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 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.
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.
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:
Let us look at some applications of statistics in business.
Let us look at a few business statistics examples to understand the concept better.
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.
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.
The limitations of this concept are as follows:
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.
| Business Statistics | Statistics | Business Analytics |
|---|---|---|
| This refers to the method of applying statistical techniques and tools to managerial and business problems. | It refers to the study of facts, numerical data, measurements, and figures. | Business analytics explores explanations and events while statistics in business compares them, assigns weight to a few of the explanations, and casts doubt on the other ones. |
| It helps analyze the data available to businesses for making prudent business decisions. | Statistics help conduct research, make informed decisions, and develop critical thinking. | This concept aims to assist businesses in making data-driven decisions to improve business outcomes. |
Probability refers to a mathematical way of explaining the likelihood of an event taking place. One must remember that probabilities are typically expressed in percentages, fractions, or decimal numbers. Moreover, their measurement occurs on a scale of 0-1.
2. How are business statistics collected?The key sources of the statistics can be as follows:
- Interviews
- Focus groups
- Observations
- Surveys
- Secondary data analysis
- Experiments
After collecting data from such sources, managers can analyze and utilize them to refute or support research theories besides drawing conclusions concerning the subject matter of the study.
Business statistics allows organizations to deal with uncertainties by predicting seasonal, cyclic, and general economic fluctuations. Moreover, it assists in making prudent decisions by offering accurate projections concerning demand, prices, sales, costs, etc.
4. What is the role of business statistics in small businesses?Statistics in small businesses help managers understand what is new and what they can expect in the future. Moreover, the statistical tools and techniques help them know what influences the operations of organizations and more.
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 –
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