STATISTICS ASSIGNMENT NUMBER 1
ROLE OF STATISTICS IN
MANAGEMENT SCIENCES
WHAT IS STATISTICS?
“The mathematics of the collection, organization, and interpretation of
numerical data, especially the analysis of population characteristics by inference
from sampling.”
(The American Heritage® Dictionary)
“The collection, presentation, analysis and interpretation of the numerical data. The
facts which are dealt with must be capable of numerical expressions.”
“Statistics is a discipline which is concerned with designing experiments and other
data collection, summarizing information to aid understanding, drawing
conclusions from data, and estimating the present or predicting the future.”
(The University of Melbourne)
The word statistics originated from Latin word “status” meaning “state”. Earlier it
was identified solely with displays of data and charts pertaining to the economic,
demographic and political situations prevailing in a country. Even today a major
segment of the general public thinks this way. However gigantic advances during
the twentieth century have enabled statistics to grow and has made it important as
a discipline of database reasoning.
WHAT IS MANAGEMENT SCIENCES?
Management science (MS) is the discipline of using mathematical modeling
and other analytical methods, to help make better business management decisions.
A management science is the application of scientific techniques that enable
managers to make better decisions. Good decision-making can enhance the
efficiency, productivity and profits of business firms. Management Sciences
techniques are applied in many business functional areas, including supply chain
and logistics management, inventory control, quality control, operations planning,
production scheduling, sales forecasting, financial management, enterprise data
mining, and customer relationship management. For instance, mathematical
models can be used to create dependable flight schedules and crew shifts for
airlines. Quantitative techniques can be used in deciding on service centre location,
controlling production, or implementing statistical quality control in manufacturing
companies. These techniques can also be used by service organizations such as
banks, hospitals and investment firms to increase productivity, to provide better
services to their customers and to increase profits. In this era of technological
advancement in information technology, management sciences makes extensive
uses of information technology to effectively model and solve large and complex
management problems.
RELATIONSHIP OF STATISTICS AND
MANAGEMENT SCIENCES
The statistics plays a very crucial role in the field of management science. It is
practically in practice in the organizations. The management’s main responsibility
is to make logically sound decisions and the base of the decisions is the data that
depends on the work and the statistical tools. So the statistical is inevitable for the
business.
Role of statistics in management sciences is discussed below:
1) HELPS IN MAKING SENSE TO
NUMERICAL INFORMATION
Every manager operating in business environment requires as much information as
possible about the characteristics of that environment. The most important thing is
that majority of information required is of numerical nature for example interest
rates, stock market prices, money supply, market demand strength, an auditor’s
concern about number and size of errors found in account receivable etc. These
information in raw form are impossible to comprehend fully.
Statistician’s role involves the extraction and synthesis of the important features of
a large body of numerical information. One objective is to give sense to numerical
data by summarizing in such a way that a clearly understandable picture emerges.
At some places simple and straightforward numerical or graphical summary is
sufficient whereas at times you need to employ heavy artillery of formal
techniques to provide a good basis for deeper analysis.
QUALITY AND PRODUCTIVITY
IMPROVEMENT
The world marketplace has faced immense competition over the past few decades.
An international revolution in quality and productivity improvement has
heightened pressure on economies. In order to survive the need is to mobilize
workforce for continuous commitment to quality improvement. Improvement is
possible knowing the current standards of quality provided and surveying what is
required. At this stage, statistical skills in the collection and presentation of
summaries are required.
MONITORING ADVERTISING CLAIMS
The public is constantly bombarded with commercials that claim the superiority of
one product brand in comparison to others. When such comparisons are founded
on sound experimental evidence, they serve to educate the consumers. Not
infrequently however, misleading advertising claims are made due to insufficient
experimentation, faulty analysis of data, or even blatant manipulation of
experimental results. Government agencies and consumer groups must be prepared
to verify the comparative quality of products by using adequate data collection
procedures and proper methods of statistical analysis.
HELPS IN REMOVING UNCERTAINTY
Statistics does not deal with question of WHAT IS but of WHAT COULD BE
or WHAT PROBABLY IS. At a time when assertions are made its not possible to
tell surely of what is going to be the truth. This means that there is element of
uncertainty. For example:
The price of IBM stock will be higher in six months than it is right now.
If the federal budget deficit is high as predicted, interest rates will remain high
for rest of the years.
Although an analyst may believe that anticipated developments over the next few
months are such that price of IBM stock is likely to rise over six months period, he
or she will not be certain of this. This means that this possibility exists but to what
extent or how much more likely to rise? This is answered with the help of
statistical probability tools.
SAMPLING
Before bringing new product in market, a manufacturer wants to arrive at some
assessment of the likely level of demand, and a market research survey may be
undertaken. He wants to know about potential population of all buyers. However, it
is prohibitively expensive, if not impossible, for a typical market research survey
to contact every member of that population. Rather a small sample of population
members will be contacted, and any conclusions about the population will be based
on information obtained from sample.
The technique of sampling large population is largely used in business. For
example decisions about whether a production process is operating correctly are
based on the quality of a sample from its output.
When we have information on a sample from population, it is generally
straightforward to summarize the numerical sample data. However taking a sample
is merely a means to an end. The objective is not to make statements about the
sample but, rather, to draw conclusion about the wider population. Thus an
important problem for statisticians involves the extent to which it is possible to
generalize about a population, based on results obtained from a sample.
RESEARCH ANALYSIS
Statistics studies possibility and nature of a relationship between two or more
variables of interest. For example, what would be effect of 5% increase in price on
demand of automobiles? Economics says other things remaining same an increase
in price brings decrease in demand. This theory is qualitative. It does not tell us
how much demand will fall. Now we must collect quantitative information in order
to assess how demand has responded to price changes in the past. Now we will
base our assessment on premise that what happened in past is likely to be repeated
after proposed current price increase. Objective of using numerical information is
to learn something about the relationship between the variables of interest.
Procedures for analyzing relationships are possible only through statistics.
FORECASTING
Reliable predictions are needed in business. Investment decisions must be made
well ahead of time at which a new product can be brought to market, forecasts of
likely market conditions some years into the future is desirable. For established
products, short term sales forecasts are important in setting of inventory levels and
production schedules.
In forming economic policy, the government requires forecasts of likely outcomes
for variables such as gross domestic product, unemployment, and inflation etc.
Forecasts of future values are obtained through the discovery of regularities in past
behavior. Thus data are collected on past behavior of the variable to be predicted,
and on the behavior of other related variables. The analysis of this information may
then suggest likely future trends using statistical tools.
DRAWING INFERENCES FROM TOOLS
The tools and techniques that compromise business statistics include those
specially designed to describe data such as charts, graphs and numerical measures.
Also included are inferential tools that help decision makers draw inferences from
a set of data. Inferential tools include estimation and hypothesis testing. The
inferential tools includes two things the estimation and hypothesis testing.
ESTIMATION
In situations where one would like to know about all the data in large data sets but
it is impractical to work with all the data, decision makers can use techniques to
estimate what the larger data set looks like. The estimates are formed by looking
closely at a subset of the larger data set.
HYPOTHESIS DEVELOPMENT
Once the decision maker identified the important variables in a situation and
established the relationship among them through logical reasoning in the
theoretical framework the decision maker is in a better position to test whether the
relationship that have been theorized do in fact hold true. By testing these
relationships scientifically through appropriate statistical analysis or through
negative case analysis in qualitative research we are able to obtain reliable
information on what kind of relationships exist among the variables operating in
the problem situation. The results of these tests offer the decision maker some
clues as to what could be changed in the situation to solve the problem.
Formulating such testable statements is called hypothesis development.
INTERPRETATION
The results is interpreted in the light of the limitations of the original material. Too
exact conclusions must not be drawn from data which themselves are but
approximations. It is essential however, that the investigator discovers and clarify
all the useful and applicable meaning which is present in its data.
FACTOR OF CARELESSNESS
ELIMINATED
Human beings cannot go through life without making mistakes, but should be
reduced to a minimum. Factor of carelessness is eliminated by the use of statistics
in business decisions by managers.
MANAGING ORGANIZATIONAL
FUNCTIONS
Companies are organized on basis of functions performed by them and that is why
they are referred as functional organizations. Organizations perform three primary
functions of finance, marketing and operations. Their secondary functions include
maintaining accounting record, human resources management and information
systems. Statistics help managers convert data into information which in turn plays
a critical role in decision making.
CAPITAL BUDGETING
Capital budgeting is the process by which a firm generates, analyzes and
selects the projects that it will invest in. The most important issue
addressed is composition of firm’s product line. Once a product is
developed its financial feasibility is a must to be examined. Revenues
and costs associated with the project are also important to be known.
The probability concept is helpful in dealing with uncertainty
surrounding the projected values of future cash flows.
SUCCESS OF PROMOTIONAL TOOLS
Promotion is final component of marketing mix. A company must communicate
with consumers to inform them about the company and its product and make them
buy the product. Promotional tools available to achieve these objectives include
advertising, public relations, sales promotion and personal selling. Statistical
methods can be used to help assess how successful these tools have been in
generating sales.
LOCATION ANALYSIS AND LOGISTICS
A critical decision for any firm is where to locate its production facility, storage
center or retail outlet. The circumstances that effect location decision depend on
type or facility. A variety of statistical techniques can be employed to help make
the decision of choosing appropriate location as per requirements of business.
PROJECT MANAGEMENT
Project evaluation and review techniques and critical path method are management
science procedures that help control and plan large scale projects. Probability
distributions such as the normal distribution are applied in this topic.
HUMAN RESOURCE MANAGEMENT
People related decisions by a firm are dealt in functional area of Human Resource
Management. It involves activities such as recruitment, training, performance
appraisal, compensation and motivation. The HRM must forecast its needs in
terms of number of employees required and their skills. If new staff is required
then tests must be conducted to employ them on merit basis. The high scorers must
be given priority over low scorers. Statistical tools can be used to assess the
validity of these tests. Analysis of test results can also help to reveal deficiencies in
the training programs. Periodic performance appraisal is important for making
decisions regarding retention, compensation and promotion. Statistical methods
can be used to assess the compensation program to determine whether it supports
performance objectives.
INDEX NUMBERS
An index number is a statistical device designed to show changes in a variable or a
group of related variables with respect to time or geographical location such as
wages, income, prices, exports or imports etc over a period of time. Today it’s the
most widely used statistical device. They are the indicators of inflationary or
deflationary tendencies. Industrial production rising or falling, sales are higher or
lower than the previous period are all disclosed by index number.
CONCLUSION
From the above mentioned heads, it is concluded that statistics plays a key role in
the field of management sciences.
