MBA SEMESTER 1 MB0040 STATISTICS FOR MANAGEMENT- 4 Credits (Book ID: B1129) Note: Each question carries 10 Marks.

. Answer all the questions 1. (a) Statistics is the backbone of decision-making. Comment. [ 5 marks] (b) Give plural meaning of the word Statistics? a. Due to advanced communication network, rapid changes in consumer behaviour, varied expectations of variety of consumers and new market openings, modern managers have a difficult task of making quick and appropriate decisions. Therefore, there is a need for them to depend more upon quantitative techniques like mathematical models, statistics, operations research and econometrics. Decision making is a key part of our day-to-day life. Even when we wish to purchase a television, we like to know the price, quality, durability, and maintainability of various brands and models before buying one. As you can see, in this scenario we are collecting data and making an optimum decision. In other words, we are using Statistics. Again, suppose a company wishes to introduce a new product, it has to collect data on market potential, consumer likings, availability of raw materials, feasibility of producing the product. Hence, data collection is the back-bone of any decision making process. Many organisations find themselves data-rich but poor in drawing information from it. Therefore, it is important to develop the ability to extract meaningful information from raw data to make better decisions. Statistics play an important role in this aspect. Statistics is broadly divided into two main categories. Below Figure illustrates the two categories. The two categories of Statistics are descriptive statistics and inferential statistics.

Q2. a. In a bivariate data on x and y, variance of x = 49, variance of y = 9 -17.5. Find coefficient of correlation between x and y. [ 5 marks] b. Enumerate the factors which should be kept in mind for proper planning. Ans. As we know that r= xy N x y given that, r=17.5 x=49=7, (xyN=r) y=9=3.

r= 17.5/7*3 which will be equal to 0.83 which means that there is a highly negative correlation. B.

Sample A Sample B

2.4 2.7

2.7 3.0

2.6 2.8

2.1 3.1 2.2

2.5 3.6

The percentage sugar content of Tobacco in two samples was represented in table 11.11. Test whether their population variances are same. [ 10 marks]

Q4. a. Explain the characteristics of business forecasting. [ 5 marks] b. Differentiate between prediction, projection and forecasting.
Ans. Business forecasting has always been one component of running an enterprise. However, forecasting traditionally was based less on concrete and comprehensive data than on face-to-face meetings and common sense. In recent years, business forecasting has developed into a much more scientific endeavor, with a host of theories, methods, and techniques designed for forecasting certain types of data. The development of information technologies and the Internet propelled this development into overdrive, as companies not only adopted such technologies into their business practices, but into forecasting schemes as well. In the 2000s, projecting the optimal levels of goods to buy or products to produce involved sophisticated software and electronic networks that incorporate mounds of data and advanced mathematical algorithms tailored to a company's particular market conditions and line of business. Business forecasting involves a wide range of tools, including simple electronic spreadsheets, enterprise resource planning (ERP) and electronic data interchange (EDI) networks, advanced supply chain management systems, and other Web-enabled technologies. The practice attempts to pinpoint key factors in business production and extrapolate from given data sets to produce accurate projections for future costs, revenues, and opportunities. This normally is done with an eye toward adjusting current and near-future business practices to take maximum advantage of expectations. In the Internet age, the field of business forecasting was propelled by three interrelated phenomena. First, the Internet provided a new series of tools to aid the science of business forecasting. Second, business forecasting had to take the Internet itself into account in trying to construct viable models and make predictions. Finally, the Internet fostered vastly accelerated transformations in all areas of business that made the job of business forecasters that much more exacting. By the 2000s, as the Internet and its myriad functions highlighted the central importance of information in economic activity, more and more companies came to recognize the value, and often the necessity, of business forecasting techniques and systems.

Business forecasting is indeed big business, with companies investing tremendous resources in systems, time, and employees aimed at bringing useful projections into the planning process. According to a survey by the Hudson, Ohio-based AnswerThink Consulting Group, which specializes in studies of business planning, the average U.S. company spends more than 25,000 person-days on business forecasting and related activities for every billion dollars of revenue. Companies have a vast array of business forecasting systems and software from which to choose, but choosing the correct one for their particular needs requires a good deal of investigation. According to the Journal of Business Forecasting Methods & Systems, any forecasting system needs to be able to facilitate data-sharing partnerships between businesses, accept input from several different data sources and platforms, operate on an open architecture, and feature an array of analysis techniques and approaches. Forecasting systems draw on several sources for their forecasting input, including databases, emails, documents, and Web sites. After processing data from various sources, sophisticated forecasting systems integrate all the necessary data into a single spreadsheet, which the company can then manipulate by entering in various projectionssuch as different estimates of future salesthat the system will incorporate into a new readout. A flexible and sound architecture is crucial, particularly in the fast-paced, rapidly developing Internet economy. If a system's base is rigid or inadequate, it can be impossible to reconfigure to adjust to changing market conditions. Along the same lines, according to the Journal of Business Forecasting Methods & Systems, it's important to invest in systems that will remain useful over the long term, weathering alterations in the business climate. One of the distinguishing characteristics of forecasting systems is the mathematical algorithms they use to take various factors into account. For example, most forecasting systems arrange relevant data into hierarchies, such as a consumer hierarchy, a supply hierarchy, a geography hierarchy, and so on. To return a useful forecast, the system can't simply allocate down each hierarchy separately, but must account for the ways in which those dimensions interact with each other. Moreover, the degree of this interaction varies according to the type of business in which a company is engaged. Thus, businesses need to fine-tune their allocation algorithms in order to receive useful forecasts. According to the Journal of Business Forecasting Methods & Systems, there are three models of business forecasting systems. In the time-series model, data simply is projected forward based on an established methodof which there are several, including the moving average, the simple average, exponential smoothing, decomposition, and Box-Jenkins. Each of these methods applies various formulas to the same basic premise: data patterns from the recent past will continue more or less unabated into the future. To conduct a forecast using the time-series model, one need only plug available historical data into the formulas established by one or more of the above methods. Obviously, the time-series model is the most useful means for forecasting when the relevant historical data reveals smooth and stable patterns. Where jumps and anomalies do occur, the time-series model may still be useful, providing those jumps can be accounted for. The second forecasting model is cause-and-effect. In this model, one assumes a cause, or driver of activity, that determines an outcome. For instance, a company may assume that, for a

particular data set, the cause is an investment in information technology, and the effect is sales. This model requires the historical data not only of the factor with which one is concerned (in this case, sales), but also of that factor's determined cause (here, information technology expenditures). It is assumed, of course, that the cause-and-effect relationship is relatively stable and easily quantifiable. The third primary forecasting model is known as the judgmental model. In this case, one attempts to produce a forecast where there is no useful historical data. A company might choose to use the judgmental model when it attempts to project sales for a brand new product, or when market conditions have qualitatively changed, rendering previous data obsolete. In addition, according to the Journal of Business Forecasting Methods & Systems, this model is useful when the bulk of sales derives only from a relative handful of customers. To proceed in the absence of historical data, alternative data is collected by way of experts in the field, prospective customers, trade groups, business partners, or any other relevant source of information. Business forecasting systems often work hand-in-hand with supply chain management systems. In such systems, all partners in the supply chain can electronically oversee all movement of components within that supply chain and gear the chain toward maximum efficiency. The Internet has proven to be a panacea in this field, and business forecasting systems allow partners to project the optimal flow of components into the future so that companies can try to meet optimal levels rather than continually catch up to them. In integrated supply chain networks, for instance, a single company in the supply chain can enter slight changes in their own production or purchasing schedules for all parties to see, and the forecasting system immediately processes the effects of those changes through the entire supply chain, allowing each company to adjust their own schedules accordingly. With business relationships and supply chains growing increasingly complexparticularly in the world of ecommerce, with heavy reliance on logistics outsourcing and just-in-time deliverysuch forecasting systems become crucial for companies and networks to remain efficient. B. A prediction is a statement about the way things will happen in the future, often but not always based on experience or knowledge. While there is much overlap between prediction and forecast, a prediction may be a statement that some outcome is expected, while a forecast may cover a range of possible outcomes.Prediction is closely related to uncertainty. Reference class forecasting was developed to eliminate or reduce uncertainty in prediction Forecasting aims to tell of events before they happen. It differs from prediction in that it looks to the future, where as prediction may not (as in a successful reconstruction of some past outcome). Further, forecasting differs from explanation, having the goal of predicting an outcome, rather than the goal of theorising about outcomes. A financial projection consists of prospective financial statements that present, given one or more hypothetical assumptions, an entity's expected financial position, results of operations, and cash flows. A financial projection is sometimes prepared to present one or more hypothetical courses of action for evaluation, as in response to a what if? scenario.

The key difference between a forecast and a projection is the nature of the assumptions. In a forecast, the assumptions represent the company's expectations of actual future events. A projection is used when the assumptions desired are not those believed to be most likely(essentially, the "what if?"scenario).

Q5. What are the components of time series? Bring out the significance of moving average in analyzing a time series and point out its limitations. Ans.
The four components of time series are: 1.Secular trend 2.Seasonal variation 3.Cyclical variation 4.Irregular variation Secular trend: A time series data may show upward trend or downward trend for a period of years and this may be due to factors like increase in population, change in technological progress, large scale shift in consumers demands, etc. For example, population increases over a period of time, price increases over a period of years, production of goods on the capital market of the country increases over a period of years. These are the examples of upward trend. The sales of a commodity may decrease over a period of time because of better products coming to the market. This is an example of declining trend or downward trend. The increase or decrease in the movements of a time series is called Secular trend. Seasonal variation: Seasonal variation is short-term fluctuation in a time series which occur periodically in a year. This continues to repeat year after year. The major factors that are responsible for the repetitive pattern of seasonal variations are weather conditions and customs of people. More woollen clothes are sold in winter than in the season of summer .Regardless of the trend we can observe that in each year more ice creams are sold in summer and very little in winter season. The sales in the departmental stores are more during festive seasons that in the normal days. Cyclical variations: Cyclical variations are recurrent upward or downward movements in a time series but the period of cycle is greater than a year. Also these variations are not regular as seasonal variation. There are different types of cycles of varying in length and size. The ups and downs in business activities are the effects of cyclical variation. A business cycle showing these oscillatory movements has to pass through four phases-prosperity, recession, depression and recovery. In a business, these four phases are completed by passing one to another in this order. Irregular variation: Irregular variations are fluctuations in time series that are short in duration, erratic in nature and follow no regularity in the occurrence pattern. These variations are also referred to as residual variations since by definition they represent what is left out in a time series after trend, cyclical and seasonal variations. Irregular fluctuations results due to the occurrence of unforeseen events like floods, earthquakes, wars, famines, etc.

Q6. List down various measures of central tendency and explain the difference between them? [ 5 marks] b. What is a confidence interval, and why it is useful? What is a confidence level? Ans:
A measure of central tendency is a single value that attempts to describe a set of data by identifying the central position within that set of data. As such, measures of central tendency are sometimes called measures of central location. They are also classed as summary statistics. The mean (often called the average) is most likely the measure of central tendency that you are most familiar with, but there are others, such as, the median and the mode. The mean, median and mode are all valid measures of central tendency but, under different conditions, some measures of central tendency become more appropriate to use than others. In the following sections we will look at the mean, mode and median and learn how to calculate them and under what conditions they are most appropriate to be used.

Mean (Arithmetic)
The mean (or average) is the most popular and well known measure of central tendency. It can be used with both discrete and continuous data, although its use is most often with continuous data (see our Types of Variable guide for data types). The mean is equal to the sum of all the values in the data set divided by the number of values in the data set. So, if we have n values in a data set and they have values x1, x2, ..., xn, then the sample mean, usually denoted by (pronounced x bar), is:

This formula is usually written in a slightly different manner using the Greek capitol letter, pronounced "sigma", which means "sum of...":

You may have noticed that the above formula refers to the sample mean. So, why call have we called it a sample mean? This is because, in statistics, samples and populations have very different meanings and these differences are very important, even if, in the case of the mean, they are calculated in the same way. To acknowledge that we are calculating the population mean and not the sample mean, we use the Greek lower case letter "mu", denoted as :

The mean is essentially a model of your data set. It is the value that is most common. You will notice, however, that the mean is not often one of the actual values that you have observed in your data set. However, one of its important properties is that it minimises error in the prediction of any one value in your data set. That is, it is the value that produces the lowest amount of error from all other values in the data set. An important property of the mean is that it includes every value in your data set as part of the calculation. In addition, the mean is the only measure of central tendency where the sum of the deviations of each value from the mean is always zero. When not to use the mean The mean has one main disadvantage: it is particularly susceptible to the influence of outliers. These are values that are unusual compared to the rest of the data set by being especially small or large in numerical value. For example, consider the wages of staff at a factory below: Staff Salary 1 15k 2 18k 3 16k 4 14k 5 15k 6 15k 7 12k 8 17k 9 90k 10 95k

The mean salary for these ten staff is $30.7k. However, inspecting the raw data suggests that this mean value might not be the best way to accurately reflect the typical salary of a worker, as most workers have salaries in the $12k to 18k range. The mean is being skewed by the two large salaries. Therefore, in this situation we would like to have a better measure of central tendency. As we will find out later, taking the median would be a better measure of central tendency in this situation. Another time when we usually prefer the median over the mean (or mode) is when our data is skewed (i.e. the frequency distribution for our data is skewed). If we consider the normal distribution - as this is the most frequently assessed in statistics - when the data is perfectly normal then the mean, median and mode are identical. Moreover, they all represent the most typical value in the data set. However, as the data becomes skewed the mean loses its ability to provide the best central location for the data as the skewed data is dragging it away from the typical value. However, the median best retains this position and is not as strongly influenced by the skewed values. This is explained in more detail in the skewed distribution section later in this guide.

Median
The median is the middle score for a set of data that has been arranged in order of magnitude. The median is less affected by outliers and skewed data. In order to calculate the median, suppose we have the data below: 65 55 89 56 35 14 56 55 87 45 92

We first need to rearrange that data into order of magnitude (smallest first):

14

35

45

55

55

56

56

65

87

89

92

Our median mark is the middle mark - in this case 56 (highlighted in bold). It is the middle mark because there are 5 scores before it and 5 scores after it. This works fine when you have an odd number of scores but what happens when you have an even number of scores? What if you had only 10 scores? Well, you simply have to take the middle two scores and average the result. So, if we look at the example below: 65 55 89 56 35 14 56 55 87 45

We again rearrange that data into order of magnitude (smallest first): 14 35 45 55 55 56 56 65 87 89 92

Only now we have to take the 5th and 6th score in our data set and average them to get a median of 55.5.

Mode
The mode is the most frequent score in our data set. On a histogram it represents the highest bar in a bar chart or histogram. You can, therefore, sometimes consider the mode as being the most popular option. An example of a mode is presented below:

Normally, the mode is used for categorical data where we wish to know which is the most common category as illustrated below:

We can see above that the most common form of transport, in this particular data set, is the bus. However, one of the problems with the mode is that it is not unique, so it leaves us with problems when we have two or more values that share the highest frequency

B. In statistics, a confidence interval (CI) is a particular kind of interval estimate of a

population parameter and is used to indicate the reliability of an estimate. It is an observed interval (i.e. it is calculated from the observations), in principle different from sample to sample, that frequently includes the parameter of interest, if the experiment is repeated. How frequently the observed interval contains the parameter is determined by the confidence level or confidence coefficient. A confidence interval with a particular confidence level is intended to give the assurance that, if the statistical model is correct, then taken over all the data that might have been obtained, the procedure for constructing the interval would deliver a confidence interval that included the true value of the parameter the proportion of the time set by the confidence level.[clarification needed] More specifically, the meaning of the term "confidence level" is that, if confidence intervals are constructed across many separate data analyses of repeated (and possibly different) experiments, the proportion of such intervals that contain the true value of the parameter will approximately match the confidence level; this is guaranteed by the reasoning underlying the construction of confidence intervals.

A confidence interval does not predict that the true value of the parameter has a particular probability of being in the confidence interval given the data actually obtained. (An interval intended to have such a property, called a credible interval, can be estimated using Bayesian methods; but such methods bring with them their own distinct strengths and weaknesses).