Studying data science is mainly about two things: the coding part, which we’ve started covering in our Python lessons. Then, there’s the mathematical part, which is mostly about statistics. This week, we’ll take a break from Python and learn a little more about the basic math behind the most common data science processes.
If you’re starting out in this field, you’ll want to brush up on inferential and descriptive statistics, which is commonly taught in, many Philippine high schools and colleges. These areas of statistics will allow you to perform essential analyst functions such as running reports, putting together visualizations and running forecasts.
Descriptive statistics and inferential statistics serve distinct yet complementary purposes in the analysis of data. Understanding the differences between them is essential for effective data-driven decision-making. One offers a detailed look at historical data, while the other enables you to make educated guesses about the future. Together, they form a powerful toolkit for making data-driven decisions that can give your business a competitive edge.
Descriptive Statistics: Summarizing Past Data
Descriptive statistics involve summarizing and describing the features of a dataset. This means looking at the numbers as they stand and extracting key insights. Descriptive statistics provide measures of central tendency (such as mean, median, and mode), variation (like range, variance, and standard deviation), and relationships (such as correlation and association).
For example, you might analyze sales figures from the previous quarter to determine the average sales per month, the range of sales values, and the correlation between advertising spend and sales revenue. While these summaries are valuable for understanding past performance, they fall short of providing insights into future trends or behaviors. They tell you what has already happened but do not help you make predictions or plan for the future.
Inferential Statistics: Predicting Future Trends
Imagine you are trying to understand your customer base. Descriptive statistics allow you to see how customers have interacted with your business historically. However, what you really want to know is how your customers will behave in the future. More than just looking at a sample of past customers, you are interested in the broader population of potential future customers.
This is where inferential statistics come in. This branch of statistics helps you make predictions or inferences about a population based on a sample of data. Unlike descriptive statistics that only describe the data you have, inferential statistics allow you to draw conclusions and make decisions that extend beyond the immediate data at hand. In short, inferential statistics allow you to use the information gathered in the past to make predictions about future events and to understand underlying patterns or relationships.
Business Applications of Inferential Statistics
Let’s explore some practical applications of inferential statistics in business.
- Market Research. Suppose you want to launch a new product and need to understand the potential market demand. Surveying a sample of your target audience allows you to make inferences about the likely acceptance and popularity of the product among the broader population.
- Quality Control. If your enterprise manufactures products, it’s crucial to check and ensure the quality of the items that you make. Taking a sample of products and testing them for defects allows you to infer the overall defect rate in the entire production batch. This, in turn, helps you maintain quality standards without inspecting every single product.
- Customer Satisfaction. Let’s say that you want to gauge how satisfied customers are with the services that your business provides. By analyzing the responses from a sample of customers, you can infer the overall satisfaction level of all your customers and identify areas for improvement.
- Sales Forecasting. Using past sales data, you can build models to predict future sales. By analyzing a sample of past sales figures, you can make inferences about future trends and plan your inventory, staffing, and marketing efforts accordingly.
Steps to Implement Inferential Statistics
To effectively use inferential statistics in your business, follow these essential steps to gather, analyze, and interpret your data for informed decision-making. Here’s a simple guide to get you started:
- Define Your Objectives. Clearly outline what you want to learn or achieve through your analysis. For example, are you trying to understand customer preferences, predict future sales, or test a new marketing strategy?
- Collect Data. Gather a representative sample of data. Ensure that your sample size is adequate to make reliable inferences. For instance, a larger sample will provide more accurate estimates and reduce the margin of error.
- Analyze Data. Use statistical software or tools to analyze your data. Perform hypothesis tests, calculate confidence intervals, and generate relevant statistics. Many user-friendly tools like Excel, SPSS, or online statistical calculators can help with this.
- Interpret Results. Understand what the results mean for your business. Look at the p-values, confidence intervals, and test statistics to make informed decisions. For example, if your p-value is low, it suggests that your results are statistically significant.
- Make Decisions. Use the insights gained from your analysis to make data-driven decisions. Whether it’s launching a new product, changing a marketing strategy, or improving customer service, inferential statistics can provide you with a solid foundation for your decisions.
The Importance of Inferential Statistics in Business
Incorporating inferential statistics into your decision-making process enhances your analytical capabilities as well as strengthens your competitive edge. As you become more proficient in using these tools, you’ll find that your strategies become more precise, bringing you closer to achieving your business goals.
