Statistics in Business
Statistics are an important tool for running a business. Managers are required to make decisions based on data collected over time. This data is worthless unless it is analyzed and interpreted; statistics allows business managers to analyze the data and arrive at meaningful conclusions.
Statistical analysis allows businesses to deal with the uncertainties of the business. It allows managers to make sound judgments, knowing their decisions are based on data and not on assumptions. Statistics helps businesses to plan better and make predictions about the road ahead. Marketing is an important part of any business and statistics helps to market products and services effectively. Statistics also allow a business to keep an eye on the competition. One can make correct decision about the location of business, marketing of the products, financial resources.
Limitations
Difficulty of Understanding: The idea that a statistic is part of a distribution of possible figures is relatively unintuitive. As such, business owners tend to neglect characteristics such as base rates.
Say a company has designed a test to detect fraud that is 99 percent accurate. If the proportion of fraud in the entire population is only 1 in 1,000, the chance that you have detected fraud is much lower. In fact, the probability of fraud existing, given a positive test result, is only 9 percent. Because the base rate of fraud is so low, a positive test result cannot give us much insight into the actual chance that fraud has occurred.
Frequency: Statistical tests in business are often conducted from a frequentist approach, which may not be representative of the questions we are asking. In production processes, this often takes the form of a tolerance for error. Say a company produces sheets of metal that are 3 mm thick. The company may say that sheets within the 2.95 mm to 3.05 mm range of thickness are acceptable. If the company is producing 3.02 mm thick sheets, the...