Statistics for Business: Why is it Important?

Statistics for Business: Why is it Important?

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Chanchal
Chanchal Aggarwal
Senior Executive Content
Updated on Feb 9, 2024 00:49 IST

Business statistics analyze data for decision-making, revealing trends, forecasting performance, optimizing operations, and driving strategic planning to enhance profitability and reduce risks.

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Statistics is crucial in business as it helps them make decisions based on historical data and ongoing trends. The correct data always serves as the basis for critical decisions; this is why businesses always go to in-depth research to grow their venture. Statistics for business use tools that we primarily use in mathematics, such as mean, median, bell curve, probability, bar graphs, etc.

Let’s learn about statistical analysis and how businesses are leveraging it.

Table of Contents

Understanding Statistics for Business

Statistical analysis is collecting, organizing, and interpreting data meaningfully. Business statistics offers data to managers who help them to make successful decisions based on fundamental values rather than intuitions. Statistics is used to analyze the data and make interpretations, whether for sales estimation, introducing a new product line, making new production strategies, etc.

The primary purpose of business statistics is data collection, allowing managers to evaluate past performance, forecast future business practices, and run the organization profitably. Furthermore, it becomes the basis for risk navigation, sales prediction, market trends, changing consumer behavior, price determination, etc.

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The Role of Data in Business

For businesses that envision gaining a competitive edge, data is the right tool they should invest in. The main reason behind the success of any big firm is its emphasis on data and research. 

For example- Amazon recommends their customers based on their past orders and buying behavior. They use machine learning and data analytics to drive their recommendation engines rather than blindly suggesting [products to customers. 

Similarly, Starbucks uses an analytical approach to identify its future store locations. They partner with a location analytics company to find ideal store locations. They continuously use data to make informed decisions about finding new customers, acquiring customer insights, targeting marketing campaigns, spotting fraud, identifying other business risks, etc. 

 

A business can benefit in myriad ways when they utilize accurate data. Let’s find out how.

1. Making More Confident Decisions.

With the collection and analysis of data, you can make any business decision confidently as it is based on specific patterns and trends evaluated. No matter whether it is related to the launch of a new product or its discontinuation, entering into a new market, and so on. 

2. Continual Organizational Growth

Once you implement a strategy that was made using data, your next step is to check its outcomes. Businesses can apply their decisions to many functions, operations, and departmental activities. One after another, when they keep on implementing strategies, it will empower them to set actionable benchmarks that will result in continual growth and progress.

3. Hunting New Business Opportunities

With statistical analysis, businesses can have access to more opportunities. The timely evaluation of market trends and customer demands will enable them to gain insights before their rivals. Hence, with correct quantities of data, they can identify business opportunities and gain an edge over their rivals. 

Related Read – Difference between Null Hypothesis and Alternative Hypothesis

Types of Statistical Methods For Business Use

1. Descriptive Statistics

Descriptive Analysis answers the question ‘what happened’ by summarizing the past data. It is the process of describing samples and populations. A large amount of data is summarised into various valuable bits of information. It mainly emphasizes frequency distribution, central tendency, and data variability. In a frequency distribution, we record how often data occurs, central tendency shows the center point of data distribution, and variability of the set indicates its degree of disposition. 

Explore: Difference Between Mean And Median

Central Tendency

Measures of central tendency calculate the median or average values of data sets, whereas measures of variability show the dispersion of data. These two methods utilize tables, bar graphs, and general discussions to help users understand the meaning of the evaluated data.

Also read- Measures of Dispersion: Range, IQR, Variance, Standard Deviation

Measures of variability 

Variability measures enable us to determine how dispersed a data set’s distribution is. For instance, while a measure of central tendency can provide a person with the average value for a group of data, it cannot characterize the distribution of the data within the set.

 Frequency Distribution

Distribution (or frequency distribution) refers to the quantity of times a data point occurs. Alternatively, it is the measurement of a data point failing to occur. 

2. Inferential Statistics

Inferential statistics is a statistical branch that employs analytical techniques to infer conclusions about a population from a sample of its members. It is the statistical method in which we “conclude,” whereas descriptive statistics “describes” data. In other words, you gather information and draw a judgment. Parameter estimation and hypothesis testing are the two essential topics. Inferential statistics aims to find conclusions about a population. Inferential statistics uses a statistic (such as the sample mean) from the sample data to conclude the population parameter (e.g., the population mean).

Hypothesis Testing

Using accessible sample data, hypothesis testing is a sort of inferential statistics used to test hypotheses and make conclusions about the population. It entails creating a null and alternative hypothesis and then performing a statistical significance test. A conclusion is drawn based on the test statistic’s value, the critical value, and the confidence intervals. A hypothesis test has three possible outcomes: left, right, and two. The critical hypothesis tests used in inferential statistics are listed below.

  • Z Test
  • F Test
  • T Test
  • ANOVA Test
  • Wilcoxon Signed Rank Test
  • Mann- Whitney U Test

Regression Analysis

Regression analysis is used to estimate how one variable will change about another one. The most common regression technique in inferential statistics is linear regression. A linear regression calculates the effect of a unit change in the independent variable on the dependent variable. Regressions come in various forms:

Check out- Difference between Correlation and Regression

  • Basic linear
  • Multiple linear
  • Nominal
  • Logistic
  • Ordinal

Must Check: Statistics & Mathematics for Data Science & Data Analytics

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Difference Between Statistical and Inferential Data

  • Descriptive statistics provide details about the characteristics or descriptions of raw data. On the other hand, inferential statistics use data retrieved from the population to make judgments about the population.
  • While inferential statistics explain the likelihood of an event, descriptive statistics describe a condition.
  • Descriptive statistics aid in the meaningful organization, analysis, and presentation of data. Inferential statistics makes comparing data, generating hypotheses, and making predictions easier.
  • Using descriptive statistics, previously known information about a specific sample or population of a small size is explained. Inferential statistics aims to make inferences or conclusions about the entire population.
  • Descriptive statistics are shown using graphs, tables, and charts, while inferential statistics are represented using probability approaches.
  • Instead of using inferential statistics, which requires establishing a relationship between variables across the entire population, you can conduct a study more efficiently using descriptive statistics.

Conclusion

A decision may not always be right, even if statistics support it. Even while the data can point to a specific pattern or imply a specific outcome, any decision made using the data would only be correct if the data-gathering procedure or interpretation were correct. Because of this, the effects of every company choice ought to be periodically assessed and tracked. Hence, an individual should thoroughly understand all the methods to use statistics for business and make meaningful decisions successfully.  

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About the Author
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Chanchal Aggarwal
Senior Executive Content

Chanchal is a creative and enthusiastic content creator who enjoys writing research-driven, audience-specific and engaging content. Her curiosity for learning and exploring makes her a suitable writer for a variety ... Read Full Bio