Chapter 1

Introduction to Statistics
Copyright 2012 John Wiley & Sons, Ltd. Copyright 2012 John Wiley & Sons, Ltd

Learning Objectives
Define statistics. Become aware of a wide range of applications of statistics in business. Differentiate between descriptive and inferential statistics. Classify numbers by level of data and understand why doing so is important.

Copyright 2012 John Wiley & Sons, Ltd

Statistics in Business

Accounting auditing and cost estimation Economics regional, national, and international economic performance Finance investments and portfolio management Management human resources, compensation, and quality management Management Information Systems performance of systems which gather, summarize, and disseminate information to various managerial levels Marketing market analysis and consumer research International Business market and demographic analysis

Copyright 2012 John Wiley & Sons, Ltd

Obtaining Data and Statistical Information

Decisions such as how much to produce, whether to upgrade a plant or equipment to improve quality, or which export market to target can be better informed by the use of statistics Statistical analysis begins with data. Deciding what data are required and how to obtain them is essential

Copyright 2012 John Wiley & Sons, Ltd

What is Statistics?
Science of gathering, analyzing, interpreting, and presenting data on various topics Branch of mathematics Course of study Facts and figures Measurement taken on a sample Type of distribution being used to analyze data

Copyright 2012 John Wiley & Sons, Ltd

Statistics in Business
Statistics science dealing with the collection, analysis, interpretation, and presentation of numerical data.

Copyright 2012 John Wiley & Sons, Ltd

Statistics in Business
Branches of statistics
Descriptive using data gathered on a group to describe or reach conclusions about the group Inferential data gathered from a sample and used to reach conclusions about the population from which the data was gathered
Used to draw conclusions about the group or similar groups

Copyright 2012 John Wiley & Sons, Ltd

Population Versus Sample

Population the whole
a collection of persons, objects, or items under study

Census gathering data from the entire population Sample a portion of the whole/population
a subset of the population; must be large enough to represent the whole

Copyright 2012 John Wiley & Sons, Ltd

Population

Copyright 2012 John Wiley & Sons, Ltd

Population and Census Data

Identifier RD1 RD2 RD3 RD4 RD5 BL1 BL2 GR1 GR2 GY1 Color Red Red Red Red Red Blue Blue Green Green Gray MPG 12 10 13 10 13 27 24 35 35 15

GY2
GY3

Gray
Gray

18
17

Copyright 2012 John Wiley & Sons, Ltd

Sample and Sample Data

Identifier Color MPG

RD2

Red

10

RD5

Red

13

GR1

Green

35

GY2

Gray

18

Copyright 2012 John Wiley & Sons, Ltd

Parameter vs. Statistic

Parameter descriptive measure of the population
Usually represented by Greek letters

Statistic descriptive measure of a sample

Usually represented by Roman letters

Copyright 2010 2012 John Wiley & Sons, Inc. Ltd

12

Symbols for Population Parameters

m denotes population mean

s denotes population variance
2

s denotes population standard deviation

Copyright 2010 2012 John Wiley & Sons, Inc. Ltd

13

Symbols for Sample Statistics

x denotes sample mean s2 denotes sample variance s denotes sample standard deviation

Copyright 2010 2012 John Wiley & Sons, Inc. Ltd

14

Process of Inferential Statistics

4. Calculate x
1. Population

to estimate m

3. Sample x (statistic)

m
(parameter)

2. Select a random sample

Copyright 2010 2012 John Wiley & Sons, Inc. Ltd
15

Statistics in Business
Difference between a parameter and statistic is only important in the use of inferential statistics
Calculations of parameter can be cost prohibitive When cost prohibitive, a sample calculates appropriate statistics. Researchers use the calculation as an estimate of the parameter.

Copyright 2010 2012 John Wiley & Sons, Inc. Ltd

16

Statistics in Business
Inferences about parameters made under conditions of uncertainty
Uncertainty can be caused by
small sample lack of knowledge about the source of the inferences change in conditions not accounted for

Copyright 2010 2012 John Wiley & Sons, Inc. Ltd

17

Statistics in Business
Probability statement used to estimate the level of confidence in the probability statement

Copyright 2010 2012 John Wiley & Sons, Inc. Ltd

18

Levels of Data Measurement

Nominal In nominal measurement the numerical values just "name" the attribute uniquely.
No ordering of the cases is implied. For example, jersey numbers in basketball are measures at the nominal level. A player with number 30 is not more of anything than a player with number 15, and is certainly not twice whatever number 15 is.

Copyright 2012 John Wiley & Sons, Ltd

Levels of Data Measurement

Ordinal - A variable is ordinal measurable if ranking is possible for values of the variable.
For example, a gold medal reflects superior performance to a silver or bronze medal in the Olympics, or you may prefer French toast to waffles, and waffles to oat bran muffins. First, Second are ordinal measurements.

Copyright 2012 John Wiley & Sons, Ltd

Levels of Data Measurement

Interval - In interval measurement the distance between attributes does have meaning.
For example, when measuring temperature (in Fahrenheit), the distance from 30-40 is same as the distance from 70-80. The interval between values is interpretable.

Copyright 2012 John Wiley & Sons, Ltd

Levels of Data Measurement

Ratio in ratio measurement there is always an absolute zero that is meaningful.
This means that you can construct a meaningful fraction (or ratio) with a ratio variable. In applied social research most "count" variables are ratio, for example, the number of clients in past six months.

Copyright 2012 John Wiley & Sons, Ltd

Nominal Level Data

Numbers are used to classify or categorize
Example: Employment Classification 1 for Educator 2 for Construction Worker 3 for Manufacturing Worker

Copyright 2012 John Wiley & Sons, Ltd

Ordinal Level Data

Numbers are used to indicate rank or order
Relative magnitude of numbers is meaningful Differences between numbers are not comparable

Example: Ranking productivity of employees Example: Position within an organization

1 for President 2 for Vice President 3 for Plant Manager 4 for Department Supervisor 5 for Employee

Copyright 2012 John Wiley & Sons, Ltd

Ordinal Data
Faculty and staff should receive preferential treatment for parking space.
Strongly Agree Agree Neutral Disagree Strongly Disagree

Copyright 2012 John Wiley & Sons, Ltd

Interval Level Data

Interval Level data - Distances between consecutive integers are equal
Relative magnitude of numbers is meaningful Differences between numbers are comparable Location of origin, zero, is arbitrary Vertical intercept of unit of measure transform function is not zero

Example: Fahrenheit Temperature Example: Monetary Utility

Copyright 2012 John Wiley & Sons, Ltd

Ratio Level Data

Highest level of measurement
Relative magnitude of numbers is meaningful Differences between numbers are comparable Location of origin, zero, is absolute (natural) Vertical intercept of unit of measure transform function is zero

Examples: Height, Weight, and Volume Example: Monetary Variables, such as Profit and Loss, Revenues, Expenses, Financial ratios - such as P/E Ratio, Inventory Turnover, and Quick Ratio.

Copyright 2012 John Wiley & Sons, Ltd

Ratio Level Data

Parametric statistics requires that the data be interval or ration Non Parametric used if data are nominal or ordinal
Non parametric statistics can be used to analyze interval or ratio data

Copyright 2012 John Wiley & Sons, Ltd

Usage Potential of Various Levels of Data

Ratio Interval Ordinal Nominal

Copyright 2012 John Wiley & Sons, Ltd