics In Business
Centuries ago, the need of states to collect data, was on their people and economies in
order to administer them. Its meaning broadened in the early 19th century to include
the collection and analysis of data in general.
Today statistics is widely employed in government, business, in the natural and social
sciences. Statistics has an interesting history of development. Before becoming a science
in its modern sense, statistics had a long history of development. Numerical data
relating to particular events were being used already in antiquity. The origin of
descriptive statistics can be traced to ancient Rome and China, the Babylonians and
Egyptians who carried out census in 4500-3000 B.C. It is known that in 5000 BC a
population census took place in China and registration of property was conducted in
ancient Rome. Roman Emperor Augustus (27 B.C.-17 A.D.) conducted surveys on
births and deaths of the citizens of the empire as well as the amount of livestock each
owned and the crops each harvested. In order to use this information, the Romans had
to develop methods of collecting, organizing, and summarizing data.
In the middle ages, census of population, household goods and land were conducted.
During the fourteenth century, people began keeping records on births, deaths, and
accidents in order to determine insurance rate.
The first scientific school which was much closer to the modern understanding of
statistics was an English school of political arithmetic. Its founders were William Petty
(1623 - 1687) and John Graunt (1620 - 1674). John Graunt was one of the
first demographers. Graunt, along with William Petty, developed early human
statistical and census methods that later provided a framework for modern
demography. He is credited with producing the first life table, giving probabilities of
survival to each age. Graunt is also considered as one of the first experts in
epidemiology, since his famous book was concerned mostly with public health statistics.
He studied the number of males and females born. He discovered that slightly more
males were born than females, but that more males than females died during the first
year of life. The new science of probability and statistics was mainly used in astronomy
at the time, to get a handle on measurement errors with the method of least squares.
Quetelet was among the first who attempted to apply it to social science, planning what
he called a "social physics". His goal was to understand the statistical laws underlying
such phenomena as crime rates, marriage rates or suicide rates. Adolphe Quetelet was a
great organizer of statistical science and practice. He organized the International
Statistical Congresses. There were 9 congresses from 1853 till 1975. They gathered
statisticians of the world to discuss and develop a unified state statistical methodology.
Starting from those times national statistical procedures had been conducted by
governments of corresponding countries.
Mathematical trend in statistics was developed in England by
Francis Galton (1822 - 1911)
Karl Pearson (1857 - 1936),
William Sealy Gosset (1876 - 1937), better known under the pseudonym Student,
Ronald Fisher (1890 - 1962),
Wesley Clair Mitchell (1874 - 1948) and others
Gregor Mendel (1822-1884) used probability and statistics in his studies of
heredity at a monastery in Brunn;
Sir Francis Galton (1822-1911) did correlation studies using peas, moths, dogs, and
humans. Sir Ronald Fisher (1890-1962) developed statistical methods in inferential
techniques, experimental design, estimation, and analysis of variance. Many new
statistical methods have been developed since 1900, and new techniques in research
and statistics are being studied and perfected each year. Because of its origins in
government and its data-centric world view, statistics is considered to be not a
subfield of mathematics but rather a distinct field that uses mathematics. Its
mathematical foundations were laid in the 17th and 18th centuries with the
development of probability theory. The method of least squares was invented
around the turn of the 19th century by several authors. Since then new techniques of
probability
and
statistics
have
been
in
continual
development.
Modern computers have expedited large-scale statistical computation, and have also
made possible new methods that would be impractical to perform manually.
APPLICATIONS OF STATISTICS IN BUSINESS AND MANAGEMENT
1. Marketing: Statistical analysis is frequently used in providing information for
making decision in the field of marketing. First it is necessary to find out what
can be sold and then to evolve suitable strategy, so that the goods reach the
ultimate consumer. A skill full analysis of data on production, purchasing power,
man power, habits of competitors, habits of consumer, transportation cost, etc,
should be considered to take any attempt to establish a new market.
2. Production: In the field of production, statistical data and methods play a very
important role. The decision about what to produce, how to produce, when to
produce, for whom to produce, is based largely on statistical analysis.
3. Finance: The
financial
organization
discharging
their
finance
function
effectively depend very heavily on statistical analysis.
4. Banking: Banking institutes have found it increasingly necessary to establish
research department within their organization for the purpose of gathering and
analysis information, not only regarding their own business but also regarding
general economic situation and every segment of business in which they may
have interest with the help of statistical analysis.
5. Investment: Statistics greatly assists investors in making clear and valued
judgment in his investment decision in selecting securities which are safe and
have the best prospects of yielding a good income.
6. Purchase: The purchase department in discharging their function makes use of
statistical data to frame suitable purchase policies such as what to buy, what
quantity to buy, what time to buy, where to buy and for whom to buy.
7. Accounting: Statistical data are also employed in accounting particularly in
auditing function, the technique of sampling and destination is frequently used.
8. Control: The management control process combines statistical and accounting
method in making the overall budget for the coming year including sales,
materials, labour and other costs and net profits and capital requirement.
9. Performance Management: Statistics has many applications in business, such as in a
manager's role in performance management. A manager collects data about
employee productivity, such as the number of tasks completed or the number of
units produced. He must analyze data to find ways in which an employee should
improve to achieve maximum productivity. For example, if a manager finds that an
employee's number of finished outputs drops by 20 percent every Friday, he should
communicate with the employee, setting the expectation that her output will remain
above a minimum level every day of the work week.
10. Alternative Scenarios:Beyond managing the performance of his/her own workers, a
manager participates in joint decision making with other managers. Statistics help
the managers to compare alternative scenarios and choose the best option for the
company. The team must decide which software to use for automating the customer
ordering process. They consider which software products have been successfully
used by competitors and choose the most popular one, or they might find how many
orders that an ordering system can process on an average daily. The team collects
performance data from software makers and independent sources, such as trade
magazines, to inform their purchasing decisions.
11. Data Collection: Collecting data to use in statistics, or summarizing the data, is only
an advantage in business if a manager uses a logical approach and collects and
reports data in an ethical manner. For example, he might use statistics to determine
if sales levels the company achieved for the last few products launched were even
close to projected sales levels. He might decide that the least-performing product
needs extra investment or perhaps the company should shift resources from that
product to a new product.
12. Research and Development: A company also uses statistics in market research and
product development, using different surveys, such as random samples of
consumers, to gauge the market for a proposed product. A manager conducts
surveys to determine if there is sufficient demand among target consumers. Survey
results might justify spending on developing the product. A product launch decision
might also include a break-even analysis, such as finding out what percentage of
consumers must try a new product for it to be successful.
Focusing on Big Picture
Statistical analysis of a representative group of consumers can provide a reasonably
accurate, cost-effective snapshot of the market with faster and cheaper statistics
than attempting a census of very single customer a company may ever deal with.
Making Connections
Statistics can point out relationships. A careful review of data can reveal links
between two variables, such as specific sales offers and changes in revenue or
dissatisfied customers and products purchased. Delving into the data further can
provide more specific theories about the connections to test, which can lead to more
control over customer satisfaction, repeat purchases and subsequent sales volume.
Ensuring Quality
Anyone who has looked into continuous improvement or quality assurance
programs, such as Six Sigma or Lean Manufacturing, understands the necessity for
statistics. Statistics provide the means to measure and control production processes
to minimize variations, which lead to error or waste, and ensure consistency
throughout the process. This saves money by reducing the materials used to make or
remake products, as well as materials lost to overage and scrap, plus the cost of
honouring warranties due to shipping defective products.
Considerations
Know what to measure, and manage the numbers; dont let the numbers do the
managing for you, or of you. Before using statistics, know exactly what to ask of the
data. Understand what each statistical tool can and cant measure; use several tools
that complement one another. For example, dont rely exclusively on an "average,"
such as a mean rating. Customers using a five-point scale to rate satisfaction wont
give you a 3.84; that may indicate how the audience as a group clustered, but its
also important to understand the width of the spread using standard deviation or
which score was used by the greatest number of people, by noting the mode. Finally,
double-check the statistics by perusing the data, particularly its source, to get a
sense of why the audiences surveyed answered the way they did.
Modern business management is more a Science than an Art. Ever increasing global
competition mandates business managers to address uncertainty by using scientific
methods and be Objective decision makers. Forecasting, planning, organizing and
decision making; some of the key activities of a manager intend better future for the
business. The only certainty about the future is its uncertainty. Even though one
cannot eliminate uncertainty, it is possible to measure uncertainty using Statistics:
manager can make informed decisions by using Statistical methods and Statistical
thinking. This calls for unravelling the power of Statistics for managers. Broadly,
knowledge of statistics helps a manager to describe the problem, identify and
evaluate alternative courses of action, estimate error, monitor processes and take
appropriate corrective actions to achieve optimum results.
Applications of Statistics for Managers
Both Descriptive and Inferential statistical methods find important place in business
management. To quote a few of the many applications across functions, a marketing
manager needs to gather and analyze a large amount of data pertaining to market
dynamics and target customers. Ideally, marketing strategy depends up on the
outcomes of a Market research, which involves statistical methods for collecting and
analyzing data, application of sampling techniques and evaluating the effect of
various marketing strategies.
A production manager would ideally use Statistical Process Control techniques to
improve productivity and quality. Knowledge and application of Control Charts,
Sampling techniques and Probability Distributions ensures better processes and
products. This also leads to the reduction in production cost and higher profits.
A HR manager would be interested in identifying the best approach to train
employees and evaluate the impact of training. There is a need to measure attrition
and understand the underlying factors.
For a Finance manager, crunching financial data and using financial techniques is
an integral part of day-to-day job. Knowledge of Statistics enhances competency and
proficiency of a manager as a researcher and therefore provides an edge.
In an era where Total Quality Management [TQM], Lean organization, Six- Sigma
are some of the buzz words, it is essential for a manager to be conversant with
Statistics. Also, in todays scenario, a graduate from B school is expected not just
to manage functional departments of a corporate house, but, be an intrapreneur.
He/she is expected to approach work with an entrepreneurial mind set.
Professionally trained and skilled graduates are encouraged to establish ventures,
create jobs and create value. In order to be entrepreneurial it is important to be able
to think out of box and be objective. In other words, one needs to nurture
Creative and Statistical thinking for success. Quantitative analysis aids in
providing an objective, factual underpinning of situations and responses. Analysis,
along with data, helps quantify the extent of problems and solutions in ways that
other information seldom can. Be it simple tools like Tables, Graphs, for
presentation and measures of Central Tendency, Dispersion, Association for analysis
of data, or complex techniques like multi-variate techniques, Big Data analysis,
Structural Equation Modeling, Statistical techniques have made their way into
corporate board rooms. This indicates the indispensability of Statistics for
managerial decisions.
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