Business Statistics

Session 1
PGDM
7/03/2015

Introduction to Statistics

History

The word statistik comes from Italian word statistia which

means "statesman".

First used by Gottfried Achenwall (171972).

Long before the 18th century, people had been recording

and using data.

Official government statistics are as old as recorded history.

The old testaments contain several accounts of census

taking.

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Introduction to Statistics

What is statistics?
A branch of mathematics taking and
transforming numbers into useful information
for decision makers
Methods for processing & analyzing numbers
Methods for helping reduce the uncertainty
inherent in decision making
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Introduction to Statistics

Why Study Statistics?

Decision Makers Use Statistics To:
Present and describe business data and information properly
Draw conclusions about large groups of individuals or items,
using information collected from subsets of the individuals or
items.
Make reliable forecasts about a business activity
Improve business processes

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Introduction to Statistics

Types of Statistics
Statistics
The branch of mathematics that transforms data into
useful information for decision makers.

Chap 1-5
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Descriptive Statistics

Inferential Statistics

Collecting, summarizing, and

describing data

Drawing conclusions and/or

making decisions concerning a
population based only on sample
data

Introduction to Statistics

Subdivisions Within Statistics

Descriptive statistics
Inferential statistics.

Graphs, tables and charts that display data so that they

are easier to understand are examples of descriptive
statistics.
The process of estimation of any parameter is referred
as statistical inference.
The method and techniques of statistical inference can
be used in decision theory, making decisions under
conditions of uncertainty.
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Introduction to Statistics

Descriptive Statistics
Collect data
e.g., Survey

Present data
e.g., Tables and graphs

Characterize data
e.g., Sample mean =

n
Chap 1-7
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Introduction to Statistics

Inferential Statistics
Estimation
e.g., Estimate the population
mean weight using the sample
mean weight

Hypothesis testing
e.g., Test the claim that the
population mean weight is 120
pounds

Drawing conclusions about a large group of

individuals based on a subset of the large group.
Chap 1-8
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Introduction to Statistics

Basic Vocabulary of Statistics

VARIABLE
A variable is a characteristic of an item or individual.
DATA
Data are the different values associated with a variable.
OPERATIONAL DEFINITIONS
Data values are meaningless unless their variables have operational
definitions, universally accepted meanings that are clear to all associated
with an analysis.

Chap 1-9

Basic Vocabulary of Statistics

POPULATION
A population consists of all the items or individuals about which
you want to draw a conclusion.
SAMPLE
A sample is the portion of a population selected for analysis.
PARAMETER
A parameter is a numerical measure that describes a characteristic
of a population.
STATISTIC
A statistic is a numerical measure that describes a characteristic of
a sample.
Chap 1-10

Population vs. Sample

Population

Sample

Measures used to describe the

population are called parameters
Chap 1-11
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Introduction to Statistics

Measures computed from

sample data are called statistics

Examples of Populations
Names of all registered voters in the United
States
Incomes of all families living in Delhi
Annual returns of all stocks traded on the
New York Stock Exchange
Grade point averages of all the students in
your Institute
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Introduction
Chap 1-12
to Statistics

Random Sampling
Simple random sampling is a procedure in
which
each member of the population is chosen strictly by chance,
each member of the population is equally likely to be
chosen,
and
every possible sample of n objects is equally likely to be
chosen

The resulting sample is called a random sample

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Introduction to Statistics

13

The Decision Making Process

Decision

Knowledge

Experience, Theory,
Literature, Inferential
Statistics, Computers

Information
Descriptive Statistics,
Probability, Computers

Begin Here:
Identify the
Problem
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Data

Introduction to Statistics

14

Why Collect Data?

A marketing research analyst needs to assess the
effectiveness of a new television advertisement.
A pharmaceutical manufacturer needs to determine
whether a new drug is more effective than those currently
in use.
An operations manager wants to monitor a manufacturing
process to find out whether the quality of the product
being manufactured is conforming to company standards.
An auditor wants to review the financial transactions of a
company in order to determine whether the company is in
compliance with generally accepted accounting
principles.
Chap 1-15
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Introduction to Statistics

Sources of Data
Primary Sources: The data collector is the one using the data
for analysis
Data from a political survey
Data collected from an experiment
Observed data

Secondary Sources: The person performing data analysis is not

the data collector
Analyzing census data
Examining data from print journals or data published on the internet.

Chap 1-16
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Introduction to Statistics

Types of Variables
Categorical (qualitative) variables have values
that can only be placed into categories, such as
yes and no.
Numerical (quantitative) variables have values
that represent quantities.

Chap 1-17
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Introduction to Statistics

Types of Data
Data

Categorical

Numerical

Examples:

Marital Status
Discrete
Political Party
Eye Color
(Defined categories)
Examples:

Chap 1-18
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Continuous

Number of Children
Defects per hour
(Counted items)

Introduction to Statistics

Examples:

Weight
Voltage
(Measured characteristics)

Measurement Levels
Differences between
measurements, true
zero exists

Ratio Data
Quantitative Data

Differences between
measurements but no
true zero

Interval Data

Ordered Categories
(rankings, order, or
scaling)

Ordinal Data
Qualitative Data

Categories (no ordering

or direction)
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Nominal Data
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19

Data for Business Statistics

Classifying Data Elements in a Purchasing Database

Figure 1.2

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Data for Business Statistics

Categorical (nominal) Data
Data placed in categories according to a specified
characteristic
Categories bear no quantitative relationship to
one another
Examples:
- customers location (America, Europe, Asia)
- employee classification (manager, supervisor,
associate)
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Data for Business Statistics

Ordinal Data
Data that is ranked or ordered according to
some relationship with one another
No fixed units of measurement
Examples:
- college football rankings
- survey responses
(poor, average, good, very good, excellent)
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Introduction
1-22
to Statistics

Data for Business Statistics

Interval Data
Ordinal data but with constant differences
between observations
No true zero point
Ratios are not meaningful
Examples:
- temperature readings

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Introduction
1-23
to Statistics

Data for Business Statistics

Ratio Data
Continuous values and have a natural zero
point
Ratios are meaningful
Examples:
- monthly sales
- delivery times
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Graphical
Presentation of Data
Data in raw form are usually not easy to use
for decision making

Some type of organization is needed

Table
Graph

The type of graph to use depends on the

variable being summarized
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25

Graphical
Presentation of Data
(continued)

Categorical
Variables

Numerical
Variables

Frequency distribution
Bar chart
Pie chart
Pareto diagram

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Line chart
Frequency distribution
Histogram and ogive
Scatter plot

Introduction to Statistics

26

Tables and Graphs for

Categorical Variables
Categorical Data

Tabulating Data

Frequency
Distribution Table

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Graphing Data

Bar Chart

Introduction to Statistics

Pie Chart

Pareto
Diagram

27

The Frequency
Distribution Table
Summarize data by category
Example: Hospital Patients by Unit
Hospital Unit
Cardiac Care
Emergency
Intensive Care
Maternity
Surgery

Number of Patients
1,052
2,245
340
552
4,630

(Variables are
categorical)
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Bar and Pie Charts

Bar charts and Pie charts are often used
for qualitative (category) data
Height of bar or size of pie slice shows
the frequency or percentage for each
category

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Bar Chart Example

Cardiac Care
Emergency
Intensive Care
Maternity
Surgery

Number
of Patients
1,052
2,245
340
552
4,630

Hospital Patients by Unit

5000

Number of
patients per year

Hospital
Unit

4000
3000
2000
1000

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Introduction to Statistics

Surgery

Maternity

Intensive
Care

Emergency

Cardiac
Care

30

Pie Chart Example

Hospital
Unit
Cardiac Care
Emergency
Intensive Care
Maternity
Surgery

Number
of Patients
1,052
2,245
340
552
4,630

% of
Total

Hospital Patients by Unit

11.93
25.46
3.86
6.26
52.50

Cardiac Care
12%

Surgery
53%

(Percentages are
rounded to the
nearest percent)
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Introduction to Statistics

Emergency
25%

Intensive Care
4%
Maternity
6%
31

Pareto Diagram
Used to portray categorical data
A bar chart, where categories are shown in
descending order of frequency
A cumulative polygon is often shown in the
same graph
Used to separate the vital few from the
trivial many
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Pareto Diagram Example

Example: 400 defective items are examined
for cause of defect:

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Source of
Manufacturing Error

Number of defects

Bad Weld

34

Poor Alignment

223

Missing Part

25

Paint Flaw

78

Electrical Short

19

Cracked case

21

Total

400
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Pareto Diagram Example

(continued)

Step 1: Sort

by defect cause, in descending order

Step 2: Determine % in each category
Source of
Manufacturing Error

Number of defects

% of Total Defects

Poor Alignment

223

55.75

Paint Flaw

78

19.50

Bad Weld

34

8.50

Missing Part

25

6.25

Cracked case

21

5.25

Electrical Short

19

4.75

400

100%

Total
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Pareto Diagram Example

(continued)

Step 3: Show results graphically

Pareto Diagram: Cause of Manufacturing Defect
100%

90%
50%
80%

70%
40%
60%

30%

50%

40%
20%
30%

20%
10%
10%

0%

0%

Poor Alignment

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cumulative % (line graph)

% of defects in each category (bar

graph)

60%

Paint Flaw

Bad Weld

Missing Part

Introduction to Statistics

Cracked case

Electrical Short

35

Graphs to Describe
Numerical Variables
Numerical Data

Frequency Distributions and

Cumulative Distributions

Histogram

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Ogive

Introduction to Statistics

36