Hawassa University College of Business & Economics Department of Management

CHAPTER ONE

1 INTRODUCTION AND ORIGIN

The collection of numerical data on varies aspects of life is almost as old as civilization itself.
Prof. P.C. Mahalanobis said, ''from time immemorial men must have been computing
information for peace and war. Statistics in this sense is as old as statecraft.''
Initially the concept of statistics started with data collection and something like 'political
arithmetic'. . kings used to collect the information about the people in their state, i.e., they used to
collect the data regarding conditions under which people live and work, their health, their
incomes and wealth. So this subject developed as 'a king's subject' or 'as a science of kings'.
Kings also used to collect data such as population, man power, wealth in the form of land,
buildings and other assets to know the condition of their state.
In the modern world of computers and information technology, the importance of statistics is
very well recogonised by all the disciplines. Statistics has originated as a science of statehood
and found applications slowly and steadily in Agriculture, Economics, Commerce, Biology,
Medicine, Industry, planning, education and so on.

1.1 DEFINITION OF STATISTICS

Statistics is defined differently by different authors over a period of time.
Definitions by A.L. Bowley: Statistics are numerical statement of facts in any department of
enquiry placed in relation to each other. - A.L. Bowley Statistics may be called the science of
counting in one of the departments due to Bowley, obviously this is an incomplete definition as it
takes into account only the aspect of collection and ignores other aspects such as analysis,
presentation and interpretation. Bowley gives another definition for statistics, which states ‘
statistics may be rightly called the scheme of averages’ . This definition is also incomplete, as
averages play an important role in understanding and comparing data and statistics provide more
measures.
Definition by Croxton and Cowden: Statistics may be defined as the science of collection,
organizing, presentation, analysis and interpretation of numerical data from the logical analysis.
It is clear that the definition of statistics by Croxton and Cowden is the most scientific and
realistic one. According to this definition there are five stages:
1. Collection of data
2. Organization(classification) of data
3. Presentation of data
4. Analysis of data
5. Interpretation of data
1 Collection of Data: is the first step in a statistical investigation and forms the backbone of the
investigation(or inquiry). Careful planning is essential before collecting the data. Data should be
collected for a specific and well defined purpose very carefully. There are different methods of
collection of data such as census, sampling, primary, secondary, etc., and the investigator should
make use of correct method.

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2 Organization of data: If an investigator has collected data through a survey, it is necessary to

edit these data in order to correct any apparent inconsistencies, ambiguities, and recording errors
or for that matter any mistakes that can enter into the actual computations. To draw meaningful
conclusions, the proper organization of the data is essential. Observed data, without proper
organization will lead to fallacious conclusion.
3 Presentation of data: The organized data can now be presented in a suitable, concise form for
further analysis. The collected data may be presented in the form of tabular or diagrammatic or
graphic form. Orderly presentation of data facilitates statistical analysis. Data presented in the
form of graph, diagrams, is easily understandable and have greater memorizing effect and hence
facilitates efficient comparison.
4 Analysis of data: The data presented should be carefully analysed for making inference from
the presented data such as measures of central tendencies, dispersion, correlation, regression etc.
The main objective of analysis is to prepare data in such a fashion so as to arrive at certain
definite conclusion.
5 Interpretation of data: Interpretation or drawing valid conclusions is the last stage in
statistical investigation. The interpretation of analysed data is a difficult task and needs a high
degree of skills and experience. If the analysed data are not interpreted carefully, the basic
objective of inquiry is liable to be defeated.

1.2 TYPES OF STATISTICS

There are two major divisions of statistics such as descriptive statistics and inferential statistics.
1.2.1 Descriptive statistics deals with collecting, summarizing, and simplifying data, which are
otherwise quite unwieldy and voluminous. It seeks to achieve this in a manner that meaningful
conclusions can be readily drawn from the data. Descriptive statistics may thus be seen as
comprising methods of bringing out and highlighting the latent characteristics present in a set of
numerical data. It is not only facilitates an understanding of the data and systematic reporting
thereof in a manner; and also makes them amenable to further discussion, analysis, and
interpretations.
The first step in any scientific inquiry is to collect data relevant to the problem in hand. When the
inquiry relates to physical and/or biological sciences, data collection is normally an integral part
of the experiment itself. In fact, the very manner in which an experiment is designed, determines
the kind of data it would require and/or generate. The problem of identifying the nature and the
kind of the relevant data is thus automatically resolved as soon as the design of experiment is
finalized. It is possible in the case of physical sciences. In the case of social sciences, where the
required data are often collected through a questionnaire from a number of carefully selected
respondents, the problem is not that simply resolved. For one thing, designing the questionnaire
itself is a critical initial problem. For another, the number of respondents to be accessed for data
collection and the criteria for selecting them has their own implications and importance for the
quality of results obtained. Further, the data have been collected, these are assembled, organized,
and presented in the form of appropriate tables to make them readable. Wherever needed,
figures, diagrams, charts, and graphs are also used for better presentation of the data. A useful
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tabular and graphic presentation of data will require that the raw data be properly classified in
accordance with the objectives of investigation and the relational analysis to be carried out. .

A well thought-out and sharp data classification facilitates easy description of the hidden data
characteristics by means of a variety of summary measures. These include measures of central
tendency, dispersion, skewness, and kurtosis, which constitute the essential scope of descriptive
statistics.

1.2.2 Inferential statistics, also known as inductive statistics, goes beyond describing a given
problem situation by means of collecting, summarizing, and meaningfully presenting the related
data. Instead, it consists of methods that are used for drawing inferences, or making broad
generalizations, about a totality of observations on the basis of knowledge about a part of that
totality. The totality of observations about which an inference may be drawn, or a generalization
made, is called a population or a universe. The part of totality, which is observed for data
collection and analysis to gain knowledge about the population, is called a sample.
The desired information about a given population of our interest; may also be collected even by
observing all the units comprising the population. This total coverage is called census. Getting
the desired value for the population through census is not always feasible and practical for
various reasons. Apart from time and money considerations making the census operations
prohibitive, observing each individual unit of the population with reference to any data
characteristic may at times involve even destructive testing. In such cases, obviously, the only
recourse available is to employ the partial or incomplete information gathered through a sample
for the purpose. This is precisely what inferential statistics does. Thus, obtaining a particular
value from the sample information and using it for drawing an inference about the entire
population underlies the subject matter of inferential statistics.
Inferential statistics helps to evaluate the risks involved in reaching inferences or generalizations
about an unknown population on the basis of sample information. For example, an inspection of
a sample of five battery cells drawn from a given lot may reveal that all the five cells are in
perfectly good condition. This information may be used to conclude that the entire lot is good
enough to buy or not.
Since this inference is based on the examination of a sample of limited number of cells, it is
equally likely that all the cells in the lot are not in order. It is also possible that all the items that
may be included in the sample are unsatisfactory. This may be used to conclude that the entire lot
is of unsatisfactory quality, whereas the fact may indeed be otherwise. It may, thus, be noticed
that there is always a risk of an inference about a population being incorrect when based on the
knowledge of a limited sample.

1.3 FUNCTIONS OF STATISTICS:

There are many functions of statistics. Let us consider the following five important functions.
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1.3.1 Condensation:
Generally speaking by the word ‘to condense’, we mean to reduce or to lessen. Condensation is
mainly applied at embracing the understanding of a huge mass of data by providing only few
observations. If in a particular class in Chennai School, only marks in an examination are given,
no purpose will be served. Instead if we are given the average mark in that particular
examination, definitely it serves the better purpose. Similarly the range of marks is also another
measure of the data. Thus, Statistical measures help to reduce the complexity of the data and
consequently to understand any huge mass of data.

1.3.2 Comparison:
Classification and tabulation are the two methods that are used to condense the data. They help
us to compare data collected from different sources. Grand totals, measures of central tendency
measures of dispersion, graphs and diagrams, coefficient of correlation etc provide ample scope
for comparison. As statistics is an aggregate of facts and figures, comparison is always possible
and in fact comparison helps us to understand the data in a better way.
1.3.3 Forecasting:
By the word forecasting, we mean to predict or to estimate beforehand. Given the data of the last
ten years connected to rainfall of a particular district in Hawassa, it is possible to predict or
forecast the rainfall for the near future. In business also forecasting plays a dominant role in
connection with production, sales, profits etc. The analysis of regression analysis plays an
important role in forecasting.
1.3.4 Formulating policies:
Varies governmental policies regarding import export trade, taxation, planning, resource
allocation and so on are formulated on the basis of data regarding these elements.
1.3.5 Estimation:
One of the main objectives of statistics is drawn inference about a population from the analysis
for the sample drawn from that population. In estimation theory, we estimate the unknown value
of the population parameter based on the sample observations. Suppose we are given a sample of
heights of hundred students in a school, based upon the heights of these 100 students, it is
possible to estimate the average height of all students in that school.

1.4. 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.
1.4.1 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 in terms 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 qualitative
phenomenons. Nevertheless, statistical techniques may be applied indirectly by first reducing the

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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.
1.4.2 Statistics does not study individuals: Statistics does not give any specific importance to
the individual items; in fact it deals 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.
1.4.3 Statistical laws are not exact: 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.
1.4.4 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 aptly ‘statistics
are like clay of which one can make a God or Devil as one pleases’.
1.4.5 Statistics is only, one of the methods of studying a 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.

Definition of Some Basic Terms

a. Statistical Population: It is the collection of all possible observations of a specified
characteristic of interest (possessing certain common property) and being under study.
b. Sample: It is a subset of the population, selected using some sampling technique in such
a way that they represent the population.
c. Sampling: The process or method of sample selection from the population.
d. Sample size: The number of elements or observation to be included in the sample.
e. Census: Complete enumeration or observation of the elements of the population. Or it is
the collection of data from every element in a population
f. Parameter: Characteristic or measure obtained from a population.
g. Statistic: Characteristic or measure obtained from a sample.
h. Variable: It is an item of interest that can take on many different numerical values.

1.5. Types of Variables and Measurement Scales

A variable is a characteristic of an object that can have different possible values.
There are two types of variables.
a) Quantitative variables: are variables that can be quantified or can have numerical
values. A quantitative variable is a variable with quantitative data. Examples: height,
area, income, temperature, number of class in a building, e t c.
Quatitative variables can be further classified as
 Discrete variables, and
 Continuous variables

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i. Discrete variables are variables whose values are counts and all discrete variables have
gaps in their scale of measurement. Discrete variables take on only a finite set of values
Examples: number of students, number of households (family size), Number of pages of
a book.
ii. Continuous variables are variables that can have any value within an interval.
Continuous variables take on an infinite number of values.
Examples: weight, Length, Volume, temperature and elevation. e t c.

b) Qualitative variables: are variables that cannot be quantified directly. Examples:

colour , beauty, sex, location. Qualitative variables are also called categorical variables.
A categorical variable is a variable with categorical data,
Hence we have two types of data; qualitative/ Categorical & quantitative data.
 Data that can be grouped by specific categories are referred to as categorical data.
Categorical data use either the nominal or ordinal scale of measurement.
 Data that use numerical values to indicate how much or how many are referred to as
quantitative data. Quantitative data are obtained using either the interval or ratio scale of
measurement.
Level of Measurement
Data can be measured according to the levels of measurement. The level of measurement of the data often
indicates the calculation that can be done to summarize and present the data and the statistical that can be
performed. There are actually four levels of measurement: nominal, ordinal, interval, and ratio. The
lowest or the most primitive measurement is the nominal level. The highest or the level that gives us the
most information about the observation is the ratio level of measurement.
Nominal Level Data:
In the nominal level of measurement, the observations can only be classified or counted. There is no
particular order to the labels. Gender is a good example of the nominal level of measurement. Suppose we
count the number of students entering a football game with a student ID and report how many are men
and how many are women. We could report either the men or the women first. For the nominal level of
measurement there is no measurement involved, but only counts.
To summarize, the nominal level data has the following properties:
 Data categories are mutually exclusive (an individual, object, or measurement is included in only
one category), so an object belongs to only one category.
 Data categories have no logical order.
Ordinal Level Data
The next higher level of data is the ordinal level. Table 1-1 lists the passengers’ satisfaction towards the
service offered by Ethiopian Airlines. Each passenger answered the question “Overall how did you rate
your level of satisfaction?” This illustrates the use of ordinal scale of measurement. One category is
“higher” or “better” than the next one. That is “Superior” is better than “Good,” “Good” is better than
“Average,” and so on. However, we are not able to distinguish anything about the magnitude of the
differences between groups. We can only conclude that a rating of “Good” is better than a rating of
“Poor.” We cannot conclude how much better that rating is.
Rating Frequency
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Superior 56
Good 11
Average 7
Poor 4
Inferior 2
Table 1-1 Level of satisfaction in Ethiopian Airlines

In summary, the properties of ordinal level data are:

 The data categories are mutually exclusive and exhaustive
 Data categories are ranked or ordered according to trait they possess.

Interval Level Data

The interval level of measurement is the next highest level. It includes all the characteristics of the ordinal
level, but in addition, the difference between values is a constant size. An example of the interval level of
measurement is temperature. Suppose the temperatures on five consecutive days in Hawassa are 20, 25,
22, 30 and 35 degree Celsius. These temperatures can be easily ranked, but we can also determine the
difference between temperatures. This is possible because 1 degree Celsius represents a constant unit of
measurement. Equal differences between two temperatures are the same, regardless of their position on
the scale. That is, the difference between 20 degree Celsius and 25 degrees is 5, the difference between 30
and 35 degrees is also 5 degrees.
The properties of the interval scale are:
 Data categories are mutually exclusive and exhaustive
 Data categories are scaled according to the amount of the characteristic they possess.
 Equal differences in the characteristic are represented by equal differences in the numbers
assigned to the categories

Ratio Level Data

The ratio level is the highest level of measurement. The ratio level of measurement has all the
characteristics of the interval level, but in addition, the 0 point is meaningful and the ratio between two
numbers is meaningful. Examples of the ratio scale of measurement include wages, units of production,
weight, and height. Money is a good illustration. If you have zero birr, then you have no money. The ratio
of two numbers is also meaningful. If Zambo earns birr 10,000 per year and Firdu earns birr 20,000 per
year, then Firdu earns twice as much as Zambo.
The properties of the ratio level are:
 Data categories are mutually exclusive and exhaustive;
 Data categories are scaled according to the amount of the characteristics they possess;
 Equal differences in the characteristic are represented by equal differences in the numbers
assigned to the categories;
 The point 0 reflects the absence of the characteristics.

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1.6. SCOPE OF STATISTICS:

Statistics is not a mere device for collecting numerical data, but as a means of developing sound
techniques for their handling, analysing and drawing valid inferences from them. Statistics is
applied in every sphere of human activity – social as well as physical – like Biology, Commerce,
Education, Planning, Business Management, Information Technology, etc. It is almost
impossible to find a single department of human activity where statistics cannot be applied. We
now discuss briefly the applications of statistics in other disciplines.
1.6.1 Statistics and Industry:
Statistics is widely used in many industries. In industries, control charts are widely used to
maintain a certain quality level. In production engineering, to find whether the product is
conforming to specifications or not, statistical tools, namely inspection plans, control charts, etc.,
are of extreme importance. In inspection plans we have to resort to some kind of sampling – a
very important aspect of Statistics.
1.6.2 Statistics and Commerce:
Statistics are lifeblood of successful commerce. Any businessman cannot afford to either by
under stocking or having overstock of his goods. In the beginning he estimates the demand for
his goods and then takes steps to adjust with his output or purchases. Thus statistics is
indispensable in business and commerce.
As so many multinational companies have invaded into in Indian economy, the size and volume
of business is increasing. On one side the stiff competition is increasing whereas on the other
side the tastes are changing and new fashions are emerging. In this connection, market survey
plays an important role to exhibit the present conditions and to forecast the likely changes in
future.
1.6.3 Statistics and Agriculture:
Analysis of variance (ANOVA) is one of the statistical tools developed by Professor R.A. Fisher,
plays a prominent role in agriculture experiments. In tests of significance based on small
samples, it can be shown that statistics is adequate to test the significant difference between two
sample means. In analysis of variance, we are concerned with the testing of equality of several
population means.
For an example, five fertilizers are applied to five plots each of wheat and the yields of wheat on
each of the plots are given. In such a situation, we are interested in finding out whether the effect
of these fertilisers on the yield is significantly different or not. In other words, whether the
samples are drawn from the same normal population or not. The answer to this problem is
provided by the technique of ANOVA and it is used to test the homogeneity of several
population means.
1.6.4 Statistics and Economics:
Statistical methods are useful in measuring numerical changes in complex groups and
interpreting collective phenomenon. Nowadays the uses of statistics are abundantly made in any
economic study. Both in economic theory and practice, statistical methods play an important
role.

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Alfred Marshall said, “ Statistics are the straw only which I like every other economist have to
make the bricks”. It may also be noted that statistical data and techniques of statistical tools are
immensely useful in solving many economic problems such as wages, prices, production,
distribution of income and wealth and so on. Statistical tools like Index numbers, time series
Analysis, Estimation theory, Testing Statistical Hypothesis are extensively used in economics.
1.6.5 Statistics and Education:
Statistics is widely used in education. Research has become a common feature in all branches of
activities. Statistics is necessary for the formulation of policies to start new course, consideration
of facilities available for new courses etc. There are many people engaged in research work to
test the past knowledge and evolve new knowledge. These are possible only through statistics.
1.5.6 Statistics and Planning:
Statistics is indispensable in planning. In the modern world, which can be termed as the “world
of planning”, almost all the organisations in the government are seeking the help of planning for
efficient working, for the formulation of policy decisions and execution of the same.
In order to achieve the above goals, the statistical data relating to production, consumption,
demand, supply, prices, investments, income expenditure etc and various advanced statistical
techniques for processing, analysing and interpreting such complex data are of importance. In
India statistics play an important role in planning, commissioning both at the central and state
government levels.
1.5.7 Statistics and Medicine:
In Medical sciences, statistical tools are widely used. In order to test the efficiency of a new drug
or medicine, t - test is used or to compare the efficiency of two drugs or two medicines, t-test for
the two samples is used. More and more applications of statistics are at present used in clinical
investigation.

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