Chapter 1

Definition, Importance and Uses of Statistics

Definition of Statistics: Statistics may be defined as a science which deals with
collection, organization, classification, presentation, summarization, analysis and
interpretation of statistical data in any field of inquiry.

Reasons for learning Statistics: In the context of today’s competitive business

environment it is important for decision-maker to develop the ability to exact meaningful
information from raw data to make better decision. It is possible only through the careful
analysis of data guided by statistical thinking. The data analysis shows the variable and
its causes in any phenomenon that leads to better decisions about it that produces data.
So, the learning of statistics enables the decision-maker to understand how to:

 present and describe information (data) so as to improve decisions

 draw conclusions about the large population based upon information obtained
from samples.
 seek out relationship between pairs of variables to improve processes
 obtain reliable forecasts of justified variables of interest

Flow chart of reason of studying Statistics:

Reasons for studying

Presentation and Drawing conclusions Obtaining reliable forecast

description of information about population of variable of interest

Statistical Method

Statistics: Fundamentals of probability and Regression and correlation

An overview probability distribution

Data collection, Tabulation Index number

and presentation
Sampling and Sampling
distributions
Descriptive statistical
methods: Central
tendency, dispersion,
moments, skewness and Estimation and Hypothesis testing
kurtosis confidence interval
 Definition, Importance and Uses of Statistics

Types of Statistical Method:

(i) Descriptive statistics: It includes statistical methods involving the collection,

presentation and characterization of a set of data. The methods are: graphic,
measures of central tendency, measure of dispersion, skewness and kurtosis.

(ii) Inferential statistics: It includes statistical methods for estimating the

characteristics of a population (parameter) or making decisions concerning a
population on the basis of sample results. It can be categorized as parametric
and nonparametric. In parametric statistics parent population is considered
normal and measured scale is interval and ratio. But in nonparametric
statistics there is no assumption of normality and the measured scale is
nominal and ordinal.

Importance of Statistics in CSE and IIT: Computer and information technology, in

general have had a fundamental effect on most business and service organization. Over
the last decades personal computer (PC) has revolutionized both the areas to which
statistical techniques are applied. PC facilities such as spreadsheets or common statistical
packages have now made such analysis readily available to any business decision-maker.
Computer helps in processing and maintaining past records of operations involving
payroll calculations, inventory management, railway/airline reservation etc.

Limitation of statistics: Although Statistics has it’s application in almost all sciences-
social, physical, and natural- it has it’s own limitations as well, which restrict it’s scope
and utility.

a) Statistics does not study qualitative phenomena: Since Statistics deals with
numerical data, it cannot be applied in studying those problems which can be
stated and expressed quantitatively. Qualitative characteristics such as honesty,
poverty, welfare, beauty or health cannot be measured directly quantitatively.
However, these subjective concepts can be related in an indirect manner to
numerical data after assigning particular scores.
b) Statistics does not study individuals: Statistics always deals with aggregated
data that Statistics always helps for taking decision about a population based on
sample information.
c) Statistics can be misused: Statistics are liable to be misused. For proper use of
statistics one should have enough skill, knowledge, experience to draw accurate
and sensible conclusion. Further, valid results cannot be drawn from the use of
statistics unless one has a proper understanding of the subject to which it is
applied.

Variable: A characteristics which varies individual to individual is called variable. As

for example, height, weight, income, number of courses, expenditure etc.

2 Dr. Mohd. MuziburRahmann

Professor, Department of Statistics, JU
 Definition, Importance and Uses of Statistics

Dummy Variable: The variable which takes only two values either 0 or 1. As for
example, yes or no, present or absent etc.

Primary Data: The data which collected from the respondent directly by different survey
using questionnaire or schedule is known as primary data.

Secondary Data: The data collected from different published journals or books or other
sources is known as secondary data.

Classification of Variable: Variables can be classified in several ways. One method of

classification refers to the type and amount of information contained in the data. Data are
either categorical or numerical. Another method is to classify data by levels of
measurement, giving either qualitative or quantitative.

Categorical (Qualitative) Variables: Categorical variables produce response that

belongs to groups or categories. For example, response to yes/no questions are
categorical. “Do you own a mobile phone?” and did you ever visit Hiroshima, Japan? Are
limited to yes or no answer? Other examples of categorical variables include questions on
gender, marital status, and your major in college. Sometime categorical variables include
a range of choices such the instructor in this course was an effective teacher (1: strongly
disagree 2: slightly disagrees, 3: neither agree nor disagree, 4: slightly agree, 5: strongly
agree).

Numerical (Quantitative) Variables: Numerical variables include both discrete and

continues variable.

Discrete Variable: A discrete variable may (but does not necessary) have a finite number
of values. However, the most common type of discrete that we will encounter produces a
response that comes from a counting process. As for example, the number of students
enrolled in a class, the number of university credits earned by a student at end of a
particular semester and the number of insurance claims filed following a particular
hurricane in any particular state.

Continuous Variable: A continuous variable may take any value within a given range of
real numbers and usually arises from a measurement (not a counting) process. As for
example continuous numerical variables include height, weight, time, distance,
temperature etc. Someone might say that he is 6 feet (or 72 inches) tall but his height
could be actually be 72.1 inches, 71.8 inches or some other similar number, depending on
the accuracy of the instrument used to measure height. Other examples of continuous
numerical variables include the weight of cereal boxes, the time to run a race, and the
distance between two cities etc.
Measurement and Scaling Concept:
Measurement: Measurement is the assignment of numbers or other symbols to
characteristics of objects according to certain pre-specified rules. Note that what we
measure is not the object, but some characteristic of it. Thus, we do not measure objects-

3 Dr. Mohd. MuziburRahmann

Professor, Department of Statistics, JU
 Definition, Importance and Uses of Statistics

only their perceptions, attitudes, preferences, or other relevant characteristics. In research,

numbers are usually assigned for one of two reasons. First, numbers permit statistical
analysis of the resulting data. Second, numbers facilitate the communication of
measurement rules and results. In case of qualitative data there is no measurable to the
“difference” in numbers. For one basketball player is assigned the number “20” and
another player has the number “10” we can not conclude that the first player is twice as
good as the second player. However, with qualitative data, there is a measurable meaning
to the difference in numbers. When one student scores 90 on examination and another
student scores 45, the difference is measurable and meaningful.

Scale: A Scale may be defined as any series of items that are arranged progressively
according to value or magnitude into which an item can be placed according to its
quantification. It can be defined as a continuous spectrum or series of categories.

Purpose of Scaling: The purpose of scaling is to represent usual quantitatively an items,

a person’s or an event’s place in the spectrum. The type of scale determines what
numerical and statistical operations can be used in analyzing measurements.
Types of Scale: There are four types of scales, such as: (i) Nominal scale (ii) Ordinal
scale (iii) Interval scale (iv) Ratio scale.

Nominal Scale: It is a measurement scale of simplest type in which the number or letters
assigned to objects serve only labels or tags for identifying and classifying objects with a
strict one-to-one correspondence between the numbers and the objects.
Example: In business research if we give the coding of males as 1 and females as 2.
These two numbers are nothing but levels.

Ordinal Scale: It is type of scale that arranges objects or alternatives according to their
magnitudes in an ordered relationship. When the respondents are ordered, ordinal values
are assigned. Thus it is possible to determine whether an object has more of less of a
characteristic than some other object.
Example: In business research if we ask to rate companies as excellent, good, fair, poor
we know excellent is higher.

4 Dr. Mohd. MuziburRahmann

Professor, Department of Statistics, JU
 Definition, Importance and Uses of Statistics

Interval Scale: It is another type of scale that not only arranges objects according to their
magnitudes but also distinguishes their ordered arrangement in units of equal intervals.
An interval scale contains all the information of an ordinal scale, but it also allows you to
compare the differences between objects. The difference between any two scale values is
identical to the difference between any other two adjacent values of an interval scale.
There is a constant or equal interval between scale values.

Example: The classic example is Fahrenheit temperature scale. If a temperature is 800 it

cannot said that is twice as hot as 400 . The reason is far that 00 does not represent the lack
of temperature, but a relative point on the Fahrenheit scale.

Ratio Scale: A ratio scale possesses all the properties of the nominal, ordinal and interval
scales and in addition, an absolute zero point. It possesses an absolute zero. Thus, in ratio
scales we can identify or classify objects, rank the objects and compare intervals or
differences. It is also meaningful to compute ratios of scale values.

Example: Money and weight are ratio because they posses an absolute zero and interval
properties.

Mathematical and Statistical Analysis of Scales

Permissible Statistics
Common Marketing Numerical
Scale Basic Characteristics
Examples Examples Operation
Descriptive Inferential
 Numbers identify  Social Security  Brand  Counting  Percentages,  Chi-square,
and classify objects numbers, numbers, store mode binomial test
Nominal
numbering of types, sex
football players classification
 Numbers indicate  Quality  Preference  Rank  Percentile,  Rank-order
the relative rankings, rankings, ordering median correlation,
positions of the rankings of market Friedman
Ordinal objects but not the teams in a position, social ANOVA
magnitude of tournament class
differences
between them

5 Dr. Mohd. MuziburRahmann

Professor, Department of Statistics, JU
 Definition, Importance and Uses of Statistics

 Differences  Temperature  Attitudes,  Arithmetic  Range,  Product-

between objects (Fahrenheit, opinions, operations mean, moment
can be compared; Centigrade), IQ index numbers on intervals standard correlations, t-
Interval
zero point is score between deviation tests, ANOVA,
arbitrary numbers regression,
factor analysis
 Zero point is fixed;  Length, weight  Age, income,  Arithmetic  Geometric  Coefficient of
ratios of scale costs, sales, operations mean, variation
Ratio
values can be market shares on actual harmonic
computed quantities mean

Frequency distribution:

A frequency distribution is a table used to organize data. A frequency distribution divides

observations in the data set into conveniently established, numerically ordered classes
(groups or categories). The number of observations in each class is referred to as
frequency.

Constructing a Frequency Distribution:

If the variation within the data set is not so wide, then it is wide to construct ungrouped
frequency distribution for summarizing data. If the number of observations obtained gets
large, the method discussed above to summarize data become difficult and time
consuming. Thus to further summarizing the data into group frequency distribution
tables, the following steps should be taken:
i) select an appropriate number of non-overlapping class intervals
ii) determine the width of the class interval
iii) determine class limits (or boundaries) for each class interval to avoid
overlapping.

For constructing the frequency distribution, we need the following steps:

Step 1: Determine range: From the given data set, find out the lowest value and the
highest value. Then range is the difference between highest value and lowest value.

Step 2: Determine the number of class: If K determine the number of classes and N the
total number of observations, then the value K will be the smallest exponent of number 2,
that is 2k  N .
Another way to find the value of K by using Sturge’s rule is given by: K = 1 + 3.322
log10 N , where log10 N is the logarithm (base 10) of total number.

Step 3: Determine the width or the interval of classes: For constructing the frequency
distribution determine the suitable class interval i,

6 Dr. Mohd. MuziburRahmann

Professor, Department of Statistics, JU
 Definition, Importance and Uses of Statistics

Range Range
i= =
K 1+3.322 log10 N

Both K and i should be rounded upward, possible to the next longest integer.

Step 4: Determine the class limits (boundaries): The limits of each class interval
should be clearly defined so that each observation (element) of the data set belongs to one
and only one class. The class interval must be inclusive and non-overlapping such as 20-
29, 30-39, etc. Sometimes we also need exclusive types of class, where upper limit of
each classes are excluded from the each class (such as 20-30, 30-40, 40-50 etc.)

Step 5: Mid-point of class interval: The class mid-point is the point halfway between
the boundaries of each class. That means, it is the average of upper limit and of lower
limit of each classes.

Step 6.Tally marks: Now each and every observations of the data set are matched with
the respective classes and put a tally for every observation, after completing the whole
data set, the tallies of every class are added and put it on corresponding classes. This is
known as frequencies.

Step 7: Cumulative frequency (less than): If you add the frequencies of each classes
with next class from the top in a cumulative form then it is known as cumulative
frequencies less than. If do the same thing from the bottom then it is known as
cumulative frequencies more than. If we divide the frequencies of each class by the total
frequencies then it is known as relative frequency.

Example 1: Following data shows the total time (in hours) work by 30 machinists.
Construct a frequency distribution.

90 88 90 89 90 84 86 90 84 89 93 84 90 94 91
94 93 93 92 92 85 88 86 91 87 94 89 85 90 95

Solution: Here the variations among the data set are not vary wide, so we construct a
ungroup frequency distribution as follows:

Table 1: Frequency distribution of total time hours work by 30 machinists.

Working hours 84 85 86 87 88 89 90 91 92 93 94 95
No. of Employee 3 2 2 1 2 3 6 2 2 3 3 1

7 Dr. Mohd. MuziburRahmann

Professor, Department of Statistics, JU
 Definition, Importance and Uses of Statistics

Example 2: Following data shows the weekly overtime (in hours) of 50 employees in a
reputed fashion design company. Construct a frequency distribution by taking suitable
class interval.

22 77 79 82 65 50 65 73 60 33 75 66 65 30 63 41 55
65 67 62 45 49 75 59 55 54 51 28 39 25 50 48 68 55
81 35 65 65 79 61 45 53 81 49 37 57 78 27 87 77

Solution: Here, 26  50 , so the value of number of classes is 6. And the range of the data
is 22-87=65. Therefore the width of the class inter is 10.83≅ 11. On the other hand, we
know that, suitable class interval = .
= . × .
=9.7837≅ 10

Here the nearest value of the width is 10 (we select it multiple of 5).

Overtime (in hours) No. of employee

20-30 4
30-40 5
40-50 6
50-60 10
60-70 13
70-80 8
80-90 4

Example: The management of a factory wants to know per month working pattern of
workers of their factory. In this connection, a survey was conducted on randomly selected
48 workers of the factory. Following data give the number of hours work per month of
the 48 workers of the factory.

140 165 103 110 130 144 133 204 175 156 187 195
162 161 167 184 151 149 157 124 87 71 79 155
164 40 94 113 108 146 122 87 69 164 116 203
121 128 149 148 30 93 114 104 150 62 143 42

Construct a frequency distribution by using suitable class interval.

Describing Data: Graphical:

Once we carefully define a problem, we will need to collect data for making decision.
Often the number of observations collected is so large that the actual findings of the study
are unclear. For this reason, it is necessary to summarize data in such a way that a clear
and accurate picture emerges. Unfortunately, there is no single method or way to describe
data. Rather, the appropriate line is typically problem-specific, depending on two factors,

8 Dr. Mohd. MuziburRahmann

Professor, Department of Statistics, JU
 Definition, Importance and Uses of Statistics

the type of data and the purpose of the study. Tables and graphs help us to gain a better
understanding of data and provide visual support for improved decision making.

Use of graphs: Following are the uses of graphs:

(i) It is helpful in explaining the main features of a set of data

(ii) It is often valuable in suggesting an appropriate method of analysis and in
explaining the conclusions founded upon the analysis.
(iii) It can sometimes pinpoint gross errors in statistical records.

Basic principle of graphs:

(i) A graph should be clear and simple; a complicated graph defeats its own
purpose.
(ii) A graph should be completely self explanatory.
(iii) The origin, the vertical and the horizontal scales should be so chosen that a
graph does not convey a false impression about the nature of the data.

Limitation of graphs:

(i) They may be misleading, unless drawn and studied with care.
(ii) The conclusions drawn from the graphs should normally be regarded as
tentative and therefore, the graphs are no substitute for more critical statistical
analysis.

Types of diagrams:

(i) bar diagram, (ii) pie diagram, (iii) histogram, (iv) frequency polygon, (v) line diagram,
(vi) ogive curve (vii) scatter diagram.

Bar diagram and pie diagram are mainly used for representing qualitative data. The
former is also frequently used for depicting numerical values of a given item over a
period of time. Histogram, frequency polygon and cumulative frequency polygon are
used to represent frequency distributions. Line diagram is widely used to study the
changes in the values of a variable with the passage of time. Scatter diagram is very
useful in studying the interrelationship of two variables. .

Bar Diagram: This diagram is drawn by constructing a series of blocks of equal widths
but the heights of the blocks or rectangles is proportional to the values corresponding to
different time period or categories. Following Table shows the distribution of the
expenditure budget (in core taka) of different sector of country in the year 2012 as
follows:

Sector of Expenditure Transport Education Agriculture Industry Others

Expenditure (in core 25 40 80 70 55

9 Dr. Mohd. MuziburRahmann

Professor, Department of Statistics, JU
 Definition, Importance and Uses of Statistics

taka)

Now if we put the categories (sector) in the x-axis and the expenditure in y-axis then the
diagram will be a bar diagram where the width of the bars are equal but the heights are
proportional to the expenditure of the sectors.

100
80
60
Series1
40
20
0

ry

s
re
t
or

ti o

er
st
tu
sp

th
ca

du
ul
an

O
ic
u

In
Ed

r
Tr

Ag

An interesting and useful extension to the simple bar chart can be used when components
of individual categories are also of interest. As for example, following Table shows the
number of students enrolled in three business majors for three different years of BUP.

Subject 2001-02 2002-03 2003-04

Accounting 40 50 70
Marketing 70 80 90
Finance & Banking 45 55 80

100
90
80
70
60 Accounting
50 Marketing
40 Finance & Banking
30
20
10
0
2001-02 2002-03 2003-04

This information can be shown in a bar chart by breaking down the total number of
students for each year so that the three components are distinguished by differences
called components or bar chart. This graph allows us at make visuals comparisons of
totals and individual components. In this example it appears that the increase in
enrollment between 2001 and 2004 was almost uniform over the three majors.

Pie diagram: Pie charts are also used to describe categorical data. If we want to draw
attention to the proportion of frequencies in each category, then we will probably use a

10 Dr. Mohd. MuziburRahmann

Professor, Department of Statistics, JU
 Definition, Importance and Uses of Statistics

pie chart to depict the division of a whole into its constituent parts. The circle represents
the total, and the segments cut from its center depict shares of that total. Following Table
shows the distribution of monthly expenditure of the students of BUP.

Item of Expenditure Expenditure (in taka)

Food 6500
Clothing 2500
House rent 7000
Education 3500
Miscellaneous 3500

Expen. (in taka)

Food
Clothing
House rent
Education
Miscellaneous

Histogram: It is a graphical method for representing a frequency distribution. To

construct this diagram the horizontal axis (x-axis) is divided into segments corresponding
to the class boundaries of the frequency distribution. On each segment a rectangle with
area proportional to the frequency in the class is erected. The set of adjacent rectangles so
constructed, constitutes a histogram. Following distribution shows the audit time of 20
clients by exclusive method:

Audit time (in hours) 10-15 15-20 20-25 25-30 30-35

Number of clients 4 8 5 2 1

11 Dr. Mohd. MuziburRahmann

Professor, Department of Statistics, JU
 Definition, Importance and Uses of Statistics

9
8
7
6

No. of Client
5
4
3
2
1
0
10-15 15-20 20-25 25-30 30-35

Audit Time

Frequency Polygon: It is a diagram used to represent a frequency distribution. The mid-

values of class intervals are plotted along the x-axis and corresponding frequencies are
plotted along the y-axis. These later points are then joined by straight lines. This forming
with the x-axis a polygon called frequency polygon. The frequency polygon should be
brought down-at each end to the x-axis by joining it to mid value (on the base line) of the
next outlying interval.

Audit time (in 10-20 20-30 30-40 40-50 50-60 60-70

hours)
Number of clients 4 8 12 7 5 4

Frequency Polygon

14
12
10
Frequency

8
6
4
2
0
15 25 35 45 55 65
Mid value

Ogive (less than): In the X axis we plot upper limit of the class and in Y axis we plot
cumulative frequency less than.

Class interval 5-10 10-15 15-20 20-25 25-30 30-35

12 Dr. Mohd. MuziburRahmann

Professor, Department of Statistics, JU
 Definition, Importance and Uses of Statistics

Frequency 5 7 11 8 4 2
Cumulative 5 12 23 31 35 37
frequency

Ogive Curve

40
Cumulative frequency
30

20 Series2

10

0
10 15 20 25 30 35
Upper lim its

Graphs to Describe Time-series Data:

Line diagram: If we are given the values of a variable at different point of time, the set
of values is known as a time series. The line diagram is used to represent this type of
data. In this diagram time is represented along the x-axis and the variable is plotted along
the y-axis. Thus we get a point for each time period and successive points, when it
connected by straight line, gives the desired diagram.

Year of 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
enrollment
No. of student 12 14 15 17 18 15 16 19 20 21
(‘00)

Enrollment

25
20
15
10
5
0
1 2 3 4 5 6 7 8 9 10

The situations in which the line diagram is particularly useful are:

13 Dr. Mohd. MuziburRahmann

Professor, Department of Statistics, JU
 Definition, Importance and Uses of Statistics

a) When the emphasis is on the movement of a variable rather then on it’s actual
magnitude.
b) When several series are compared on the same chart.
c) When estimates or forecasts of a variable are to be obtained or displayed
graphically.

Scatter diagram: Sometimes the data consist of pair values of two related variables, and
the statistical problem is to investigate the inter-relationship between the variables. The
pairs of values of such related variable are: height and weight, income and expenditure,
price and consumption etc. When the given pair of values is plotted on ordinary graph
paper, we get a scatter diagram. If the dotted points form an upward trend on the graph
paper then the relationship between the variable is positive. If it forms a down ward trend
on the graph paper then the relationship between two variables is negative.

Expense of Ad. 10 12 15 20 23 9 6 7 11 12 13
Sales (in lac) 14 17 23 21 25 11 8 9 14 13 27
Sales

30

25

20

15

10

0
0 5 10 15 20 25

Stem-and-leaf display: Stem and leaf display is another form of presentation of

quantitative data. It allows us to condense data, but still retain the individuality of the
data. This presentation shows the range, concentration, presence of outlier, if any, and
distribution of the data set at a glance.

The stem of an observation is the leading digit or digits and the leaf of an observation is
the trailing digit. All the values in the stem are listed in order in a column, a vertical line
is drawn beside them and then all the corresponding leaf values are recorded for each
stem in row, to right of vertical line.

Steps for construction of stem and leaf plot or display:

a) Divide each observation into two parts: the stem and the leaf.
b) List the leaf in a column, with a vertical line to their right.
c) For each observation, record the leaf portion in the same raw as its corresponding
stem.
d) Order the leaves from lowest to highest in each stem.

14 Dr. Mohd. MuziburRahmann

Professor, Department of Statistics, JU
 Definition, Importance and Uses of Statistics

e) Mention the leaf unit to understand the actual observation.

Example: The prices (in taka) of 20 different brand of walking shoes are given below:

4 7 7 5 7 7 7 6 6 6 7 8 8 5 6 8 9 6 7 8
5 0 0 5 5 3 0 5 8 0 4 0 3 8 8 5 0 4 5 2

Construct a stem and leaf plot to display the distribution of the data.

Solution: The stem and leaf display of the data is follows:

Stem Leaf
4 5
5 5 8
6 5 8 0 8 4
7 0 0 5 3 0 4 5
8 0 3 5 2
9 0

Now we arrange the digits of each leaf in ascending order we get:

Stem Leaf
4 5
5 5 8
6 0 4 5 8 8
7 0 0 0 3 4 5 5
8 0 2 3 5
9 0

From the display it is seen that lowest price of walking shoe is 45 and highest is 90. And
the most common price is 70.

15 Dr. Mohd. MuziburRahmann

Professor, Department of Statistics, JU