Quantitative Techniques in Business

Contents
Statistics ........................................................................................................................................................ 2 Definition .................................................................................................................................................. 2 Importance of Statistics ................................................................................................................................ 3 In Business................................................................................................................................................. 3 In Accounting and Auditing ....................................................................................................................... 4 In Economics ............................................................................................................................................. 5 in Banks ..................................................................................................................................................... 6 in Management (Administration) ............................................................................................................. 7 in Health and Medicine ............................................................................................................................. 8 Natural Resources and Sciences ............................................................................................................... 9 Limitations of statistics ............................................................................................................................... 11

Quantitative Techniques in Business

STATISTICS
Statistics means to collect, represent and interpret data in a logical sequence. For example in your class different students must be having different heights, by seeing it is difficult to recognize, for this purpose statistics is used to conclude the average height of students. Then height of students can be shown through graphs, charts or frequency tables. Statistics is the way to arrange any info whether grouped or ungrouped in the form of frequency table, histogram, bar graph or frequency tables. Statistics is the study of the collection, organization, analysis, interpretation, and presentation of data. It deals with collection of data, presentation of data and interpretation and drawing of inferences from the data.

DEFINITION
Statistics is the branch of science which deals with collection, presentation, analysis and interpretation of numerical data. Very few people have a neutral opinion about statistics. When anyone hears the term statistics they either shiver with excitement or tremble with fear. Generally speaking, people do not like statistics and therefore they try to avoid it. In reality no businessman could afford to avoid or fear statistics as it is an integral process used by business people for making important activity decisions. This tool clearly provides business with information that is necessary for making sound business decisions.

Quantitative Techniques in Business

IMPORTANCE OF STATISTICS
IN BUSINESS
Statistics plays a significant part in successful business decisions. Any successful entrepreneur has to be especially sharp and correct when making business decisions. The entrepreneur should have a feeling for the market demand for the company's products and should therefore be able to identify what to produce products or services that will sell. The volume of sales may also be accurately estimated. Statistics will help entrepreneurs to align production according to the market demand. Utilizing business statistics the quality of the products may also be verified in a more scientific manner to save on measuring cost. Let us take the example of the sales force consisting of two sales persons. They report an average sales value of $3-00 and $10-00 per sale respectively. If the sales manager does not have access to more information and wants to calculate the average sales for the sales force as a whole he or she may (incorrectly) decide to calculate the average by adding the two numbers and dividing it by two. This calculation results in an average sales value per salesperson of $ 6-50 ($3 + $10 = 13 and 13 2 = $6-50). This answer sounds correct if one conveniently forgets that the $3 and $10 is already the average for each salesperson. But when the businessman actually calculates the sales of whole sales force, then answer may differ from previous answer. For a business manager utilizing statistics to base business decisions on may appear to be excessively scientific and some may even argue that they know their business well enough not to need an endless stream of numbers to base decisions on. The facts reveal that successful business managers more often than not makes use of statistics to base business decisions on. Utilizing statistically based facts can help ascertain the value of any given business activities. Research clearly indicates that managers who neglect to

Quantitative Techniques in Business

appreciate the importance of statistical analysis could easily be responsible for the financial failure of the business enterprises.

IN ACCOUNTING AND AUDITING

Statistics is very important in accounting profession due to it central role in the summarizing, presenting and reporting of accounting information for effective communication in an organization. Statistics and accounting both are very similar to each other regarding their uses, because both are tools of decision making. To take decision regarding average, standard and marginal you have to take help from statistics even if you are accountant. Accounting is impossible without exactness. But for decision making purpose, so much precision is not essential as the decision may be taken on the basis of approximation, know as statistics. The correction of the values of current assets is made on the basis of the purchasing power of money or the current value of it. Same is in auditing case. In auditing sampling techniques are commonly used. An auditor determines the sample size of the book to be audited on the basis of error. Not a whole lot, unless you get into the auditing end. When auditing a business, you often don't have the time to go through every entry. Knowledge of statistics is helpful in helping you decide what items to sample, how to sample, and how to interpret the reliability of the results. Nowadays, the audit wins more and more ground in the economic field. The audit is a field in development and improvement, thus, more and more users understand its importance. A bank may take a favorable or an unfavorable decision regarding the granting of a credit, according to the results of an audit. Although the decision could be favorable, in the favor of a credit, the bank could apply a higher charge, if according to the results of the audit it is found out that the financial situations have not been prepared correctly. An audit cannot be made on each document or operation performed by an audited

Quantitative Techniques in Business

Company, thus, certain statistical methods that should supply sufficient and significant data for the auditor to draw a clear conclusion are necessary.

The work of an auditor is complex. It starts from the planning and defining of an auditing Method, to the performance of the tests on the control mechanisms and the substantial Tests of the operations, to the performance of the analytical procedures and the tests of the balances details, to the finalization of the audit and the issue of an audit report.

The audit sample is used to facilitate as much as possible the work of an auditor. If the volume of the documents to be audited is impressive, besides the fact that the auditor should organize the audit as detailed as possible, he will not verify all the accounting documents. The sample will be represented by the application of the audit procedures for less than 100% of the elements of the balance of the accounts and the transactions of the company. For example, with statistics, you can say "a sampling of 1% of the salesperson expense account items shows a 98% chance that they're not padding their accounts by more than 8%."

IN ECONOMICS
In the field of Economics it is almost impossible to find a problem which does not require an extensive use of statistical data. Important phenomena in all branches of economics can be described, compared and correlated with the help of Statistics. Statistics of consumption tell us of the relative strength of the desire of a certain section of the people and its variations from time to time. By statistical analysis we can study the manner in which people spend their income over various items of expenditure, namely, food, clothing, house rent, etc. Statistics of production describe the wealth of a nation and compare it year after year showing thereby effect of changing economic policies and other factors on the level of production.

Quantitative Techniques in Business

So we can say that Economics largely depends upon statistics. National income accounts are multipurpose indicators for the economists and administrators. Statistical methods are used for preparation of these accounts. In economics research statistical methods are used for collecting and analysis the data and testing hypothesis. The relationship between supply and demands is studies by statistical methods, the imports and exports, the inflation rate, the per capita income are the problems which require good knowledge of statistics.

Statistics is used widely in economics to calculate Gross Domestic Product and Consumer Price Index. It is also used in research of stocks and analysis of economic models. Economic variables are calculated with the help of statistics. Surveys are extremely necessary to for economical equilibrium. These can be conducted with the help of statistics. Statistical analysis is a quantitative tool widely used within the economics field and is applied in a variety of ways such as determining the validity of economic theories through the analysis of empirical real-world data, clarifying cause-effect relationships between variables for the purpose of assisting in the formation of effective public policy, predicting the future behavior of relevant economic conditions for the purpose of reducing uncertainty in making business or public policy decisions, or finetuning mathematical models by incorporating actual data. Econometrics is the name of the field within economics which applies statistical analysis to economic problems.

IN BANKS
Statistics play an important role in banking. The banks make use of statistics for a number of purposes. Following are the uses of statistics in the banks due to which statistics plays important for the banks. 1. The banks work on the principle that all the people who deposit their money with the banks do not withdraw it at the same time. The bank earns profits out of these deposits by lending to others on interest. The bankers use statistical approaches

Quantitative Techniques in Business

based on probability to estimate the numbers of depositors and their claims for a certain day. 2. In banking, statistics is used to provide the aggregate financial information along with structural data that is the number of institutions and branches etc. 3. Statistics can also be used to calculate the percentages of different people using the several facilities in banking. 4. If any bank wants to implement any new policy or anything new then they conduct an institutional by state-wise, rural and urban, educated or uneducated, female and male and so on. Based on the information gathered Bank can choose which place we can get good response. 5. Again based on the probability theory banks decided that how many peoples can deposit in our bank and how long, and how much amount. Based on this they provide loan and deposit in other institutional finance and borrowing shares. 6. Based on statistics banks can compare with other banking sectors and find future growth.

IN MANAGEMENT (ADMINISTRATION)
Statistics play very important role in business management and administration. Management has to take many decisions in very critical situation. Management takes help from the statistics good decision making. Following are the points which explain the

importance of statistics in management. 1. To increase the efficiency of operation of business statistics tools are used. 2. Management makes different researches within the organization to solve problems. Statistics help to gather data and to get final results. 3. If management wants to implant any new policy within the organization management first conduct research to check the feasibility of plan which cannot helpful without statistics

Quantitative Techniques in Business

4. Financial manager of the organization measure risk of project before investing in project with the help of statistics. 5. The statistics can also afford leadership an unbiased outlook of the market to avoid building strategy on unconfirmed presupposition. 6. Statistics can provide objective goals with stand-alone figures as well as hard evidence to validate positions are provide a level of certainty to direction to take the company.

IN HEALTH AND MEDICINE

Medical statistics deals with applications of statistics to medicine and the health sciences, including epidemiology, public health, forensic medicine, and clinical research. In medicine, through the proper use of stat you can observe how much effective a particular drug over a particular disease and thus you can be more accurate in choosing your decision. Many pioneering medical discoveries such as cures for infectious diseases were found by doctors with an interest in statistics, highlighting the increasing importance of statistics in medicine today. The presence of statistics can be observed in many fields of health care and medicine, such as genetics where it is implemented to determine possible indicators of genetic abnormalities, such as birth defect and aging. It is also used in clinical trials for public health to diagnose disease, find new ways in which to prevent disease, prolong life, and promote health. Epidemiology uses statistics to calculate cancer incident rates, monitor disease outbreaks and monitor changes in health-related behaviors such as smoking and physical activity. Also, statistics is used in pharmacy to work in drugs discovery and development and to ensure the validity and accuracy of findings at all stages of the process. Medical statistics provide useful information about, for example, incidence of disease (epidemiology) versus prevalence, transmission rates of communicable infections,

Quantitative Techniques in Business

clustering of diseases, mortality rates and so on. Statistics can be used to plan for interventions, including the number and type of staff who need to be deployed to an area, the funds and other physical resources which need to be attributed to deal with what is occurring. Medical statistics are vital for clinical research, forensic medicine and public health.

NATURAL RESOURCES AND SCIENCES

In Agriculture: Statistics in agriculture are of great importance in a variety of areas; one of the most important of these is to ascertain the volume of crop that needs to be produced, based on the output and demand of the previous year. The quality of crops is also important when it comes to statistics, as the better crops will obviously have a larger market, so the fact that some crops are better than others enables agriculturists to focus on these crops. The quality and the number of livestock are also covered when analyzing the statistics of agriculture, and the same principles apply. The demand and previous year's output should be taken into account and the statistics are the most effective way to monitor these factors. Improvement in production is another factor that can be taken into account, as the cheaper it is to produce a quality product, the higher the margin of profit will be. In Pakistan, the Pakistan Bureau of Statistics is in charge of monitoring the statistics. The service looks at a number of different areas in regard to agriculture including: Facilities for livestock Facilities for dairy Crops The use of fertilizers and pesticides

Quantitative Techniques in Business

Fertilizer and pesticide use needs to be monitored; this is done by checking the usage on individual crops.

The service is also committed to educating the relevant people by producing regular publications which provide not only statistics but also useful information on regulations and new programs that are being introduced. In Chemistry: Statistics is too much important for Chemistry. It is especially useful in Chemistry research work. We widely use statistics terms i.e. mean, mode, median etc in making thesis. Without Statistics research work cannot be done goodly. Also statistics tables are helpful in research work when we need to show our results in a tabular form. Statistics lowers the work load and make our results more accurate. Scientist use statistics to not only analyze data to see if it is statically within certain tolerable error limits, to know how good your data is. To know how your technique is, if experimental error is ruled out, then one can determine the contribution of human error to an experiment. Reproducible data is at the heart of statistics as well, the more reproducible your measurements the lower your error, according to statistics.

One can learn the power of statistics so that he/she may design experiments around the expected statistics/error. You can approach a multi variable statistical analysis in many dimensions; this is called ANOVA, Analysis Of Variance between groups. In Biology: Statistics are an extremely important aspect of biology, in fact, they are necessary for many areas of science. When statistics are used in biology and applied to many biological topics, it is called 'Biostatistics'. Some of the most important reasons for statistics include:

Statistics are used to measure and analyze the findings and results from experiments and tests.

Quantitative Techniques in Business

Relationships and correlations can be assessed and discovered so the cause and effect can be established.

Without thorough analysis and the ability to convert findings into statistics that are then presented in any easily understood manner, experiments would be almost useless as the findings could be misunderstood.

Presenting the findings statistically ensures they are easier to interpret and take away some important knowledge from the findings.

LIMITATIONS OF STATISTICS
Statistics with all its wide application in every sphere of human activity has its own limitations. Some of them are given below: 1. Statistics is not suitable to the study of qualitative phenomenon: Since statistics is basically a science and deals with a set of numerical data, it is applicable to the study of only these subjects of enquiry, which can be expressed inters of quantitative measurements. As a matter of fact, qualitative phenomenon like honesty, poverty, beauty, intelligence etc., cannot be expressed numerically and any statistical analysis cannot be directly applied on these types of qualitative phenomenon. Nevertheless, statistical techniques may be applied indirectly by first reducing the qualitative expressions to accurate quantitative terms. For example, the intelligence of a group of students can be studied on the basis of their marks in a particular examination. 2. Statistics does not study individuals: Statistics does not give any specific importance to the individual items, in fact ideals with an aggregate of objects. Individual items, when they are taken individually do not constitute any statistical data and do not serve any purpose for any statistical enquiry. 3. Statistical laws are not exact:

Quantitative Techniques in Business

It is well known that mathematical and physical sciences are exact. But statistical laws are not exact and statistical laws are only approximations. Statistical conclusions are not universally true. They are true only on an average. 4. Statistics table may be misused: Statistics must be used only by experts; otherwise, statistical methods are the most dangerous tools on the hands of the inexpert. The use of statistical tools by the inexperienced and untraced persons might lead to wrong conclusions. Statistics can be easily misused by quoting wrong figures of data. As King says statistics are like clay of which one can make a God or Devil as one pleases. 5. Statistics is only, one of the methods of studying problem: Statistical method do not provide complete solution of the problems because problems are to be studied taking the background of the countries culture, philosophy or religion into consideration. Thus the statistical study should be supplemented by other evidences. Others: Often harder, more time consuming, &/or expensive Some variables cant be manipulated Difficult to control for all extraneous variables (hold them all constant) Difficult to make the experimental situation realistic Procedural mistakes or flawed sampling can make findings useless