INTRODUCTION TO STATISTICS

The word statistics is said to have been derived from the Latin word status, an Italian word Statista, a German word Statistik or French word Statistique, all referring to political state or statesmans art. In the beginning, the states were required to collect certain statistical information to meet their administrative needs. In the ancient periods, since the aims and objects of the use of statistics by the states were limited to the evaluation of population, its composition and wealth or poverty as the case may be, therefore, it was known as the science of kings, or science of statecraft or political arithmatic. Statistics in modern times is not a mere tool of state administration; it has become a fact of day-to-day life. It is considered as an airthemetic of human welfare. In the modern sense, the term statistics was used in 1749 by famous German scientist Gottfrid Achenwall who is also regarded as the Father of Statistics. MEANING OF STATISTICS To be more clear about the subject, we define it in the following two senses: 1. Statistics in plural sense. 2. Statistics in singular sense. I. Statistics in Plural Sense In its plural sense, statistics means numerical information or quantitative statements of facts. Definitions: (i) According to F.C. Mill, In its plural sense, statistics is a body of systematic knowledge used in dealing with the phenomenon that can be expressed numerically. (ii) (iii) Bowley defines it as, numerical statements of facts in any department of enquiry placed in relation to each other. According to Yule and Kendell, By statistics we mean quantitative data affected a marked extent by multiplicity of causes.

II. Statistics in Singular Sense Definitions: (i) According to Seligman, Statistics is the science which deals with the methods of collecting, classifying, presenting, comparing and interpreting numerical data, collected to throw some light on any sphere of enquiry. (ii) Tuttle too has defined statistics on the similar lines. According to Tuttle, Statistics is a body of principles and techniques of collecting, classifying, presenting, comparing and interpreting the quantitative data.

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Croxton and Cwoden defined statistics, as the collection, presentation, analysis and interpretation of numerical data . This definition is quite comprehensive and realistic.

Thus statistics in singular sense can be defined as collection, organization, presentation, analysis and interpretation of numerical facts. It is presented through the following diagram: Collection

Interpretation

Editing

Analysis

Presentation

Difference between Statistics in Singular and Plural Sense 1. In plural sense, it deals with numerical information but in singular sense it is a body of various methods and tools. 2. In plural sense, statistics is descriptive where as in singular sense it is applied science. 3. In plural sense, statistics is the collection of aggregates of facts where as in singular sense it tries to reach at certain conclusions on the basis of the analysis of collected facts. OBJECTS AND FUNCTIONS OF STATISTICS The function of statistics is to widen our knowledge of complex phenomena and to provide precision to our ideas that would otherwise remain vague and indeterminate. Our knowledge regarding national income, population, natural resources would remain incomplete in the absence statistics. Following are the main functions of statistics: 1. It presents data in a definite form: One of the important functions of statistics is to present data in a precise and definite form. Presenting data in definite form helps in understanding what is stated. It can be made clear with the help of following example. The unemployment in India is increasing, is simply a qualitative statement and appears to be less attractive. In comparison to this,

numerical statement like unemployment in India increased from 33 lakh in 1st plan to 250 lakh in 9th plan appears to be more appealing and convincing. 2. Precision of Facts: Statistics presents data in such a manner that they at once become intelligible. Statistical method presents a meaningful overall information from mass of data. Single figure in the form of averages and percentage can be remembered easily than a mass of data comprising hundreds. 3. Facilitates comparisons: Certain facts, by themselves may have no significance unless they are capable of being compared with similar facts of other places or at other periods of time. National income statistics of different periods help us to make comparisons so as to know whether standard of living has improved or not. 4. Formulation and testing of hypothesis: Statistical methods help in formulating and testing hypothesis and to develop new theories. Statistical methods help us to know whether the students have benefited from extra coaching or not, whether a particular drug cures a disease or not. 5. Helpful in Prediction: Statistical methods help us to forecast future events. For example if the State Electricity Board has to decide how much electricity is to be generated by 2006, it must know the expected demand for that year. It would be possible to know expected demand only after conducting a statistical investigation. This will also help in formulating suitable policies so as to meet the demand for electricity in 2006. 6. Enlarges individual experience and Knowledge: Statistics owes its importance to the fact that it helps in enlarging human knowledge. Without statistics many fields of knowledge would have remained closed to mankind. The greatest achievement of statistics in this regard in 20 th century is the landing of spacecrafts on moon. 7. Framing Policies: It is with the help of statistics that we can frame suitable policies and can make economic planning a success. If past statistics of exports and imports of manufacturing are available, we can only fix up the higher targets and can plan for their achievement. 8. In nutshell, we can briefly sum up the functions of statistics in the words of Robert W. Burgess, The fundamental gospel of statistics is to push back the domain of ignorance, rule of thumb, arbitrary or premature decisions, traditions and dogmatism and to increase the domain in which decisions are made and principles are formulated on the basis of analysed quantitative facts. DESCRIPTIVE AND INFERENTIAL STATISTICS 1. Descriptive statistics Descriptive statistics applied to the compiling and organizing of numerical data in the form of tables, graphs and various arrangements for the purpose of bringing out some desired relationship among the data. For example, a table listing the amount of rice, wheat, cotton, oil seeds produced by each of the states in the country for the year 2004 is

an example of this type of statistics, as is a pie chart showing how the tax rupee is divided to pay for the operation of different phases of government. 2. Inferential or inductive statistics It involves making forecasts, estimations or judgement about some larger group of data than that actually observed or about future happening based on a study of historical data. It projects from known to the unknown. Difference between Descriptive and Inferential statistics S.No. Descriptive Statistics Inferential Statistics 1. It describes various characteristics of It helps in explaining the general numerical information through tables, characteristics of population on the graphs and diagrams etc. basis of few random samples taken from it. 2. It brings out some hidden relationships It helps in approaching to unknown among given data through means, from some known facts, which is dispersion, correlation coefficient etc. otherwise directly impossible. 3. It describes various statistical It helps in making conclusions, techniques alongwith their estimation and predictions on the basis characteristics. of given few facts. 4. Its instruments for making descriptive Its instruments are interpolation and are tables, diagrams, graphs, measures extrapolation, analysis, methods of time of central tendency dispersion, series. Analysis, hypothesis testing etc. correlation coefficient etc. which help in forecasting the unknown facts. 5. It is a deductive approach to statistical It is an inductive approach to statistical reasoning. reasoning. SCOPE OF STATISTICS The scope of statistics is so vast and ever-increasing that not only it is difficult to define but also unwise to do so. the use of Statistics has permeated almost every facet of our lives. It is a tool of all sciences indispensable to research and intelligent judgment and has become a recognized discipline in its own right. There is hardly any field whether it be trade, industry or commerce, economics, biology, botany, astronomy, physics, chemistry, education, medicine, sociology, psychology, or technology where statistical tools are not applicable. In fact, the greatest victory of mankind of the 20th century, that of landing Apollo 11 on the moon, would not have been a success in the absence of statistical help. The applications of statistics are so numerous that it is often remarked Statistics is what statisticians do. Governments, businessmen and individuals collect statistical data required to carry out their activities efficiently and effectively. Let us examine a few fields in which Statistics is applied. 1. Statistics and State

Since ancient times the ruling kings and chiefs have relied heavily on statistics in framing suitable military and fiscal policies. Most of the statistics such as that of crimes, military strength, population, taxes, etc. that were collected by them were a by-product of administrative activity. In recent years of functions of the State have increased tremendously. The concept of a State has changed from that of simply maintaining law and order to that of a welfare State. Statistical data and statistical methods are of great help in promoting human welfare. Statistics today are not exclusively a by-product of administrative activity the State collects statistics on several problems. These statistics help in framing suitable policies. All Ministers and departments of the Government whether they be Finance, Transport, Defence, Railways, Food, Commerce, Post and Telegraph or Agriculture, depend heavily on factual data for their efficient functioning. For example, the Transport Department cannot solve the problems of transport in Delhi unless it knows how many buses are operating at present, what is the total requirement and therefore, how many additional buses be added to the existing fleet. Not only during peace times but during days of war also statistics are indispensable. In fact it is impossible to fight a war successfully in the absence of factual data about enemy strength. Statistics are so significant to the State that the government in most countries is the biggest collector and user of statistical data. Such data is of immense help to many institutions and research scholars who further process it and arrive at useful conclusions that help in decision-making. 2. Statistics in Business and Management The use of statistical methods in the solution of business problems dates almost exclusively to the 20th century. Applications of statistics pervade virtually every area of activity in business and industry such as production, financial analysis, distribution analysis, market research, research and development, manpower planning and accounting. The main focus of this text is to discuss various statistical techniques that are indispensable in analyzing and solving business problems and hence the justification for the book to be called Business Statistics. Under the present system where production is carried out on a large-scale, most of the goods are manufactured in anticipation of consumer demand. Producers and consumers are strangers to each other because it is almost impossible for the producer to know personally thousands and lakhs of consumers. The fact about consumer preferences and desires are not so easy to obtain or so simple to understand as in the earlier system. But since production is carried on in anticipation of demand, such information becomes more important than ever before. It is no longer possible for the owner to see how things are going and to remember each and every aspect of the business. It is also difficult for him to know all his employees personally. Hence with the trend towards large organization, it has become necessary for the executives to rely more and more on elaborate information systems instead of their intuition or mere observations. And it is here that statistical data and statistical methods play a very significant role. Availability of factual data about the operations of the business

is as essential as the availability of raw materials to a manufacturing plant or goods to a retail establishment. Through the aid of statistical reports, the executive can gain a summary picture of current operations which, improves his factual basis for making valid decisions affecting future operations. The following are some major activities of a typical, large and progressive organization which would indicate how statistics helps in the efficient discharge of various activities. (i) Marketing. Statistical analysis are frequently used in providing information for marketing decision. In the field of marketing, it is necessary first to find out what can be sold and then to evolve a suitable strategy so that goods reach the ultimate consumer. A skilful analysis of data on population, purchasing power, habits of people, competition, transportation cost, etc., should precede any attempt to establish a new market. Often such analysis will present difficulties which must be properly met before actually attempting to place goods in the market. The analysis may reveal that in certain areas where one thought of big market potential, there hardly exists any scope. In retail stores, wholesale houses and sales departments and manufacturing concerns, statistical records and analysis enable one to determine in advance, at a small cost, much that would be very costly if determined by actual experience. In building up and maintaining an extensive market, it is important to keep accurate records of its present and potential geographic distribution. Analysis of sales in relation to the distribution of population and purchasing power are especially important in establishing sales territories routing salesman and in order to know where to advertise and where to push sales. (ii) Production. In the field of production, statistical data and statistical methods play a very important role, the decision about what to produce, how much to produce, when to produce, for whom to produce is based largely on facts analysed statistically. Statistical tools are also of immense help in quality control, optimum inventory level and in dealing with labour problems, etc. Production manager looks at quality control data to decide when to make adjustments in a manufacturing process. (iii) Finance. The Financial Managers in discharging their finance function efficiently depend heavily on statistical analysis of facts and figures. Financial forecasts, breakeven analysis and investment decisions under uncertainty are but part of their activities. In the last three decades, sophisticated models dealing with inventories, cash balances and so on have been developed and

applied. These models involve application of several statistical concepts. The area of security analysis is also highly quantitative. (iv) Banking. Banking institutions have found it increasingly necessary to establish departments within their organizations for the purpose of gathering and analysing information, not only regarding their own operations, but on general economic conditions and on every line of business in which they might be directly or indirectly interested. Probably the banks, more than any other individual business, feel the direct effects of the conditions in every type of business and need to be constantly informed as to the trends in every line of activity. It reserves are influenced by money markets which are not local but which are national or international; its funds are influenced not only by the business conditions in the immediate vicinity but also by the conditions of business in areas far distant. In making loans, banks have to be particularly careful that they do not lend too much money when business is dangerously inflated. In almost every period of hard times some banks have failed because they did not correctly analysed the general business situation or the conditions in individual concerns which had over-expanded. In all the problems mentioned above, the bankers use the objective analysis furnished by statistics and then temper their decisions on the basis of qualitative information. (v) Investment. Statistics greatly assists investor in making clear and valued judgement in his investment decision in selecting securities which are safe and which have the best prospects of yielding a good income. Such investigations assist in determining whether to buy, to sell or to do neither. On the basis of these statistical guides investors purchase securities when they are low, hold them for a few years until they are high and then sell them and hold the proceeds until they can again but at low figures. In this way, without any marginal purchases but by buying outright high grade dividend-paying securities, investors have built up substantial fortunes with relatively little risk. The investment banker is one of the greatest users of statistics he must accurately distinguish between good and bad securities. To do so, he should not only have a clear understanding of the present situation of the money and security markets and a definite knowledge of the actual condition in the different industries but also have a fairly clear conception of what will be the most probable future conditions in various industries. (vi) Purchase. The purchase department in discharging its functions makes use of statistical data to frame suitable purchase policies such as from where to buy, how much to buy, at what time to buy and at what price to buy.

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Accounting. Statistical methods are also employed in accounting. In particular, the auditing functions makes frequent application of statistical sampling and estimation procedures, and the cost account uses regression analysis. The accountant collects data on historical costs in the course of auditing a companys financial records. Control. The management control process combines statistical and accounting methods in making the overall budget for the coming year including sales, material, labour and other costs, and net profits and capital requirements. It usually maintains a standard cost system for controlling costs, and setting prices of products. Credit. The credit department performs statistical analysis to determine how much credit to extend to various customers. In the formulation of future credit policy the characteristics of those who have paid and those who have defaulted are kept in mind. Personnel. The personnel department frames personnel policies based on facts. It makes statistical studies of wage rates, incentive plans, cost of living, labour turnover rates, employment trends, accident rates, employee grievances, performance appraisal, training programmes, etc. Such studies help the personnel department in the process of manpower planning. Research and Development. Many big organizations have research and development departments which are primarily concerned with finding out how existing products can be improved; what new product lines can be added and how the optimal use of resources made. In the absence of factual data it is almost impossible to carry out fruitful research and development programmes.

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3. Statistics and Economics In the year 1890, Prof. Alfred Marshall, the renowned economist observed that Statistics are the straw out of which I, like every other economists, have to make bricks. This proves the significance of statistics in economics. Economics is concerned with the generation and distribution of wealth as well as with the complex institutional set-up concerned with the consumption, saving and investment of income. Statistical data and statistical methods are of immense help in the proper understanding of the economic problems and in the formation of economic policies. In fact, these are the tools and appliances of an economists laboratory. For example, what to produce, how to produce and for whom to produce these are the questions that need a lot of statistical data in the absence of which it is not possible to arrive at correct decisions. Statistics of production help in adjusting the supply of demand; Statistics of consumption enable us to find out the way in which people of different strata of society spend their income. Such statistics are very helpful in knowing the standard of living and taxable capacity of the people. In the field of exchange, we study markets, laws of prices based on supply and demand, cost of production, banking and credit instruments, etc. What shall be the price of a particular

commodity if its supply increases or decreases? What price should a monopolist charge in order to reap the maximum profit? these are questions which can best be answered with the help of the statistics. In fact, statistics are the very foundation stone of the theory of exchange. In distribution too, statistics plays a vital role. How the national income is to be calculated and how it is to be distributed, these are the questions which cannot be answered without statistics. In reducing disparities in the distribution of income and wealth, statistics are of immense help. Similarly, in solving problems of rising prices, growing population, unemployment, property, etc., one has to rely heavily on statistics. In fact, most of the economic policies would be a leap in the dark in the absence of appropriate statistical information. Thus, economists today are no longer satisfied to theorize in abstract terms. Instead they utilize the excellent data now available to build a sound factual foundation for their reasoning. Some of the applications of statistics in economics are as follows: (i) Measures of gross national product and input-output analysis have greatly advanced overall economic knowledge and opened up entirely new fields of study. (ii) Financial statistics are basic in the fields of money and banking short-term credit, consumer fianc and public finance. (iii) Statistical studies of business cycles, long-term growth and seasonal fluctuations serve to expand our knowledge of economic instability and to modify them from time to time. (iv) Studies of competition, oligopoly and monopoly require statistical comparisons of market prices, cost and profits of individual firms. (v) Statistical surveys of prices are essential in studying the theories of prices, pricing policy and price trends, as well as their relationship to the general problem of inflation. (vi) Operational studies of public utilities require both statistical and legal tools of analysis. (vii) Analysis of population, land economics and economic geography are basically statistical in their approach. (viii) In solving various economic problems such as poverty, unemployment, disparities in the distribution of income and wealth, statistical data and statistical methods play a vital role. In fact, the concept of planning so vital for growth of nations would not have been possible in the absence of data and proper statistical analysis there of. 4. Statistics and Physical Sciences The physical sciences, especially astronomy, geology and physics were among the fields in which statistical methods were first developed and applied, but until recently these sciences have not shared the 20th century developments of statistics to the same extent as the biological and social sciences. Currently, however, the physical sciences seem to be making increasing use of statistics, especially in astronomy, chemistry, engineering, geology, meteorology and certain branches of physics.

5. Statistics and Natural Sciences Statistical techniques have proved to be extremely useful in the study of all natural sciences like biology, medicine, meteorology, zoology, botany, etc. For example, in diagnosing the correct disease the doctor had to rely heavily on factual data like temperature of the body, pulse rate, blood pressure, etc. Similarly, in judging the efficacy of a particular drug for curing a certain disease experiments have to be conducted and the success or failure would depend upon the number of people who are cured after using the drug. In botany the study of plant life one has to rely heavily on statistics in conducting experiments about the plants, effect of temperature, type of soil, etc. In fact, it is difficult to find any scientific activity where statistical data and statistical methods are not used. 6. Statistics and Research Statistics is indispensable in research work. Most of the advancement in knowledge has taken place because of experiments conducted with the help of statistical methods. For example, experiments about crop yields and different types of fertilizers and different types of soils or the growth of animals under different diets and environments are frequently designed and analysed with the help of statistical methods. Statistical methods also affect research in medicine and public health. In fact, there is hardly any research work today that one can find complete without statistical data and statistical methods. Also it is impossible to understand the meaning and implications of most of the research findings in various disciplines of knowledge without having at least a speaking acquaintance with the subject to statistics. 7. Statistics and Other Uses We have discussed above the significance of statistics in some important fields. Besides these, statistics are useful to various institutions such as bankers, brokers insurance companies, auditors, social workers, labour unions, trade associations and chambers of commerce. The banks have to make a very careful study of the cash requirements otherwise they may find they are short of cash and their existence is at stake. Similarly, the premium rates of the life insurance companies are based upon very careful study of the expectation of life. Statistics are immensely useful to politicians and their supporters. They want to find out the prospects of winning the election and the efforts required for it. By sampling a certain percentage of voters prior to election, one can work out the percentage of votes the candidates is likely to receive in the election. The estimated percentage can then be used to decide, for example, whether a greater campaign is required to assure the candidates victory. Most of the people make use of statistics consciously or unconsciously in taking decisions. Statistical knowledge is in fact essential for a good citizen. H.G. wells was right when he said Statistical thinking will one day be as necessary for efficient citizenship as the ability to read and write.

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It must be remembered that the statistical approach, though universal in its underlying ideas, must be tailored to fit the peculiarities of each concrete problem to which it is applied. It is dangerous to apply statistics in cookbook style, using the same recipes over and over, without careful study of the ingredients of each new problem. STATISTICS AND THE COMPUTER It may be interesting to note that the development of statistics has been closely related to the evolution of electronic computing machinery. Statistics is a form of data processing, a way of converting data into information useful for decision-making. Processing of rawdata is extensively required in the application of many statistical techniques. Statistical theory is generally expressed in the form of mathematical equations. However, the applications of this theory requires processing of real data. As statistical theories become more complex, it becomes increasingly difficult to perform the calculations needed to apply these theories. Hence, in one sense, the development of statistical theory and electronic computers reinforce each other. As statisticians devise new ways of describing and using data of decisions, computer scientists respond with newer more efficient ways of performing these operations. Conversely, with the evolution of more powerful computing techniques, people in statistics are encouraged to explore new and more sophisticated methods of statistical analysis. The computers can process large amounts of data quickly and accurately. This is a great benefit to businesses and other organizations that must maintain records of their operations. The computer bring efficient data processing to familiar operations such as payroll calculations, inventory management and airline reservation system. With the advancement in computer technology more and more people coming in direct contact with computers. New microprocessors have mad the home computer a reality for both work and entertainment. It may be pointed out that the output from a computer is only as good as the data input (Garbage in, garbage out is the popular saying). This warning applies equally to statistical analysis. Statistical decisions based on data are no better than the data used. LIMITATIONS OF STATISTICS 1. Does not deal with individual facts: Statistics deals only with the aggregate of facts and figures, hence the study of an individual facts lies outside its scope, for example, an increase in index number does not indicate that the price of each commodity in the country has increased. 2. Deals with quantitative data only: Statistics are numerical expression of facts and as such qualitative phenomenon like honesty, beauty, intelligence, efficiency etc. are not capable of statistical analysis. 3. Misuse of Statistics: Wrong conclusions will be derived if the data are incomplete, unreliable and based on prejudiced collection of data. Therefore, to draw sensible conclusions, statistical methods require to be carefully used by experienced, skilled and intelligent persons.

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4. Statistical conclusions are true only on an average: Statistical laws and conclusions are not as true and exact as the laws of science. They show only approximate tendencies and estimates which may not be definite and same at all places, at all times under similar or different circumstances. 5. Statistical methods do not reveal the entire history: Statistical tools do not much provide the best solutions under all circumstances. Quite often, it is necessary to study a problem in the light of a countrys culture, religion, philosophy, social set up etc. yet these are incapable of numerical expression and hence, statistics cannot be of much help in studying such problems. 6. All statistics are not given the same importance: In Statistical analysis, all items are not given the same importance. It ignores a small portion out of a large one but that portion may also have its own importance. For example, a very small segment of population is engaged in Railway Industry, but the problem of deaths due to accidents though rare, has more importance for the nation as a whole. 7. Statistics cannot be used as multipurpose: Statistics are collected for a given purpose and hence cannot be applied in all situations. Statistics useful in one situation may not be of any use in other. 8. Statistical conclusions are based on sample study: Some statistical conclusions are based upon sample study, which if applied upon universe, widely vary and cause adverse effects. 9. Based on estimates and approximations: Statistics obtained through various statistical methods are based on estimates and approximations, so they cannot be perfect substitute for actual values since actual values differ from estimates, thus the results are affected. DISTRUSTS OF STATISTICS 1. Statistics can prove anything. 2. Statistics are lies of first order. 3. An ounce of truth will produce tons of statistics. 4. Statistics are like alienists they will testify for either side. 5. There are three kinds of lies namely lies, damned lies and statistics wicked in the order of their naming. 6. There are black lies, white lies, multi-chromatic lies, statistics is a rainbow of lies. W.I. King in this context remarks Statistics are like clay of which you can make a god or devil. Again he comments, The science of statistics is most useful servant but only of great value to those who understand its proper use.

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QUESTIONS
1. What are limitations of statistics? 2. Sciences without statistics bear no fruit; Statistics without sciences have no root. Explain the above statement showing the relationship of statistics with some other sciences. 3. Define statistics. Explain its importance. 4. Explain the functions and limitations of statistics. 5. Explain limitation and distrust of statistics. 6. Define statistics and discuss the scope, functions and limitations of statistics. 7. Define statistics. Discuss its use in business and trade. Also point out its limitations. 8. What do you mean by descriptive statistics and inferential statistics? Point out their differences.

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