Business statistics

Front matter

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Preface

Tms book has been prepared to bring together, in a form accessible for class use, scattered articles and selections upon the subject of business statistics. It is designed primarily for purposes of instruction in the course in Business Statistics in the Harvard Graduate School of Business Administration. The subject is one to which scientific attention has only recently been directed; consequently there is a dearth of published material which is strictly scientific. For this reason some selections have been included which are not fully satisfactory but which suggestively furnish a basis for class discussion. The inclusion of any selection does not imply that the methods used or the conclusions reached meet with the editor's full approval.

Business statistics, it may be stated, are numerical statements of facts, exclusive of financial accounts, which are used in business administration. These statistics are of two general classes — (i) external statistics, generally publicly available, which indicate the general trend of business and market conditions, and (2) internal statistics, which are concerned with the private operations of an individual business establishment. Examples of the first class are the statistics of manufactures, agriculture, and population collected by the United States Bureau of the Census, railroad and other pubhc utility statistics published by the Interstate Commerce Commission and by state commissions, banking and financial statistics pubKshed in the financial journals, price and production statistics published in trade papers, and the reports of trade associations. Internal statistics include those obtained from the sales, advertising, and factory reports of an individual firm or company. Such reports and records are used in business establishments of all sorts, both large and small. In fact successful business administration depends to a large degree upon these reports and records, which are utilized for checking up current vi PREFACE

operations and determining tendencies. They provide a basis for the formulation of plans and policies. If all of the details of the business are to be followed accurately and if exact standards are to be established for comparison, such records are indispensable.

In some large manufacturing companies an elaborate statistical system is maintained, whereby the various department heads obtain statistical reports for their own guidance and summaries of these departmental reports are prepared at regular intervals for the chief executive. By this means statistics are gathered from all comers of the organization, covering all of its activities. These current reports are supplemented by reports on special tests or investigations. The use of statistics is not confined, however, to large companies; many small manufacturing establishments and numerous retail stores of ordinary volume of business utilize statistical records to advantage. The articles which are reprinted in this book have been selected with a view to illustrating the uses of these various kinds of statistics and the methods of collection and presentation in both large and small businesses.

This book does not pretend to cover the entire field of business statistics, but deals chiefly with statistics used in mercantile and manufacturing businesses. Financial and foreign trade statistics have not been included, except for casual references, since the articles and other publications on those subjects are usually more readily available than the scattered articles on mercantile and manufacturing statistics and the space limitations of this volume do not permit of expansion. Lack of space has also made it impossible to include more articles on statistics used in the administration of railroads, local public service companies, banks, and insurance companies. Although their application to these specialized subjects is given scanty consideration here, the same fundamental principles of statistical theory and method apply to these special classes of business statistics.

In presenting statistics to be used in business administration, graphs and charts can frequently be used advantageously to supplement tabulated figures. Many persons can more readily grasp the facts shown by the statistics when they are presented in

PREFACE Vll

graphical form. It must be recognized, nevertheless, that others prefer to use only the tabular statements and for them it is a waste of time to prepare charts. The applications of the graphic method to the presentation of business statistics are manifold and numerous examples are shown in the selections reprinted in this book. A comprehensive treatment of the subject of chart preparation has not been included inasmuch as that subject is well covered in other treatises which are readily available.

The editor realizes fully that this work represents only a beginning of the development of this subject. He has been forced, however, to utilize such material as is available, with its numerous shortcomings and deficiencies. It is hoped that the book will serve to illustrate the magnitude of the problems involved and thereby stimulate more scientific investigation of the subject.

Melvin T. Copeland.

Cambkidgk, Mass., April 6, 1916.

Chapter I Statistical Methods Page

I. Statistical Methods 3

By Melvdj T. Copeland

II. Statistical Units 29

III. Index Numbers 52

By Wesley C. Mitchell

Chapter II

STATISTICAL INDICES OF BUSINESS CONDITIONS I. Statistical Indices of Business Conditions 98

II. Current Theory Concerning Business Cycles 132

By Wesley C. Mitchell

III. Government Crop Reports 138

Bureau of Crop Estimates, U. S. Department ov Agriculture

IV. Current Sources of Information in Produce Markets . 161

By Bruce D. Mudgett

CHAPTER III SALES AND ADVERTISING STATISTICS Introduction 178

I. Considerations of the Market 186

By a. W. Shaw

II. Why and How a Manufacturer Should Make Trade

Investigations 197

By C. C. Parlin

III. Finding the Facts that Count 207

By J. G. Fredericks and F. M. Feiker

IV. Demand Among Owners of Homes 217

X CONTENTS

PAGE

V. Planning Next Year's Business 223

By Melville W. Mnc

VI. Sales Development 230

VII. Need of a Federal Trade Census 235

VIII. Report of Committee on Wiring, National Electric

Light Association 240

IX. Guiding Salesmen by Map and Tack 251

By W. A. Waterbtjey

X. Determining the Value of Salesmen 254

By Donald L. Kinney

XI. Records Salesmen Like 261

XII. Graphs for the Sales Manager 264

By Stanley C. Tarrant

XIII. Advertising and Sales Department Records 267

By Edward S. Babcox

XIV. The Facts that Must Govern Advertising 272

By H. Tipper

XV. Finding the Weak Spots in General PuBLiaTY ... 276

By Floyd Y. Keeler

^ XVI. Using Buyers to Find Out How to Reach Prospects 281

By Roscoe C. Chase

XVII. How Packard Investigated Quality of Circulation . 285

By Roscoe C. Chase

XVIII. The Worth of Various Plans to Produce Circulation 290

By George O. Glavis

XIX. Analysis of Newspaper Circulation 298

By E. G. Pratt

XX. What the Advertiser Pays For 302

By Roy W. Johnson

XXI. Record of Advertising Results 313

By Thomas P. Comeford

XXII. Testing Copy and Mediums 316

XXIII. How Keyed Returns May Throw Light on Mediums AND Copy 328

By Grajfton B. Perxins

XXIV. Cumulative Value and Advertising Record Keeping . 335

By William A. Shryer

XXV. Making Each Medium Pull Its Share of the Load . 353

By John P. Wilder

CONTENTS XI

XXVI. Fallacy of Rating Mediums on Inquiry Basis ... 357

By LxJTHER D. Fernald

XXVII. Why Cost Per Inquiry is a Bad Guide 363

By S. R. McKelvte

XXVIII. Forecasting Results of Sales Letters 369

By H. McJoHNSTON

XXIX. Retail Control through Sales Records 374

By A. W. Montgomery

XXX. Keeping Tab on Sales and Profits 381

By W. J. MiiLLDJ

XXXI. The Danger Zone in Store Keeping 386

By W. S. Zimmerman

XXXII. More Turnovers 390

By Wheeler Sammons

CHAPTER IV Introduction 402

I. The Purchasing Agent 408

By Elihtj C. Chxjrch

II. Anticipating Buying Emergencles 411

By H. A. Russell

III. Checking Losses in the Storeroom 417

IV. The Perpetual Inventory in Practical Stores Operation 427

By J. B. Green

V. The Stores Department 439

By George C. Yeomans

VI. Time Study and Task Work Explained 443

By Sanford E. Thompson

VII. The Automatic Rating of Workmen 452

VIII. Hiring and Firing 458

By Magnus W. Alexander

' IX. A Graphical Daily Balance in Manufacture. . . . 474 u X. Use of Production Charts in a Machine Shop . . . 484

By E. H. ScHELL

XI. Aids to Scientific Foundry Management 488

By W. M. Corse

XI 1 CONTENTS

PAGE

XII. Manttfactueing Expense 494

By Nicholas T. Picker

XIII. Collecting Data to Compute Costs 514

By GuiDO Sacerdote

XIV. Methods of Cost Fintding est Cotton Mills ...... 524

By William G. Nichols

X\'. The Relation between Production and Costs ..... 543

Chapter V Statistics For The Chief Executive

Introduction 551

I. The Importance of Leadership 555

II. The Hardest Question in Business 562

By Carroll D. Murphy

III. Driving the Engines of Business 573

By Kendall Banning

IV. Behind the Figures 583

By A. E. Andersen

V. The Load Factor 592

VI. Statistical Reports of the Utah Consolidated MI^^NG

Company 612

VII. Railway Accounts and Statistics 627

By A. J. County

VTII. Railroad Statistics 642

By A. A. Goodchuj)

IX. Costs and Results 655

By William J. Cunningham

X. Vitalized Statistics 663

By James Peabody

XI. Statistical Units Used in Analysis of Electric Railway

Accounts 673

By James A. Emery

Xn. The Function of Statistics in the Telephone Business . . 684

By Walter S. Giffoed

CHAPTER I STATISTICAL METHODS I, Statistical Methods

It is the purpose of this chapter to explain the fundamental principles of statistical theory and method which should be observed in the collection, classification, and presentation of statistics to be utilized in business administration. Although only a means to an end, reliable statistics furnish one of the essential bases for the formulation of administrative policies. The solution of many a managerial problem in a business establishment is found by a study of the statistical records of past experience and present operations. The statistics, to be sure, seldom furnish all of the necessary information for the solution of a problem or the determination of a policy, but they generally provide a more definite knowledge of pertinent facts than can otherwise be obtained. Statistical records and reports help to eliminate guess work and obviate the necessity of placing reliance upon impressions or recollections which may be partial or faulty. In collecting, classifying, summarizing, and presenting these statistics, which are so useful when properly prepared, it is necessary to adhere closely to sound principles of statistical theory and method.

Statistics may be defined as numerical statements of facts by means of which large aggregates are analyzed, the relations of individual units to their groups are ascertained, comparisons are made between groups, and continuous records are maintained for comparative purposes. From this definition it is to be noted that statistics represent /ad^, expressed numerically. Secondly, statistics deal with aggregates or masses which are sufficiently large to reveal types or standards, even if individual units show wide variations. This tendency for large aggregates or groups to conform to definite types or standards or to show general or underlying tendencies is what is meant by the " law of averages," a term with which many business men are familiar. Statistics, finally, are used chiefly for purposes of comparison. Individual units or classes are compared with the entire group of which they are a part; different groups are compared; and comparisons are made for a single group at different periods of time in order to reveal tendencies.

One of the chief sources of statistical data in a factory, for example, is the cards or forms upon which the performance of each workman is recorded. These cards may serve primarily for making out the pa>Toll, a purpose for which each is used individually. If that is the only use which is made of the data on the cards, they are not to be considered as statistics. The data on the cards serve a statistical purpose only when the records for each group of workmen are combined or a comparative record is compiled in such form that exact comparisons can be made. Similarly in a department store, in order to provide a check on errors, a record may be kept of each package delivered, but if the total number delivered is not computed periodically, the store has no delivery statistics. It is the use of such reports and memoranda for statistical purposes with which we are concerned in this book; the other purposes for which the original data may be used need not be discussed here. This chapter is concerned with the principles involved in the collection, classification, and presentation of business statistics, both external and ititemal.

The planning of a schedule of questions or a system of reports, by means of which statistics are to be collected, is the first topic to be considered and it is one of great importance. The value of any statistics depends to a large degree upon the accuracy with which the original data are collected. Conclusions drawn from the statistics cannot be reliable if there are inaccuracies in the original data. In order that errors may be prevented, each question on a schedule should be stated so simply and so directly that indefinite or ambiguous answers are impossible. Thus a question which asks " To what extent " seldom yields usable answers.

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THIRTEENTH CENSUS OF THE UNITED STATES: 1910— POPULATION

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LOCATION

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