MODULE OF INSTRUCTION

Module 7
Analysis of Variance

Welcome to the seventh module of Business Statistics!

In past chapter, we have discussed methods of dealing with two

means. Now, we will be tackling methods to deal with two or more
means.

After reading this chapter, you should be able to

 Understand the concept Analysis of Variance

 Distinguish the one-way and two-way ANOVA

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7.1 Analysis of Variance (ANOVA)

The Analysis of Variance is used to test the significance of the
difference between means of two or more sets of data simultaneously.
It is a method of dividing the variation observed in experimental data
into different parts, each part assignable to a known source, cause or
factor.

7.1.1 One-Way ANOVA

The one-way analysis of variance examines two or more independent

samples based on one characteristic to determine whether their
population means could be equal by comparing their variability
between groups and within groups. Since the treatments are randomly
assigned to all of the persons or other test units in the experiment, this
is also referred to as the one-factor, completely randomized design.

Summary (Weiers, 2008)

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Example

An accounting firm has developed three methods to guide its seasonal

employees in preparing individual income tax returns. In comparing
the effectiveness of these methods, a test is set up in which each of 10
seasonal employees is randomly assigned to use one of the three
methods in preparing a hypothetical income tax return. The data are as
follows

Method 1 Method 2 Method 3

15 10 18
20 15 19
19 11 23
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At the 0.025 level of significance, can we conclude that the three

methods could be equally effective?

Excel Sheet Application

7.1.2 Two-Way ANOVA

Two-way analysis of variance examines two or more independent

samples based on multiple characteristics. In two-way ANOVA, the
data must be balanced and factors must be fixed.

Two-Way ANOVA without Replication

If the characteristics of the participants or test units have a strong

influence on the measurements we obtain, we may be largely
measuring the differing group compositions rather than the effects of
the treatments.

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Summary (Weiers, 2008)

Example

Example

The new-product development team for an automotive headlamp firm

has four different headlamp designs under consideration. A test is set
up to compare their effectiveness in night-driving conditions, and the
measurement of interest is the distance at which a suburban traffic sign
can be read by the driver. Recognizing that younger drivers tend to
have better night vision than older drivers, the team has planned the
experiment so that age group will be a blocking variable. Four persons
from each age group (or block) are selected, then the treatments are
randomly assigned to members from each block. When each person is
subjected to one of the headlamp designs, the distance at which the
traffic sign can be read is measured.

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Treatment

Age Group T1 T2 T3 T4
under 30 90 87 93 85
30-60 86 79 87 83
over 60 76 74 77 73

Excel Sheet Application

Two-Way ANOVA with Replication

This is a method that simultaneously examines the effect of two

factors on the dependent variable, along with the effects of interactions
between the different levels of these two factors. Two-way ANOVA is
the most basic form of the factorial experiment, one in which there are
two or more factors and the treatments represent all possible
combinations of their levels.

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Summary (Weiers, 2008)

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Example

An aircraft firm is considering three different alloys for use in the

wing construction of a new airplane. Each alloy can be produced in
four different thicknesses (1 _ thinnest, 4 _ thickest). Two test samples
are constructed for each combination of alloy type and thickness, then
each of the 24 test samples is subjected to a laboratory device that
severely flexes it until failure occurs. For each test sample, the number
of flexes before failure is recorded, with the results shown below.

Alloy 1 Alloy 2 Alloy 3

Thickness 1 804 836 804
816 828 808
Thickness 2 819 844 807
813 836 819
Thickness 3 820 814 819
821 811 829
Thickness 4 806 811 827
805 806 835

At the 0.05 level of significance, examine (1) whether the alloy

thickness has an effect on durability, (2) whether the alloy type has an
effect on durability, and (3) whether durability is influenced by
interactions between alloy thickness and alloy type.

Excel Sheet Application video

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Glossary
Analysis of Variance (ANOVA)- used to test the significance of the
difference between means of two or more sets of data simultaneously

Two-way ANOVA - examines two or more independent samples

based on multiple characteristics or factors

On-way ANOVA - examines two or more independent samples based

on one characteristic or factor

References
Weiers, R. (2008). Business Statistics, Sixth Edition. Natorp
Boulevard; Thomson South-Western.

http://www.excelfunctions.net/

https://www.sophia.org/tutorials/one-way-anovatwo-way-anova--4

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