Statistics involves studying the collection of statistical information, organizing and analyzing it then interpreting and presenting the information. Statistics is mostly used in experiments and surveys. Statistics has a major role in businesses and their day to day operations. Businesses utilize statistical methods to improve their efficiency, planning and output through strategy formation. Therefore, any business owners, workers or managers must resort to statistical methods to help them operate the business in the most appropriate manner.
Businesses use statistical information when conducting market research to obtain information that is of interest to their strategy formulation and decision making. Market research employs statistics in the collection of information of interest. This could be through conducting of surveys or through carrying out experiments about the area of interest. Furthermore, organizations can use observational studies in their efforts to collect data. However, for businesses, the most convenient method of data collection is the collection of secondary data from sources such as daily newspapers, business journals and other secondary sources. These sources contain a lot of numerical data about prices of commodities like shares, sports statistics and weather conditions. Every business has its own specific information that it seeks when collecting data. The four statistical data collection methods can all be used when undertaking this process.
Businesses also utilize statistics when deciding what kind of variable to use in their surveys. The business can select between numerical and categorical variables. Variables are the expressions used to describe the information the business wants to analyze. Categorical variables are statements used as responses such as no and yes. Numerical variables can be divided into discrete and continuous variables. Discrete variables can only take the form of whole numbers while continuous variables can take non-whole numbers. The choice of level of measurement is also important. For instance, the business must choose between the ordinal or nominal levels of measurementt.
Businesses also require statistical techniques when carrying out operations on the data they collect through surveys, observations and secondary sources. In most cases, these operations are done to derive the profitability, or develop a trend which can be used to predict future business conditions using prevailing standards. Usually, these operations may include regression, correlation and other operations that can help business analysts make conclusions about prevailing conditions in the industry concerned, or to make predictions about how the markets or how the business will perform in future.
During analysis of the information collected, the business individuals must use different statistical techniques to interpret and draw comparisons. One way to achieve this is through the use of ratios and interval scales. They are used only when the data in question is numerical data. Interval scales are used when dealing with differences between two sets of numerical data where there is no true zero. However, in ratio scales, differences between measurements involve true zero like in weight, length, age or measurement of salaries.
Businesses also utilize other statistical techniques like sampling when conducting surveys. Samples can be taken using different methods depending on how the business wants to conduct the survey and the objective of conducting the survey. Apart from sampling techniques, businesses use probabilities when preparing and interpreting statistical information. Therefore, the whole process that businesses undertake to collect information, process it and present it involves the use of statistical methods and techniques. Presentation may include use of charts, graphs and other diagrams.
Statistics is very important for businesses because it is used in almost all business operations. For instance, in accounting, accountants use statistical techniques in collecting, processing, storage and reporting of data. Statistical techniques are also used by businesses when conducting surveys about the industry and about business performance. Managers must also use statistical knowledge to analyze and make business decisions that would help the business remain competitive and efficient. Basically, statistics is used in every aspect of the business, from its daily operations to its long term objectives. Similarly, junior employees up to top management officials in any business organization utilize statistical information. Through statistical techniques, business people can easily establish business performance trends and correlations between different factors of production and output.
The Consumer Price Index (CPI) is a measure of the price level changes in consumable goods as well as services by households. The CPI is usually a statistical approximation that is developed using price samples of items. The prices of these representative commodities are collected within specified periods of time. In New Zealand, the CPI is mainly used in the measurement of inflation. When calculating the CPI, a basket of representative commodities is established. The commodities are assumed to be the most common goods consumed by an average household in New Zealand. Normally, goods and services that make up the CPI basket are reviewed every three years with the aim of making the basket remain up to date.
In New Zealand, the CPI basket comprises of about 690 types of goods and services which are classified into eleven groups. The groups are food, clothing and footwear, alcoholic beverages and tobacco, household services and contents, housing and household utilities, transport, health, recreation and culture, education, transport and miscellaneous goods and services. The groups are further subdivided into 45 subgroups then classified into 105 classes. Every commodity or service inside the basket is given an expenditure weight which represents its level of importance in relation to the patterns of household spending. Basic and necessary commodities have high importance and influence CPI more than the less necessary commodities.
The CPI for every good is calculated by first establishing a base year upon which all calculations will be based. Then the updated (latest collected price of the good) is divided by the base year price of that good multiplied by 100. To calculate the CPI of the country for all commodities in the basket, the weights, which had been established earlier on based on the commodity’s importance, are used. Therefore, the sum of the CPI of every good is divided by its weight then they are summed up to find the CPI of the country. Inflation is realized if the value of money used to buy a given quantity of products is no longer able to buy such an amount but less.
In New Zealand, the CPI is used in reporting the increase or decrease in prices faced by consumers over time. This is usually a percentage alteration between two periods for every group, subgroup and class of commodities or the overall CPI in the economy. The New Zealand central bank utilizes the information derived from the CPI in the formulation of monetary policies. This policy aims to obtain an agreement between all parties involved in regulating the economy to keep the yearly CPI in between one and three percent. This is achieved through increase or decrease of cash rates which affect interest rates paid by households in the economy. The CPI is used to regulate New Zealand’s unemployment benefit and superannuation payments annually. This is aimed at maintaining the currency’s purchasing power. CPI is also used by stakeholders in the labor market to negotiate wage demands so that wages match the prevailing costs of living. At an individual level, information about CPI is important when planning for household expenditure. People have to plan how to spend their money in relation to the prevailing economic conditions.
Therefore, CPI is important in determining the changes in the costs of living within the New Zealand economy. The calculation of the CPI is detailed to ensure that it reflects the real changes in prices and how consumers are affected by these changes. The changes in living costs usually affect most people in the country. However, the CPI only reflects how the price changes affect an average consumer in the economy. Inflation affects all citizens since interest rates change uniformly and commodity prices also increase. CPI information is useful for businesses because it helps them set prices accordingly based on the present economic situation. Furthermore, it influence business decisions in relation to interests rates; businesses will opt not to borrow loans to produce products which will not be consumed. Therefore, CPI helps businesses in decision making in terms of price setting and quantity of production. Individually, CPI data helps in planning how to utilize limited income to satisfy many needs.
References
Hahn, G. J., & Doganaksoy, N. (2011). The Role of Statistics in Business and Industry. New York: John Wiley & Sons.
International Labour Office. (2009). Consumer Price Index Manual Theory and Practice: Theory and Practice (illustrated ed.). New York: International Labour Organization.
Lee, C. F., Lee, J. C., & Lee, A. C. (2000). Statistics for Business and Financial Economics, Volume 1 (2, illustrated ed.). New York: World Scientific.
OECD. (2000). Main Economic Indicators: Sources and Definitions 2000. New York: OECD Publishing.
