There are three major functions in any business enterprise in which the statistical methods are useful. These are as follows:
- The planning of operations: This may relate to either special projects or to the recurring activities of a firm over a specified period.
- The setting up of standards: This may relate to the size of employment, volume of sales, fixation of quality norms for the manufactured product, norms for the daily output, and so forth.
- The function of control: This involves comparison of actual production achieved against the norm or target set earlier. In case the production has fallen short of the target, it gives remedial measures so that such a deficiency does not occur again. production has fallen short of the target, it gives remedial measures so that such a deficiency does not occur again.
A worth noting point is that although these three functions-planning of operations, setting standards, and control-are separate, but in practice they are very much interrelated.
Different authors have highlighted the importance of Statistics in business. For instance, Croxton and Cowden give numerous uses of Statistics in business such as project planning, budgetary planning and control, inventory planning and control, quality control, marketing, production and personnel administration. Within these also they have specified certain areas where Statistics is very relevant. Another author, Irwing W. Burr, dealing with the place of statistics in an industrial organisation, specifies a number of areas where statistics is extremely useful. These are: customer wants and market research, development design and specification, purchasing, production, inspection, packaging and shipping, sales and complaints, inventory and maintenance, costs, management control, industrial engineering and research.
Statistical problems arising in the course of business operations are multitudinous. As such, one may do no more than highlight some of the more important ones to emphasis the relevance of statistics to the business world. In the sphere of production, for example, statistics can be useful in various ways.
Statistical quality control methods are used to ensure the production of quality goods. Identifying and rejecting defective or substandard goods achieve this. The sale targets can be fixed on the basis of sale forecasts, which are done by using varying methods of forecasting. Analysis of sales affected against the targets set earlier would indicate the deficiency in achievement, which may be on account of several causes: (i) targets were too high and unrealistic (ii) salesmen's performance has been poor (iii) emergence of increase in competition (iv) poor quality of company's product, and so on. These factors can be further investigated.
Another sphere in business where statistical methods can be used is personnel management. Here, one is concerned with the fixation of wage rates, incentive norms and performance appraisal of individual employee. The concept of productivity is very relevant here. On the basis of measurement of productivity, the productivity bonus is awarded to the workers. Comparisons of wages and productivity are undertaken in order to ensure increases in industrial productivity.
Statistical methods could also be used to ascertain the efficacy of a certain product, say, medicine. For example, a pharmaceutical company has developed a new medicine in the treatment of bronchial asthma. Before launching it on commercial basis, it wants to ascertain the effectiveness of this medicine. It undertakes an experimentation involving the formation of two comparable groups of asthma patients. One group is given this new medicine for a specified period and the other one is treated with the usual medicines. Records are maintained for the two groups for the specified period. This record is then analysed to ascertain if there is any significant difference in the recovery of the two groups. If the difference is really significant statistically, the new medicine is commercially launched.