Subject: Quantitative Methods

Unit 1 Aims and Objectives of Quantitative techniques

&
Graphical Representation of Data
1) Definition of Business statistics

Business statistics refers to the application of statistical tools, theories, and methodologies to help solve
real-world business problems and make data-driven decisions. From marketing to finance, HR to operations
– statistics plays a crucial role across all key business functions.

By applying various statistical methods and techniques, businesses can uncover patterns, trends, and
relationships within their data, enabling them to make informed decisions, set goals, and optimize processes.

2) Importance of Statistics in Business

One can understand the importance of Statistics in business from the following:

 Marketing - Statistical analysis is frequently used in providing information for making decisions in
the field of marketing. It is necessary first to find out what can be sold and then to evolve suitable
strategy, so that the goods reach to the ultimate consumer. A skilful analysis of data on production
purchasing power, man power, habits of consumers, habits of consumer, transportation cost should
be considered to take any attempt to establish a new market.
 Production - In the field of production statistical data and method play a very important role. The
decision about what to produce, how to produce, when to produce, and for whom to produce is based
largely on statistical analysis.
 Finance - The financial organization discharging their finance function effectively depend very
heavily on statistical analysis of peat and tigers.
 Banking - Banking Institute has found it increasingly necessary to establish research department
within their organization for the purpose of gathering and analysis information, not only regarding
their own business but also regarding the general economic situation and every segment of business
in which they may have interest.
 Investment - Statistics greatly assists investors in making clear and valued judgment in his
investment decision in selecting securities which are safe and have the best prospects of yielding a
good income.

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  Purchase - The purchasing department in discharging their function makes use of statistical data to
frame suitable purchase policies such as what to buy; What quantity to buy; What time to buy;
Where to buy; Whom to buy;
 Accounting - Statistical data are also the employer in accounting particularly in auditing function,
the technique of sampling and destination is frequently used.
 Control - The management control process combines statistical and accounting method in making
the overall budget for the coming year including sales, materials, labour and other costs and net
profits and capital requirement.

Statistics in business are important because they can help predict the future of a business and how to stay
ahead of your competition. It can be used to predict sales volume and check if a business venture is
attainable.

 Making informed decisions - The availability of statistics in business helps to make better
decisions. They stressed that the collection and analysis of data show trends and specific patterns that
guide businesses to make more confident decisions. This principle applies whether you are launching
a new product or you exit one.
 Identifying business opportunities - Smart and future-looking business owners can spot business
opportunities by examining statistics in their business operations. R-Bloggers says the importance of
statistics in business is that it helps you find new markets for your product, increase sales, retain
customers, and project where opportunities will arise so that you can use the data to tap into those
areas. Here is how to present data effectively.
Statistics in business is a good source of business continuity and erasing duplicated processes to
ensure product efficiency and service delivery.
 Understanding customer behaviors - It enables you to understand your customer’s behaviors, the
pattern they adopt in buying your product, and generate feedback on how they use your product or
service. That will help you gauge the utility of your product or service to them and whether they are
willing to patronize your business again.
Statistics in business will determine when you should run promotions in your business and at what
period it would be effective in giving out coupons or running discounts to your loyalists.
 Identify your target market - Another importance of statistics in business is that it provides an
avenue for determining your target market and whether your product or service is such as would be
patronized by them. Their behavior in the past may be reflected in the data you study, and that would
give you a clear path on what to expect from them and how to construct your output to meet their

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 needs. Determination of your target market through statistical analysis will help you measure the
profitability of your business venture and plan the success of your company.
 Product or service evaluation - Statistical data helps you to shape your product based on how your
customers use or appreciate it. When you focus on the features best appreciated by your target
customers, you are guaranteed an increase in sales and referrals.

3) Limitations of statistics

Statistics is an important branch of mathematics that deals with the collection, analysis, interpretation, and
presentation of data. It is widely used in various fields such as finance, economics, science, social sciences,
and engineering. However, like any other field, statistics also has its limitations.

 Sample Size - One of the limitations of statistics is the sample size. The sample size plays a
crucial role in the accuracy and validity of the statistical analysis. If the sample size is too small,
the results of the statistical analysis may not be representative of the entire population. In contrast,
if the sample size is too large, it may be time-consuming and expensive to collect and analyze the
data.
 Bias - Another limitation of statistics is biased. Bias can arise due to various factors such as
selection bias, measurement bias, and response bias. When the sample is not representative of the
population, selection bias arises. Measurement bias occurs when the method of data collection is
flawed or the data is misinterpreted. Response bias occurs when respondents provide answers that
are not accurate or truthful.
 Assumptions- Statistical analysis requires several assumptions to be made about the data. These
assumptions may not always hold true, leading to inaccurate results. For example, statistical tests
assume that the data is normally distributed, but if the data is skewed, the results may not be
reliable.
 Causation vs Correlation- Statistical analysis can establish a correlation between variables, but
it cannot establish causation. The correlation only indicates that two variables are related, but it
does not prove that one variable causes the other. A link between ice cream sales and crime rates,
for example, does not imply that ice cream sales cause crime.
 Interpretation- Statistical results can be difficult to interpret, especially for non-statisticians. The
interpretation of statistical results requires a good understanding of statistical concepts and
methods. Misinterpretation of statistical results can lead to wrong conclusions and decisions.
 Outliers- Outliers are data points that are significantly different from other data points in the
dataset. Outliers can significantly impact the results of statistical analysis, leading to inaccurate
conclusions. It is important to identify and handle outliers appropriately to ensure the validity of
the statistical analysis.
 Aggregates - Statistics is all about ―aggregates.‖ Be it an individual or a statistician, they are all a
part of the aggregate.
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  Quantitative data- It also deals with quantitative data. However, it is not a very difficult task to do a
conversion from qualitative to quantitative. All that is needed is the numeric and description related
to the qualitative data.
 Specific Projection- In order to propose specific projections, i.e. sales, price, quantity and so on,
there is a requirement of a set of conditions. So, if, by any chance, these conditions turn out to be
wrong or are violated, there is a chance that the projections and its outcome will be inaccurate.
 Random sampling- Statistical inferences make use of random sampling options. Hence, not
following the rules for sampling would be a very bad idea as it can lead to wrong results. The
conclusions coming off would have errors. So, the idea here is to consult the experts before hopping
into the sampling scheme, directly.

4) Misuse of statistics

The misuse of statistics may arise because of several reasons.

For example, if statistical conclusions are based on incomplete information, one may arrive at fallacious
conclusions. Thus the arguments that drinking beer is bad for longevity since 99% of the persons who take
beer die before the age of 100 years is statistically defective, since we are not told what percentage of
persons who do not drink beer and die before reaching that age.

Statistics are like clay and they can be moulded in any manner so as to establish right or wrong conclusion.
Moreover, any Tom, Dick and Harry cannot deal with statistics. It requires experience and skill to draw
sensible conclusions from the data; otherwise, there is every likelihood of wrong interpretations.

Also statistics cannot be used to full advantage in the absence of proper understanding of the subject to
which it is applied.

Distrust of Statistics

By distrust of statistics we mean lack of confidence in statistical statements and statistical methods It is often
believed that "Statistics can prove anything." "There are three types of lies-lies, damn lie and statistics—
wicked in the order of their naming." The following three main reasons account for such notions being held
by people about statistics:

 Figures are convincing and their poor people are easily lead to believe them.
 They can be manipulated in such a manner as to establish for conclusions.
 Even if correct figures are used, these may be presented in such a manner that the reader is misled.
For example, note the following statement: "The profits of firm A are Rs. 4 lakhs for the year 2004-

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 05 and that of firm B Rs. 5 lakhs for the same period." On the basis of this information only one
would form the opinion that firm B is better than firm A. However, if we examine the amount of
capital invested in both the firms, the quality or work done, etc., we might reach a different
conclusion.

It should be noted that statistics neither proves anything nor disproves anything. It is only a tool. If properly
used, tools can do wonders and, if misused, can be disastrous. The same is true of statistical tools. If used
properly, they help in taking wise decisions and if misused they can do more harm than good. But the fault
does not lie with the science of statistics as such.

5) Types of Charts

Graphs and charts can be utilized in business presentations to add visual appeal and make data more
understandable.

The four basic charts used in statistics include bar, line, histogram and pie charts. These are explained here
in brief.

Bar Graph

Bar graphs are the pictorial representation of grouped data in vertical or horizontal rectangular bars, where
the length of bars is proportional to the measure of data. The chart’s horizontal axis represents categorical
data, whereas the chart’s vertical axis defines discrete data.

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Line Graph

A graph that utilizes points and lines to represent change over time is defined as a line graph. In other words,
it is a chart that shows a line joining several points or a line that shows the relation between the points. The
diagram depicts quantitative data between two changing variables with a straight line or curve that joins a
series of successive data points. Linear charts compare these two variables on a vertical and horizontal axis.

Histogram

A histogram chart displays the frequency of discrete and continuous data in a dataset using connected
rectangular bars. Here, the number of observations that fall into a predefined class interval represented by a
rectangular bar.

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Pie Chart

A pie chart used to represent the numerical proportions of a dataset. This graph involves dividing a circle
into various sectors, where each sector represents the proportion of a particular element as a whole. This is
also called a circle chart or circle graph.

Scatter plot

A scatter plot displays values on two numeric variables using points positioned on two axes: one for each
variable. Scatter plots are a versatile demonstration of the relationship between the plotted variables—
whether that correlation is strong or weak, positive or negative, linear or non-linear. Scatter plots are also
great for identifying outlier points and possible gaps in the data.

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Box plot

A box plot uses boxes and whiskers to summarize the distribution of values within measured groups. The
positions of the box and whisker ends show the regions where the majority of the data lies. We most
commonly see box plots when we have multiple groups to compare to one another; other charts with more
detail are preferred when we have only one group to plot.

Grouped bar chart

If, on the other hand, the sub-bars were placed side-by-side into clusters instead of kept in their stacks, we
would obtain the grouped bar chart. The grouped bar chart does not allow for comparison of primary group
totals, but does a much better job of allowing for comparison of the sub-groups.

6) Importance of Graphic and Diagrammatic representation

Graphics and Diagrams play an important role in statistical data presentation. Diagrams are nothing but
geometrical figures like lines, bars, circles, squares, etc. Diagrammatic data presentation allows us to
understand the data in an easier manner.

Advantages of Diagrammatic Data Presentation

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Easy to understand – Diagrammatic data presentation makes it easier for a common man to understand the
data. Diagrams are usually attractive and impressive and many newspapers and magazines use them
frequently to explain certain facts or phenomena. Modern advertising campaigns also use diagrams.

Simplified Presentation – You can represent large volumes of complex data in a simplified and intelligible
form using diagrams.

Reveals hidden facts – When you classify and tabulate data, some facts are not revealed. Diagrammatic
data presentation helps in bringing out these facts and also relations.

Quick to grasp – Usually, when the data is represented using diagrams, people can grasp it quickly.

Easy to compare – Diagrams make it easier to compare data.

Universally accepted – Almost all fields of study like Business, economics, social institutions,
administration, etc. use diagrams. Therefore, they have universal acceptability.

7) Limitations of Graphs and Diagrams

Here are some of their limitations:

 Provides vague ideas – While diagrams offer a vague idea about the problem, it is useful only to a
common man. An expert, who seeks an exact idea of the problem cannot benefit from them.

 Limited information – Classified and tabulated data provides more information than diagrams.

 Low precision – Diagram offer a low level of precision of values.

 Restricts further data analysis – Diagrams do not allow the user to analyze the data further.

 Portrays limited characteristics – Diagrams tend to portray only a limited number of characteristics.
Therefore, it is difficult to understand a large number of characteristics using diagrams.

 A possibility of misuse – Sometimes diagrams are misused to present an illusory picture of the
problem.

 Fail to present a meaningful look in certain situations – If the data has various measurements and
wide variation, then diagrams do not present a meaningful look.

 Careful usage – If diagrams are drawn on a false baseline, then the user must analyze them carefully.

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 Unit 2 Measures of Central Tendency & Dispersion

1) Define Mean

The value obtained by dividing the sum of the observation by total number of observation is called mean and
generally it is denoted by 𝑥 .

If 𝑥1, 𝑥2, 𝑥3 … 𝑥𝑛 𝑎𝑟𝑒 𝑛 given observation, then their mean 𝑥 = 𝑥/𝑛 .

2) Define median

The observation which is exactly in the middle after arranging all the observations in ascending or
descending order is called median of the observation and it is denoted by M.

𝑛+1 𝑡ℎ
Median M = observation
2

3) Define Mode

That observation which is repeated for maximum number of times in a series is called mode of the series and
it is denoted by 𝑀0 .

4) Define Range

The difference between the highest and lowest observation of a series is called range and it is denoted by R.

Range =𝑥𝐻 - 𝑥𝐿

5) Mean Deviation

The mean deviation is defined as a statistical measure that is used to calculate the average deviation from the
mean value of the given data set.

6) Standard Deviation

The standard deviation is a measure which shows how much variation (such as spread, dispersion, spread,)
from the mean exists. The standard deviation indicates a ―typical‖ deviation from the mean. It is a popular
measure of variability because it returns to the original units of measure of the data set.

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 Unit 3 Probability and Probability Distrribution

1) Basic terminology in Probability

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2) Three types of Probability

I) Mathematical or Classical Definition of Probability:

II) Statistical Definition of Probability

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III) Modern Definition of Probability

3) Properties of Binomial Distribution

 This is a distribution of a discrete variable.

 n, p are the parameters of Binomial distribution.
 The mean of Binomial distribution is np which shows the average number of successes.
 The variance of Binomial distribution is npq i.e., its s.d. = √(𝑛𝑝𝑞)
 When p and q are equal i.e., P = q = 1/2. Binomial distribution is a symmetrical distribution.
 When p < ½, its skewness is positive and when p > ½ its skewness is negative.
 The variance of Binomial distribution is always less than its mean.
 When number of trials n is very large, and p and q are not very small, Binomial distribution tends to
Normal distribution.
 When number of trials n is very large and p or q is very small, Binomial distribution tends to Poisson
distribution.

4) Properties of Poisson distribution

 This is a distribution of a discrete variable.

 It is a distribution of rare occurrence.
 m is parameter of the distribution.

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  The mean of this distribution is m.
 The variance of this distribution is also m. Hence its S.D. = √(m).
 Sum of two independent Poisson variates is also a Poisson variate.
 This is a distribution with positive skewness.

5) Properties of Normal Distribution

 This is a distribution of a continuous variable.

 µ 𝑎𝑛𝑑 𝜎 are the parameters of this distribution .
 The curve of the normal distribution is symmetrical about mean and it is bell shaped.
 Mean, median and mode are equal in this distribution.
 Quartiles are equidistant from median.
 Its skewness is zero.
 The total area under the normal curve is 1. The following are some of the important areas of the
normal curve :
o Area between u ± 0 = 0.6826
o Area between u ± 20 = 0.9545
o Area between u ± 30 = 0.9973
o Area between u ± 1.960 = 0.95
o Area between u ± 2.580 = 0.99
 The tails of the normal curve do not meet x axis. i.e., The curve is asymptotic to x axis.
 The tails of the normal curve do not meet x axis. i.e., The сurve is asymptotic to x axis.
 Mean deviation about mean = (4/5)𝜎 (approximately)
 Quartile deviation = = (2/3)𝜎 (approximately)
 The sum of two independent normal variates is also a normal variate.
 When n is very large, and p and q are not very small, Binomial distribution tends to Normal
distribution.
 In fact, most of the distributions in statistics follow normal distribution when n is large.

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 Unit 4 Correlation and Regression

1) Correlation
If the changes in the values of two variables are simultaneous and when the changes in one are due to the
changes in other, the variables are said to be correlated. The statistical study of correlated variables is called
correlation.
2) Properties of Correlation coefficient

3) Regression
Regression is a statistical technique with the help of which the functional relationship between two variables
can be established and which helps us in estimation the unknown value of the one variable for a known
value of other variable.
4) Properties of Regression coefficient

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 Unit 5 Test of Hypothesis

1) Statistical Hypothesis and Hypothesis Testing

A statistical hypothesis is an assumption about the parameters of the population or the nature of the
population.

Hypothesis Testing is a type of statistical analysis in which you put your assumptions about a population
parameter to the test.

2) Null hypothesis and Alternate hypothesis

A statistical hypothesis which is taken for the possible acceptance is called a Null hypothesis and it is
denoted by Ho. A hypothesis opposite to the Null hypothesis is called Alternate hypothesis and it is denoted
by H1.

3) Parameters and Statistics

A constant obtained from all the observations of a population is called a parameter. A constant obtained
from a sample is called a Statistics.

4) Type I and type II errors

The four possibilities can be represented in a table as follows:

Accept Reject
Ho is true Correct decision Type I error
Ho is false Type II error Correct decision

In testing of a statistical hypothesis the following situations may arise :

(1) The hypothesis may be true but it is rejected by the test
(2) The hypothesis may be false but it is accepted by the test.
(3) The hypothesis may be true and is accepted by the test.
(4) The hypothesis may be false and is rejected by the test.
In above situation, (3) and (4) are correct decisions while (1) and (2) are errors.
The error committed in rejecting a hypothesis which is true is called Type-I error and its probability is
denoted by 𝛼
The error committed in accepting a hypothesis which is false is called Type-II error and its probability is
denoted by 𝛽.

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