1.

Apply a range of statistical methods used in business planning for quality, inventory and
capacity management.
 Probability distribution

A probability distribution is a statistical function that describes all the possible values
and likelihoods that a random variable can take within a given range. This range will be
bounded between the minimum and maximum possible values, but precisely where the
possible value is likely to be plotted on the probability distribution depends on a number
of factors. These factors include the distribution's mean standard deviation, skewness,
and kurtosis. Perhaps the most common probability distribution is the normal
distribution, although several distributions exist that are commonly used. Typically, the
data generating process of some phenomenon will dictate its probability distribution. This
process is called the probability density function. Probability distributions can also be
used to create cumulative distribution functions, which adds up the probability of
occurrences cumulatively and will always start at zero and end at 100%.
There are many different classifications of probability distributions. Some of them
include the normal distribution, chi square distribution, binomial distribution, and
Poisson distribution. The different probability distributions serve different purposes and
represent different data generation processes. The binomial distribution, for example,
evaluates the probability of an event occurring several times over a given number of trials
and given the event's probability in each trial. and may be generated by keeping track of
how many free throws a basketball player makes in a game, where 1 = a basket and 0 = a
miss. Another typical example would be to use a fair coin and figuring the probability of
that coin coming up heads in 10 straight flips. A binomial distribution is discrete, as
opposed to continuous, since only 1 or 0 is a valid response. The most commonly used
distribution is the normal distribution, which is used frequently in finance, investing,
science, and engineering. The normal distribution is fully characterized by its mean and
standard deviation, meaning the distribution is not skewed and does exhibit kurtosis. This
makes the distribution symmetric and it is depicted as a bell-shaped curve when plotted.
A normal distribution is defined by a mean (average) of zero and a standard deviation of
1.0, with a skew of zero and kurtosis = 3. In a normal distribution, approximately 68% of
the data collected will fall within +/- one standard deviation of the mean; approximately
95% within +/- two standard deviations; and 99.7% within three standard deviations.
Unlike the binomial distribution, the normal distribution is continuous, meaning that all
possible values are represented
  Normal distribution

Normal distribution, also known as the Gaussian distribution, is a probability

distribution that is symmetric about the mean, showing that data near the mean are more
frequent in occurrence than data far from the mean. In graph form, normal distribution
will appear as a bell curve.
The normal distribution is the most common type of distribution assumed in technical
stock market analysis and in other types of statistical analyses. The standard normal
distribution has two parameters: the mean and the standard deviation. For a normal
distribution, 68% of the observations are within +/- one standard deviation of the mean,
95% are within +/- two standard deviations, and 99.7% are within +- three standard
deviations. The normal distribution model is motivated by the Central Limit Theorem.
This theory states that averages calculated from independent, identically distributed
random variables have approximately normal distributions, regardless of the type of
distribution from which the variables are sampled (provided it has finite variance).
Normal distribution is sometimes confused with symmetrical distribution. Symmetrical
distribution is one where a dividing line produces two mirror images, but the actual data
could be two humps or a series of hills in addition to the bell curve that indicates a
normal distribution.
  Poisson distribution

In statistics, a Poisson distribution is a statistical distribution that shows how many

times an event is likely to occur within a specified period of time. It is used for
independent events which occur at a constant rate within a given interval of time. The
Poisson distribution is a discrete function, meaning that the event can only be measured
as occurring or not as occurring, meaning the variable can only be measured in whole
numbers. A Poisson distribution can be used to estimate how likely it is that something
will happen "X" number of times. For example, if the average number of people who rent
movies on a Friday night at a single video store location is 400, a Poisson distribution can
answer such questions as, "What is the probability that more than 600 people will rent
movies?" Therefore, application of the Poisson distribution enables managers to
introduce optimal scheduling systems. One of the most famous historical, practical uses
of the Poisson distribution was estimating the annual number of Prussian cavalry soldiers
killed due to horse-kicks. Other modern examples include estimating the number of car
crashes in a city of a given size; in physiology, this distribution is often used to calculate
the probabilistic frequencies of different types of neurotransmitter secretions.

Poisson showed that the probability of obtaining k wins is approximately

λk/e−λk!

where e is the exponential function and k! = (k − 1)(k − 2)⋯2∙1. Noteworthy is the

fact that λ equals both the mean and variance (a measure of the dispersal of data away
from the mean) for the Poisson distribution.

 Binomial distribution

Binomial distribution is a probability distribution that summarizes the likelihood that

a value will take one of two independent values under a given set of parameters or
assumptions. The underlying assumptions of the binomial distribution are that there is
only one outcome for each trial, that each trial has the same probability of success, and
that each trial is mutually exclusive, or independent of each other. Binomial distribution
is a common discrete distribution used in statistics, as opposed to a continuous
distribution, such as the normal distribution. This is because the binomial distribution
only counts two states, typically represented as 1 (for a success) or 0 (for a failure) given
a number of trials in the data. The binomial distribution, therefore, represents the
probability for x successes in n trials, given a success probability p for each trial.
Binomial distribution summarizes the number of trials, or observations when each trial
has the same probability of attaining one particular value. The binomial distribution
determines the probability of observing a specified number of successful outcomes in a
specified number of trials. The expected value, or mean, of a binomial distribution, is
calculated by multiplying the number of trials by the probability of successes. For
example, the expected value of the number of heads in 100 trials is 50, or (100 * 0.5).
Another common example of the binomial distribution is by estimating the chances of
success for a free-throw shooter in basketball where 1 = a basket is made and 0 = a miss.
The mean of the binomial distribution is np, and the variance of the binomial distribution
is np (1 − p). When p = 0.5, the distribution is symmetric around the mean. When p > 0.5,
the distribution is skewed to the left. When p < 0.5, the distribution is skewed to the right.
Binomial distribution is the sum of a series of multiple independent and identically
distributed Bernoulli trials. In a Bernoulli trial, the experiment is said to be random and
could only have two possible outcomes: success or failure. For example, flipping a coin is
considered to be a Bernoulli trial; each trial can only take one of two values (heads or
tails), each success has the same probability (the probability of flipping a head is 0.5),
and the results of one trial do not influence the results of another. The Bernoulli
distribution is a special case of the binomial distribution where the number of trials n = 1.

b(x; n, P) = nCx * Px * (1 - P)n – x

or b(x; n, P) = { n! / [ x! (n - x)! ] } * Px * (1 - P)n – x

where :
x: The number of successes that result from the binomial experiment.

n: The number of trials in the binomial experiment.

P: The probability of success on an individual trial.

Q: The probability of failure on an individual trial. (This is equal to 1 - P.)

n!: The factorial of n (also known as n factorial).

b(x; n, P): Binomial probability - the probability that an n-trial binomial experiment
results in exactly x successes, when the probability of success on an individual trial is P.

nCr: The number of combinations of n things, taken r at a time.

 Inference statistics

Descriptive statistics describes data (for example, a chart or graph) and inferential
statistics allows you to make predictions (“inferences”) from that data. With inferential
statistics, you take data from samples and make generalizations about a population. For
example, you might stand in a mall and ask a sample of 100 people if they like shopping
at Sears. You could make a bar chart of yes or no answers (that would be descriptive
statistics) or you could use your research (and inferential statistics) to reason that around
75-80% of the population (all shoppers in all malls) like shopping at Sears. There are two
main areas of inferential statistics: Estimating parameters. This means taking a statistic
from your sample data (for example the sample mean) and using it to say something
about a population parameter (i.e. the population mean). Hypothesis tests. This is where
you can use sample data to answer research questions. For example, you might be
interested in knowing if a new cancer drug is effective. Or if breakfast helps children
perform better in schools. With inferential statistics you take that sample data from a
small number of people and and try to determine if the data can predict whether the drug
will work for everyone (i.e. the population). There are various ways you can do this, from
calculating a z-score (z-scores are a way to show where your data would lie in a normal
distribution to post-hoc (advanced) testing.

 Regression.

Regression is a statistical measurement used in finance, investing, and other

disciplines that attempts to determine the strength of the relationship between one
dependent variable (usually denoted by Y) and a series of other changing variables
(known as independent variables). Regression helps investment and financial managers to
value assets and understand the relationships between variables, such as commodity
prices and the stocks of businesses dealing in those commodities.

From a raw business dataset, apply the above statistical concepts and methods to a
number of areas of business planning and operations management, including inventory
management and capacity management. The student should also evaluate and justify the
use of appropriate statistical methods.

The two basic types of regression are linear regression and multiple linear regression,
although there are non-linear regression methods for more complicated data and analysis.
Linear regression uses one independent variable to explain or predict the outcome of the
dependent variable Y, while multiple regression uses two or more independent variables
to predict the outcome. Regression can help finance and investment professionals as well
as professionals in other businesses. Regression can also help predict sales for a company
based on weather, previous sales, GDP growth, or other types of conditions. The capital
asset pricing model (CAPM) is an often-used regression model in finance for pricing
assets and discovering costs of capital.
The general form of each type of regression is:
 Linear regression: Y = a + bX + u
Multiple regression: Y = a + b1X1 + b2X2 + b3X3 + ... + btXt + u

Where:
Y = the variable that you are trying to predict (dependent variable).

X = the variable that you are using to predict Y (independent variable)

a = the intercept.

b = the slope
u = the regression residual.

Make valid recommendations and judgements for improving business planning through
the application of statistical methods.

2. Using appropriate charts/tables communicate findings for a number of given variables. In

specific:
 Show the concepts of different charts and tables + Demonstrate the advantages
and disadvantages of each chart and table + Example, including:
o Frequency tables
Frequency refers to the number of times an event or a value occurs. A
frequency table is a table that lists items and shows the number of times the items
occur. We represent the frequency by the English alphabet ‘f’. Tables can show
either categorical variables (qualitative variables) or quantitative variables
(numeric variables).

o Simple tables
Simple Table visualizations allow you to view basic information about a
selected metric for a given data source. By default, the Simple Table displays the
name of each answer option, the percentage, count of the number of respondents
who selected or were assigned the option, and the total number of responses.
o Pie charts

A Pie Chart is a type of graph that displays data in a circular graph. The pieces
of the graph are proportional to the fraction of the whole in each category. In
other words, each slice of the pie is relative to the size of that category in the
group as a whole. The entire “pie” represents 100 percent of a whole, while the
pie “slices” represent portions of the whole.
 o Histograms
Histograms are similar to bar charts; they are a way to display counts of data.
A bar graph charts actual counts against categories; The height of the bar
indicates the number of items in that category. A histogram displays the same
categorical variables in “bins”. A bin shows how many data points are within a
range (an interval). Normally, you choose the range that best fits your data. There
are no set rules about how many bins you can have, but the rule of thumb is 5-20
bins. Any more than 20 bins and your graph will be hard to read. Fewer than 5
bins and your graph will have little (if any) meaning. Most graphs you’ll create in
elementary statistics will have about 5 to 7 bins.

o Frequency curves
A frequency-curve is a smooth curve for which the total area is taken to be
unity. It is a limiting form of a histogram or frequency polygon. The frequency-
curve for a distribution can be obtained by drawing a smooth and free hand curve
through the mid-points of the upper sides of the rectangles forming the histogram.
There exist four types of frequency-curves namely

- Bell-shaped curve
Most of the commonly used distributions provide bell-shaped curve, which, as
suggested by the name, looks almost like a bell. The distribution of height,
weight, mark, profit etc. usually belong to this category. On a bell-shaped
curve, the frequency, starting from a rather low value, gradually reaches the
maximum value, somewhere near the central part and then gradually
decreases to reach its lowest value at the other extremity.

- U-shaped curve
 For a U-shaped curve, the frequency is minimum near the central part and the
frequency slowly but steadily reaches its maximum at the two extremities. J-
shaped curve

- J-shaped curve
The J-shaped curve starts with a minimum frequency and then gradually
reaches its maximum frequency at the other extremity.

- Mixed curve
Mixed curve is a combination of these frequency- curves.

o Normal curve
A normal curve is a bell-shaped curve which shows the probability
distribution of a continuous random variable. Moreover, the normal curve
 represents a normal distribution. The total area under the normal curve logically
represents the sum of all probabilities for a random variable. Hence, the area
under the normal curve is one. Also, the standard normal curve represents a
normal curve with mean 0 and standard deviation 1. Thus, the parameters
involved in a normal distribution is mean ( μ ) and standard deviation ( σ ).
Characteristics of a normal curve:

- The values of mean, median and mode are same

- It represents a unimodal distribution as it has only one peak.

- It shows a symmetric distribution as 50% of the data set lies on the left side
of the mean and 50% of the data set lies on the right side of the mean.

- Empirical rule: 68% of the data fall within μ ±σ, 95% of the data fall within
μ ± 2 σ and 99.7% of the data fall within μ ± 3 σ

o Scatter plot.
A scatter plot is a graph used to determine whether there is a relationship
between paired data. A line graph uses a line on an X-Y axis to plot a continuous
function, while a scatter plot uses dots to represent individual pieces of data. If y
tends to increase as x increases, then the paired data are said to be a positive
correlation. If y tends to decrease as x increases, the paired data are said to be a
negative correlation. If the points show no linear pattern, the paired data are said
to have relatively no correlation.

After performing different statistical methods on your own raw dataset, choose the most
effective way of communicating the results of your analysis and variables. You should
use all the charts and tables listed above and give reasons for your choice.

Frequency table Simple Pie Charts Histograms Frequency curve Scatter plot
table

Stren Quickly reveal Easily to A simple way to As a most commonly Showing the Shows relationship
gth outliers and even see stats visualize used graphs to display skewness of the between two
significant trends and all statistical data, Histograms allow distribution that is variables best method
within a data set the data information for viewers to easily whether it is to illustrate a non-
with not much businesses compare data, and in positively skewed, linear pattern.
more than a addition, they work negatively and
 cursory well with large ranges symmetric
inspection, of information. distribution.
examine the
relative
abundance of each
particular target
data within their
sample.

Weak Difficult to Cannot Not suitable for Histograms are often Not showing the Cannot use Scatter
ness comprehend gather the complex considered exact values of the plot to show the
complex data sets informati needs. inconvenient when distribution. it is also relation of more than
that are displayed on other comparing multiple difficult to compare two variables.
on a frequency than categories, because different data sets.
table basic even though you can
ones compare several
histograms side by side,
it doesn't quite create
the desired effect.

For given variables in your dataset, perform them in different types of charts and tables to
demonstrate the strengths and weaknesses of various communicating methods.