STATISTICAL METHODS

INTRODUCTION
 The science of statistics has assumed
great importance in recent years.
 It has become an all-important science,
without which no other science can
progress.
 Statistical data has a major role to play
in economic planning.
 Statistics also has a crucial role to play
in business and industry.
Role of Statistics

UNIT I
WHAT IS STATISTICS?
 Today, statistics has become a very
commonly used word but surprisingly,
its actual meaning is not understood by
many.
 Also, the word is used by different
people, in different contexts, in
different senses:
 as a set of figures; the number of children
born in India in the various months of a
year;

MEANING OF STATISTICS
 Different senses in which the term is
used:
 as a complex set of relationships between
a number of variables;
 as a technique by which the element of
uncertainty in decision-making may be
reduced;
 as a device to achieve a degree of
precision in the concept and theories of
social sciences, which, by nature, are
inexact.
MEANING OF STATISTICS (CONTD.)
 However, broadly speaking, the word
statistics generally denotes either one
of the following two meanings:
 a set of figures; or
 a set of techniques and methods.
STATISTICS DEFINED
 Statistics are numerical statements of
facts capable of analysis and
interpretation and the science of
statistics is a study of the principles
and methods used in the collection,
presentation, analysis and
interpretation of numerical data in any
sphere of enquiry.
STATISTICS DEFINED
 Statistics are numerical statements of
facts capable of analysis and
interpretation and the Science of
Statistics is a study of the principles
and methods used in the collection,
presentation, analysis and
interpretation of numerical data in any
sphere of enquiry.
STATISTICS DEFINED
 Statistics are numerical statements of
facts capable of analysis and
interpretation and the Science of
Statistics is a study of the principles
and methods used in the collection,
presentation, analysis and
interpretation of numerical data in any
sphere of enquiry.
STATISTICS DEFINED

Statistics is a study of the principles and

methods used in the
 collection,

 presentation,

 analysis, and

 interpretation

of numerical data in any sphere of

enquiry.
ROLE OF STATISTICS
ROLE OF STATISTICS
 The fundamental role of statistics is to
push back the domain of ignorance,
rule of thumb, arbitrary or premature
decisions, tradition and dogmatism and
to increase the domain in which
decisions are made and principles are
formulated on the basis of analytical
quantitative facts.
ROLE OF STATISTICS
 To collect and present facts in a
systematic manner;
 To find research based solutions to
problems in the field of social sciences;
 To help in forecasting, and thereby, in
formulating suitable strategies and
policies;
 To enlarge human experience and
enable rational decision-making.
 Role of Statistics

APPLICATION OF INFERENTIAL STATISTICS

IN MANAGERIAL DECISION-MAKING
MANAGERIAL APPLICATION OF
STATISTICS
 Statistics are an aid to business and
commerce in
 Forecasting;
 Analysis of various business-related
factors;
 Solution of problems connected with the
internal organisation and administration of
business units;
 Promotion of new business;
 Pricing decisions;
APPLICATION OF INFERENTIAL STATISTICS IN
MANAGERIAL DECISION-MAKING

 Since the complexity of business environment

makes the process of decision-making difficult,
the decision-maker cannot rely entirely upon his
observation, experience or evaluation to make
decision.
 Decisions have to be based upon data which
show relationship, indicate trends, and show
rates of change in various relevant variables.
 The field of statistics provides methods for
collecting, presenting, analyzing and
meaningfully interpreting data.
APPLICATION OF INFERENTIAL STATISTICS IN
MANAGERIAL DECISION-MAKING (CONTD.)

Statistic
s

Descriptiv Statistical
Inductive
e Decision
Statistics
Statistics Theory

Data
Collection
Statistical Decision
&
Inference Problems
Presentati
on
APPLICATION OF INFERENTIAL STATISTICS IN
MANAGERIAL DECISION-MAKING (CONTD.)

A manager may face four types of situations:

 When data need to be presented in a form which

helps in easy grasping;

 Where no specific action is contemplated but it is

intended to test some hypotheses and draw

inferences;
 When some unknown quantities have to be

estimated or relationships established through

observed data; and
 When a decision has to be made under uncertainty

regarding a course of action to be followed.

APPLICATION OF INFERENTIAL STATISTICS IN
MANAGERIAL DECISION-MAKING (CONTD.)

 The first situation falls in the realm of

descriptive statistics.
 Second and third situations fall in the
area of inductive statistics
 The last situation is dealt by statistical
decision theory.
APPLICATION OF INFERENTIAL STATISTICS IN
MANAGERIAL DECISION-MAKING (CONTD.)

 Inductive statistics is concerned with

the development of scientific criteria so
that values of a group may be
meaningfully estimated by examining
only a small portion of that group.
 Thus, inductive statistics is concerned
with estimating universe parameters
from the sample statistics.
APPLICATION OF INFERENTIAL STATISTICS IN
MANAGERIAL DECISION-MAKING (CONTD.)

 Inferential statistics is concerned with making

inferences from samples about the populations
from which they have been drawn.
 In other words, if we find a difference between
two samples, we would like to know, is this a
"real" difference (that is, is it present in the
population) or just a "chance" difference (that is,
it could just be the result of random sampling
error).
 Decision-making implies selecting the best
alternative from among those available.
APPLICATION OF INFERENTIAL STATISTICS IN
MANAGERIAL DECISION-MAKING (CONTD.)

 Statistics can play a major role in analyzing

the information available, on whose basis the
various alternatives have to be compared.
 In order to bring about uniformity and
consistency in their decisions, organizations
need to remove subjectivity and introduce
objectivity in the process of decision-making.
 Quantitative techniques in general, and
among them, statistics can help in
accomplishing this.
MEASURES OF CENTRAL TENDENCY
MEASURES OF CENTRAL TENDENCY
 Condensation of data is necessary in
statistical analysis because a large
number of big figures are not only
confusing to mind but difficult to
analyse also.
 In order to reduce the complexity of
data and to make them comparable it
is essential that the various
phenomena which are being compared
are reduced to one figure each.
MEASURES OF CENTRAL TENDENCY (CONTD.)

 A figure which is used to represent a whole

series should have a value somewhere near
the centre, where most of the items of the
series cluster.
 Such figures are called the measures of
central tendency or averages.
 The word average or the term measure of
central tendency can be defined as a
typical value around which other figures
congregate.
Measures of Central Tendency

MEAN
MEAN (ARITHMETIC AVERAGE)
 Arithmetic average or mean of a series
is the figure obtained by dividing the
total values of the various items by
their number.
CALCULATION OF MEAN IN A SERIES OF
INDIVIDUAL OBSERVATIONS

 Direct Method:

 Short-cut Method:
CALCULATION OF MEAN IN
GROUPED DATA
 Direct Method:

 Short-cut Method:

 Step-deviation Method:
Measures of Central Tendency

MEDIAN
MEDIAN
 Median is the value of the middle item of a
series arranged in ascending or descending
order of magnitude.
 As opposed to mean which is the mathematical
average, median is the positional average.
 It divides the series into two equal parts, one
containing items smaller than the median value
and the other containing items greater than it.
 The value of the median is given by the value of
the middle item, irrespective of all other values.
CALCULATION OF MEDIAN

The calculation of median involves two

steps:
 Finding the location of the middle item;

and
 Finding the value of this middle item.
CALCULATION OF MEDIAN IN A SERIES OF
INDIVIDUAL OBSERVATIONS/DISCRETE SERIES

 Arrange the values in ascending or

descending order of magnitude.
 M = value of item
CALCULATION OF MEDIAN IN A CONTINUOUS
SERIES

 Arrange the values in ascending or

descending order of magnitude.
 Find the value of to identify the
median class.
 Use either of the following formulae:
FRACTILES (QUARTILES, DECILES, PERCENTILES)

 Quartiles

 Deciles

 Percentiles
Measures of Central Tendency

MODE
MODE
 Mode is the most typical or fashionable value of the
series.
 It is generally the value with the highest frequency.
 The mode of a distribution is the value at the point
around which the items tend to be most heavily
concentrated.
 At times, therefore, mode may not necessarily be the
value which occurs the largest number of times in a
series.
 In some cases there may be more than one points of
concentration of values and the series may be bi-
modal or multi-modal.
CALCULATION OF MODE
EMPIRICAL RELATIONSHIP BETWEEB MEAN, MEDIAN
AND MODE

 Mode = Mean-3(Mean-Median)
 Mode = 3Median-2Mean
 Mean-Median = (Mean-Mode)
 Measures of Central Tendency

IMPLICATIONS: MEAN, MEDIAN,

MODE
IMPLICATIONS OF MEAN, MEDIAN AND MODE

 Mean. Arithmetic average or mean of a series is

the figure obtained by dividing the total values of
the various items by their number.
 Median. As the name itself suggests, median is the
value of the middle item of a series. It divides the
series into two equal groups, one containing values
less than the median and the other part containing
values greater than it. It is a positional average.
 Mode. It is the most fashionable value, or, more
accurately, the value around which there is
maximum concentration of items.
MEASURES OF DISPERSION
DISPERSION
 Measures of central tendency often fail to
reveal the entire story of a phenomenon.
 There may be a dozen series whose
averages may be identical but which may
differ from each other in several ways.
 In such cases we need to study dispersion.
 Dispersion or spread is the degree of the
scatter or variation of the variable about a
central value.
Measures of Dispersion

RANGE
RANGE
 R = L-S
 Measures of Dispersion

MEAN DEVIATION
MEAN DEVIATION
 Mean deviation of a series is the
arithmetic average of the deviations of
various items from a measure of
central tendency (mean, median or
mode).
CALCULATION OF MEAN DEVIATION
 From Mean

 From Median

 From Mode
MEAN COEFFICIENT OF DISPERSION
 From Mean

 From Median

 From Mode
MEAN DEVIATION (SHORT CUT
METHOD)
CALCULATION OF MEAN DEVIATION (DISCRETE
SERIES)
 Measures of Dispersion

STANDARD DEVIATION
STANDARD DEVIATION
 Standard deviation is the square root of
the arithmetic average of the squares
of the deviations measured from the
mean.
CALCULATION OF STANDARD
DEVIATION
 Direct Method:

 Shortcut Method:
CALCULATION OF STANDARD DEVIATION IN
DISCRETE SERIES

 Direct Method:

 Shortcut Method:

 Step Deviation Method:

CALCULATION OF STANDARD DEVIATION IN
CONTINUOUS SERIES
 Coefficient of Standard Deviation =

 Coefficient of Variation

 Variance = σ2
SKEWNESS
SKEWNESS
 A distribution is said to be skewed
when the mean and the median fall at
different points in the distribution, and
the balance of the curve (or its centre
of gravity) is shifted to one side or to
the other (left or right).
FIRST MEASURES OF SKEWNESS
 Mean – Mode (x̅ - Z)
 Mean – Median (x̅ - M)
 Median – Mode (M - Z)
RELATIVE MEASURES OF
SKEWNESS
KARL PEARSON’S COEFFICIENT OF SKEWNESS

 If mode is ill-defined:
 Bowley’s Coefficient of Skewness:

 Kelly’s Coefficient of Skewness:

MOMENTS
 Moments are calculated to study the
nature of a distribution.
 They tell us whether a distribution is
symmetrical or not.
 They also tell us about the nature of
symmetry.
MOMENTS
 Series of Individual Observations:
MOMENTS
 Grouped Data:
COEFFICIENT OF SKEWNESS BASED ON MOMENTS
KURTOSIS
 Kurtosis is another measure which tells
us about the form of a distribution.
 It tells us whether the distribution, if
plotted on a graph, would give us a
normal curve, a curve more flat than
the normal curve or a curve more
peaked than the normal curve.
MEASURES OF KURTOSIS