Business Statistics

Business statistics refers to a method that involves the application of statistics to get valuable insights from the data or information available to a company. It helps businesses understand their present situation and make future projections. Thus, this method plays a crucial role in helping companies make crucial decisions.

All experienced managers make vital business growth decisions based on this technique. This is because this method helps organizations spot overall industry trends. Moreover, companies use it in human resource and production planning besides finance. Based on the statistical technique utilized, statistics in business can be of two types — inferential and descriptive.

• Business statistics refers to using different statistical techniques and tools in a business setting. Companies use this method to make forecasts, test correlations, and describe data. Moreover, organizations can take informed business decisions with the help of this concept.
• The two types of business statistics are inferential and descriptive.
• There are various advantages of business statistics. A noteworthy one is that it can improve performance management.
• A key difference between business statistics and analytics is that the latter explores events and explanations while the former compares them and assigns weights to the various explanations.

Business statistics meaning refers to the method of utilizing statistics for analyzing an organization’s data. The primary goal of this technique is data collection, enabling managers to assess past performance, predict future business practices, and carry out an organization’s operations profitably. In other words, it serves as the basis for price determination, market trends, risk navigation, changing consumer behavior, sales prediction, etc.

With the help of principles and statistical techniques, organizations can utilize data to make decisions based on fundamental values instead of intuitions. That said, one must remember that managers require different skills, such as quality control, forecasting, personnel management, product planning, and market research, to make decisions. Also, one should remember that businesses generally accumulate data from experiments, surveys, or any other information system within an organization.

Individuals can utilize this method to determine the viability of an organization’s business proposition. Also, it can help companies know whether a specific marketing campaign was able to entice more consumers or not. This way, they can plan campaigns better in the future.

Let us understand the different types of this method in detail.

#1 - Descriptive Statistics

This method involves summarizing substantial data into different bits of information in a meaningful and useful manner. It uses different statistical tools, such as tables, charts, and graphs, to describe a specific phenomenon or make generalizations.

This method looks into what happened and clarifies the reason behind it. Managers can use historical information to check the mistakes and achievements in the past. The use of descriptive statistics is common in operations, finance, and marketing.

Some sub-categories of this method are measures of central tendency, frequency measurement, and measures of variation or dispersion.

#2 - Inferential Statistics

Not every generalization made using descriptive statistics needs to be true. Hence, individuals utilize this method to test whether the generalizations are valid. It involves assessing the validity and estimating facts and figures to make business decisions.

In inferential statistics, individuals utilize sample data to solve their research-related problems. A few sub-categories of inferential statistics are as follows:

• Pearson Correlation Coefficient
• Bivariate Regression
• Confidence Interval
• ANOVA (Analysis of Variance)
• Multivariate Regression

Let us look at some applications of statistics in business.

• Production: Businesses can use this method to determine how much of what to produce and when.
• Accounting: The use of statistical data is common in accounting, particularly in the auditing function, where destination and sampling techniques are mostly utilized.
• Research And Development: Various large companies have their R&D or research and development departments. The primary objective of such departments is to determine how to enhance existing products’ quality and what new offerings can be added to the portfolio. Carrying out a worthwhile R&D program is almost impossible without statistical data.
• Economics: Statistical methods and data play a crucial role in helping one comprehend economic issues and economic policies formulation. Individuals can quantify most economic indicators and phenomena and deal with them using statistically sound logic.
• Human Resource (HR) Management And Development: HR departments are responsible for developing rating systems, assessing performance, evolving training and compensatory rewards, etc. Such functions involve storing, accumulating, analyzing, retrieving substantial data, and designing forms. One can perform all such functions effectively and efficiently by utilizing statistics.
• Marketing: In this field, statistical analysis provides information that influences decision-making. One must note that any attempt to carve out a niche in a new market must depend on a skillful and thorough analysis of the data related to the workforce, purchasing power, transportation costs, consumer habits, and production.

Let us look at a few business statistics examples to understand the concept better.

Example #1

Suppose a software company, ABC, looks at their customers’ mean spending on the mobile-based application offered by them, the mode of the products purchased, and the median spending for each customer. Although, at first glance, this might appear to be overlapping, the three figures individually show a different aspect of the organization.

From customers’ mean spending, the organization can look to raise their offering’s value to convince the customers to purchase more and thus improve the revenue.

For mode, the organization can determine what function is appreciated the most by users and promote that particular feature to more customers. Alternatively, the company can introduce new features to amplify the existing features already liked by their customers.

The business can learn about customers’ spending habits by observing the median. For instance, if the median is significantly below the mean, it indicates that the majority of the customers are spending a small amount while a small section of the company’s customer base is spending most of the money. Thus, business statistics can help the organization introduce new features that customers having a low budget can enjoy and help improve revenue.

Example #2

Suppose a construction company, DBC, wants to determine whether the execution of a new project is worth it and whether it can earn decent profits from the investments. Considering that the prices of different construction materials and the finished building vary over time, managers of the organization can utilize business statistics to estimate the profit it can earn from the project. Based on the estimate, the businesses can decide whether executing the project would be prudent.

One can understand the importance of this concept by going through the following points.

• Statistical analysis allows organizations to quantify an organization’s performance and identify patterns. This enables a business’s managers to take informed decisions based on facts rather than intuitions.
• Another key advantage of business statistics is that it helps companies in performance management. For instance, it enables managers to know whether the employees are meeting their productivity requirements. This, in turn, allows the managers to take the required actions to support the employees performing below the level of expectation.
• Businesses also use statistics to predict whether the market will react positively or negatively to a new offering. This is vital before investing in the development of a new product.
• This method helps identify a relationship between multiple variables and their impact on each other, for example, the impact of advertising on sales.

The limitations of this concept are as follows:

• When utilizing statistics as a diagnostic tool for a business, managers may suffer from outcome bias.
• Another disadvantage is that individuals have a tendency to inaccurately determine the impact of sample size if it is small.
• In businesses, statistical tests are often carried out from a frequentist approach. This might not represent the questions asked.  

People new to the business world are often confused regarding statistics, business statistics, and analytics. Clearing the confusion is crucial to make judicious decisions and propel business growth. In that regard, understanding the key differences between these concepts is essential. So, let us find out how they differ.

This has been a guide to what is Business Statistics. We explain its importance, applications, examples, limitations, & comparison with business analytics. You can learn more about it from the following articles –

• Basic Statistics Concepts
• Nonparametric Statistics
• Big Data In Finance