CHAPTER ONE

INTRODUCTION AND ORIGIN

 Why study statistics?

1. Data are everywhere

2. Statistical techniques are used to make many deci-
sions that affect our lives
3. No matter what your career, you will make profes-
sional decisions that involve data.

An understanding of statistical methods will help you

make these decisions effectively
Applications of statistical concepts in
the business world
• Finance – correlation and regression, index num-
bers, time series analysis
• Marketing – hypothesis testing, chi-square tests,
nonparametric statistics
• Personel – hypothesis testing, chi-square tests,
nonparametric tests
• Operating management – hypothesis testing, es-
timation, analysis of variance, time series analysis
 Outlines
Objectives
•Definitions of Statistics
•Types of statistics
•Functions of statistics
•Types of variables and measurement scales
•Limitations of statistics
 CHAPTER ONE
1. INTRODUCTION AND ORIGIN
1.1 DEFINITION OF STATISTICS
Definition by Croxton and Cowden: Statistics may be defined as
the science of collecting, organizing, presentation, analysis and in-
terpretation of numerical data to assist in making more effective
decisions.
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.
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 appar-
ent inconsistencies, ambiguities, and recording errors or for that mat-
ter any mistakes that can enter into the actual computations.
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. Or-
derly presentation of data facilitates statistical analysis.
4. Analysis of data: The data presented should be carefully analyzed 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 cer-
tain definite conclusion.
5. Interpretation of data: Interpretation or drawing valid conclu-
sions is the last stage in statistical investigation. The interpreta-
tion of analyzed data is a difficult task and needs a high degree of
skills and experience. If the analyzed 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: descriptive statistics
and inferential statistics.
1.2.1 Descriptive statistics deals with collecting, summarizing,
and simplifying data, which are otherwise quite unwieldy and vo-
luminous. 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.
 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.
 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.
1.3 FUNCTIONS OF STATISTICS:
There are many functions of statistics. Let us consider the following
five important functions.
 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.
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 al-
ways 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 before-
hand. In business forecasting plays a dominant role in connection
with production, sales, profits etc.
 The analysis of regression analysis plays an important role in fore-
casting.
1.3.4 Formulating policies:
 Varies governmental policies regarding import export trade, taxa-
tion, 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 popu-
lation. In estimation theory, we estimate the unknown value of the
population parameter based on the sample observations.
1.4. 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, tempera-
ture, number of class in a building, e t c.

 Quantitative variables can be further classified as

i) Discrete variables, and
ii) Continuous variables
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 & can’t be counted but measured. 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 di-

rectly. Examples: color, beauty, sex, location. Qualitative variables
are also called categorical variables.
Hence we have two types of data; Qualitative/Categorical &
quantitative data.
 Cont’d
i. Categorical data: Data that can be grouped by specific categories.
Categorical data use either the nominal or ordinal scale of mea-
surement.
ii. Quantitative data: Data that use numerical values to indicate how
much or how many. Quantitative data are obtained using either the
interval or ratio scale of measurement.
Level of Measurement
 The level of measurement of the data often indicates the calcula-
tion that can be done to summarize and present the data.
 Levels of measurement: nominal, ordinal, interval, and ratio.
Nominal Level Data:
 Nominal level is he lowest or the most primitive measurement.
 In the nominal level of measurement, the observations can only be
classified or counted.
 Gender is a good example of the nominal level of measurement.
 Cont’d
 Data categories are mutually exclusive (an individual, object, or
measurement is included in only one category), so an object be-
longs to only one category.
 Data categories have no logical order.
Ordinal Level Data
 The next higher level of data is the ordinal level.
 Data categories are ranked or ordered according to trait they pos-
sess.
 One category is “higher” or “better” than the next one. That is
“Superior” is better than “Good,” “Good” is better than “Average”
 However, we are not able to distinguish anything about the mag-
nitude of the differences between groups.
 The data categories are mutually exclusive and exhaustive
Example: Passengers’ satisfaction towards the service offered by
Ethiopian Airlines.
 Interval Level Data
 The interval level of measurement is the next highest level.
 It includes all the characteristics of the ordinal level, but in addi-
tion, the difference between values is a constant size.
 Data categories are mutually exclusive and exhaustive
 Data categories are scaled according to the amount of the charac-
teristic they possess.
 Equal differences in the characteristic are represented by equal dif-
ferences in the numbers assigned to the categories
 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.
 Ratio Level Data
 The ratio level is the highest level of measurement.
 The ratio level of measurement has all the characteristics of the inter-
val level, but in addition, the 0 point is meaningful and the ratio be-
tween two numbers is meaningful.
 The point 0 reflects the absence of the characteristics.
 Examples: It 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.
 Data categories are scaled according to the amount of the characteris-
tics they possess.
 Equal differences in the characteristic are represented by equal differ-
ences in the numbers assigned to the categories
 Data categories are mutually exclusive and exhaustive.
1.5. LIMITATIONS OF STATISTICS:
1.4.1 Statistics is not suitable to the study of qualitative phenom-
enon: 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 mea-
surements.
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 mathe-
matical 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 av-
erage.
 1.4.4 Statistics table may be misused: Statistics must be used
only by experts; otherwise, statistical methods are the most dan-
gerous tools on the hands of the inexpert. The use of statistical
tools by the inexperienced and untraced persons might lead to
wrong conclusions.
1.4.5 Statistics is only, one of the methods of studying a prob-
lem: Statistical method do not provide complete solution of the
problems because problems are to be studied taking the back-
ground of the countries culture, philosophy or religion into con-
sideration.
THANK YOU!!!

END OF THE 1st CHAPTER!!