MBAI (EQSM) - Central Tendency

Faculty: Ravi Lakhani,
BE (Electronics), MBA (HR), UGC-NET (Management)
MBA 1 Sem (EQSM) Ravi Lakhani (Assistant Professor, JLBS)

Unit 3
Statistical Methods
Data description (Statistics – Definition, Types. Types of variables– Organizing data -

Descriptive Measures), measures of central tendency (Mean, Median, Mode), standard
deviation, variation, correlation. Essential statistics using Excel.

Introduction – Scope & Applications

Phases of a Statistical Study
(Statistical/Quantitative Techniques)
 Statistical techniques are those tools/techniques which
are used in conducting the statistical enquiry
concerning to certain Phenomenon.
 Beginning from Defining Objective/s till interpretation
of those collected data
– Defining Objective(s)
– Specification of the Population and its Characteristic(s)
– Planning for Collection of Data - Census Vs Sampling
– Collection of Data
– Compilation/Presentation of Data
– Statistical Analysis
– Drawing Conclusions, Testing Assumptions or Making
MBA 1Predictions
Sem (EQSM) Ravi Lakhani (Assistant Professor, JLBS)
Statistical/Quantitative Techniques
Statistical Tools/Techniques involves are:
1. Collection of data
2. MEASURES OF CENTRAL TENDENCY
3. CORRELATION & REGRESSION ANALYSIS
4. Index Numbers
5. TIME SERIES ANALYSIS
6. Ratio Analysis
7. PROBABILITY THEORY
8. Etc……
Scope of Statistics
 Statistics increases the field of mental vision just as a
binocular increases the field of physical vision
 Simplifies unwieldy and complex mass of data, and

present them in a form and manner that they become
intelligible. Conversion of data into information,
makes it better suited for decision making

Scope of Statistics
 Quantifies and measures uncertainty and variability,
and thereby helps in decision making
 Discovers past and emerging patterns in a data.

Using such analysis, it helps in forecasting.
Sometimes, Statistics can even suggest possible
reasons for such pattern.
 Helps in estimation and validating assumptions.

Ways of manipulating the data
 Changing definition of a variable to suit
preconceived notion
 Inadequate sample or unrepresentative sample
selection
 Manipulative collection of data
 Interpretation of association and correlation
 Inappropriate comparison
 Defective data – definition confusing or not
considering all possibilities

Applications of Statistics in
Various Areas
 Marketing
 Economics
 Finance
 Insurance
 Operations
 Human Resource Management or Development
 Information Systems
 Data Mining

Illustrative List of Statistical Techniques and
their Applications
Sr Statistical
Field Specific Application
No Technique
Binomial Quality
1 Sampling Inspection
Distribution Assurance
Cluster Target Marketing, Customer
2 Marketing
Analysis Profiling
Cluster Planning and
3 Identifying Similar Groups
Analysis Management
Production
4 Control Chart Quality Control
Engineering
Correlation and
5 Regression Financial Risk Hedging of Investments
Analysis

Illustrative List of Statistical
Techniques and their Applications
Sr Statistical
No Technique
Correlation and
6 Marketing Cross-Market Analysis
Regression Analysis
Investments, Portfolio
7 Decision Theory Finance Selection, Mergers and
Acquisitions
Discriminant
8 Finance Credit Risk Analysis
Analysis
Discriminant
9 Marketing Customer Profiling
Analysis
10 Forecasting Banking Business Forecasting
Sr Statistical
No Technique
Pricing of Financial
11 Forecasting Finance Products, Return on
Investment
12 Forecasting HRD Manpower Planning
13 Forecasting Insurance Determining Premiums
14 Forecasting Marketing Demand Forecasting,
Wholesale and Consumer

15 Index Numbers Economics
Price Indices
Sr Statistical
No Technique
Logistic
16 Finance Credit Risk Analysis
Regression
Normal
17 Equity Research EPS
Distribution
Normal
18 Finance Risk Management
Distribution
Normal
19 Finance Yield Curve
Distribution
Normal
20 HRD Performance Appraisal
Distribution
Normal Production
21 Six Sigma
MBA 1Distribution
Sem (EQSM) EngineeringRavi Lakhani (Assistant Professor, JLBS)
Sr Statistical
No Technique
Normal Production
22 Statistical Quality Control
Distribution Engineering
Normal Project
23 PERT / CPM
Distribution Management
24 Percentiles Education Relative Ranking
Formulating Compensation
25 Percentiles HR
Strategies
Rankings in Contests With
26 Rank Correlation Rankings
Multiple Judges
Rankings with Multiple
27 Rank Correlation Rankings
Criteria
28 Sampling Election Opinion/Exit Polls
Sr Statistical
No Technique
29 Sampling Market Research Consumer Survey
Production
30 Sampling Inspection and Quality Control
Engineering
Testing of Agriculture/Chemi
31 Testing a Pesticide on Field
Hypothesis cal
Testing of Paramedical-
32 Testing a Drug on Clinical Trial
Hypothesis Pharmaceutical
Sensex, NIFTY, Wholesale Price
33 Weighted Average Finance
and Consumer Price Indices
WACC (Weighted Average Cost
34 Weighted Average Finance of Capital) and EVA (Economic
Value Added)
Illustrative List of Decision Situations and
Corresponding Statistical Techniques
Area Decision Situation Statistical Techniques
Applicable
Marketing Assessment/Forecast of Time Series
Demand for the Correlation and Regression
Product or a Service Analysis
Statistical Inference
Customer Profiling Cluster Analysis
Market Research Sample Surveys

Conjoint Analysis
Multidimensional Scaling
Retail Management Identifying Customer Cluster Analysis
Buying Behaviors and Correlation and Regression
Patterns Analysis
Conjoint Analysis
Area Decision Statistical Techniques
Situation Applicable
Finance and Evaluation of Regression Analysis, Decision
Banking Investment Analysis
Volatility of Stocks ‘b’ Analysis
Predicting EPS Regression Analysis
Derivatives ‘b’ Analysis and Regression

Analysis
Assessing Credit Discriminant Analysis
Worthiness Logistic Regression
Correlation Analysis
Insurance Determining the Probability. Time Series
MBA 1 Sem (EQSM) Premium
Ravi Lakhani (Assistant Professor, JLBS) Regression Analysis
Area Decision Situation Statistical Techniques
Applicable
Impact of Different Factors Regression Analysis
on Health and Life Discriminant Analysis
Operations Controlling and Improving Statistical Quality Control
Production Process and Six Sigma
Quality Sampling Inspections
Statistical Inference
Inventory Management ABC Analysis
HRD Performance Appraisal and Normal Distribution

Reward System Percentiles
Retail Identifying customer Cluster Analysis
Management buying behaviors and Correlation
patterns Conjoint Analysis
Measures of Central Tendency and Dispersion

Measures Of Central Tendency And
Dispersion
 Measures of Central Tendency

-- Mean
• Arithmetic
• Geometric
• Harmonic
• Weighted Mean
•
 Median, Quartiles, Percentiles, Deciles
 Mode
 Measures of Variation

Measures Of Central Tendency And
Dispersion
 Range
 Mean Deviation
 Standard Deviation ( Variance )
 Inter Quartile Range
 Coefficient of Variation
 Measures of Skewness and Kurtosis
 Standardised Variables and Scores

Measures of Location or Central
Tendency
 Measure of Location
 Centre of Gravity
 There are three such measures:
– Mean
– Median, Quartiles, Percentiles and Deciles
– Mode

Properties of a Measure
 It should be easy to understand and calculate

 It should be based on all observations
 It should not be much affected by a few extreme
observations
 It should be amenable to mathematical treatment. For
example, we should be able to
 calculate the combined measure for two sets of
observations given the measure for each of the two sets

Mean
 There are three types of means viz.,
 Arithmetic Mean
 Harmonic Mean
 Geometric Mean

Arithmetic Mean
Ungrouped (Raw) Data
Sum of Observations
x =
Number of Observations
 xi
=
n

Illustration 4.1
Table 4.1 : Equity Holdings of 20 Indian Billionaires
( Rs. in Millions)
2717 2796 3098 3144 3527
3534 3862 4186 4310 4506
4745 4784 4923 5034 5071
5424 5561 6505 6707 6874

Illustration 4.1
For the above data, the A.M. is
2717 + 2796 +…… 4645+….. + 5424 + ….+ 6874

x = --------------------------------------------------------------------------
20
= Rs. 4565.4 Millions

Arithmetic Mean
Grouped Data
x=
 fx i i
f i

Illustration 4.2
The calculation is illustrated with the data relating to equity
holdings of the group of 20 billionaires given in Table 3.1
Mid Value of f ixi

Class Interval Frequency
Class Interval Col.(4) = Col.(2) x
(1) ( fi ) ( 2 )
( xi ) ( 3 ) Col.(3)
2000 – 3000 2 2500 5000
3000 – 4000 5 3500 17500
4000 – 5000 6 4500 27000
5000 – 6000 4 5500 22000
6000 – 7000 3 6500 19500
Sum  fi = 20  fixi = 91000

Illustration 4.2
values of  fi and  fixi , in formula
x=
 fx i i
f i
= 9100 ÷ 20
= 4550

Median
 whenever there are some extreme values in
the data, calculation of A.M. is not desirable.
 Further, whenever, exact values of some

observations are not available, A.M. cannot
be calculated.
 In both the situations, another measure of

location called Median is used.

Median - Ungrouped Data
First the data is arranged in ascending/descending order.
In the earlier example relating to equity holdings data of 20 billionaires given in
Table 4.1, the data is arranged as per ascending order as follows
2717 2796 3098 3144 3527 3534
3862 4187 4310 4506 4745 4784 4923
5034 5071 5424 5561 6505 6707 6874
Here, the number of observations is 20, and therefore there is no middle

observation. However, the two middle most observations are 10th and 11th. The
values are 4506 and 4745. Therefore, the median is their average.
4506 + 4745 9251

Median = ----------------- = -----------
2 2
= 4625.5
Thus, the median equity holdings of the 20 billionaires is Rs.4625.5 Millions.

Median - Grouped
The median for the grouped data is also defined as the value
corresponding to the ( (n+1)/2 )th observation, and is calculated
from the following formula:
( (n/2) –fc )
Median = Lm + -----------------  wm
fm
where,
•Lm is the lower limit of 'the median class internal i.e. the interval which
contains n/2th observation
•fm is the frequency of the median class interval i.e. the class interval which
contains the ( (n)/2 )th observation
•fc is the cumulative frequency up to the median class- interval
•wm is the width of the median class-interval
•n is the number of total observations.

Illustration 4.2
Class Interval Frequency Cumulative

frequency
2000-3000 2 2
3000-4000 5 7
4000-5000 6 13
5000-6000 4 17
6000-70000 3 20

Illustration 4.2
Here, n = 20, the median class interval is from 4000 to
5000 as the 10th observation lies in this interval.
Further,
Lm = 4000
fm = 6
fc = 7
wm = 1000
Therefore,
20/2 –7 x 1000
Median = 4000 + -------------------------
6
= 4000 + 3/6 x 1000
= 4000 + 500
= 4500
Median
 The median divides the data into two parts such
that the number of observations less than the
median are equal to the number of observations
more than it.
 This property makes median very useful measure

when the data is skewed like income distribution
among persons/households, marks obtained in
competitive examinations like that for admission to
Engineering / Medical Colleges, etc.

Quartiles
 Median divides the data into two parts such that 50 %

of the observations are less than it and 50 % are more
than it. Similarly, there are “Quartiles”. There are
three Quartiles viz. Q1 , Q2 and Q3. These are referred
to as first, second and third quartiles.
 The first quartile , Q1, divides the data into two parts
such that 25 % ( Quarter ) of the observations are less
than it and 75 % more than it.
 The second quartile, Q2, is the same as median. The third
quartile divides the data into two parts such that 75 %
observations are less than it and 25 % are more than it.

Quartiles
data Q1 and Q3 are defined as values corresponding to
an observation given below :
Ungrouped Data Grouped Data

(arranged in ascending
or descending order)
Lower Quartile Q1 {( n + 1 ) / 4 }th ( n / 4 )th
Median Q2 { ( n + 1 ) / 2 }th ( n / 2 )th
Upper Quartile Q3 {3 ( n + 1 ) / 4 } th (3 n / 4 )th

Quartiles
(n / 4 ) - fc
Q 1= L Q1 + ´ w Q1
f Q1
(3n / 4) - fc
Q3= LQ3 + ´ wQ3
fQ3

Equity Holding Data
Class Interval Frequency Cumulative

frequency
2000-3000 2 2
3000-4000 5 7
4000-5000 6 13
5000-6000 4 17
6000-70000 3 20

( (20/4) – 2 )
Q1 = 3000 + ---------------  1000
5
( 5 – 2)
= 3000 + --------------------  1000
5
3000
= 3000 + -------------
5
= 3000 + 600
= 3600
The interpretation of this value of Q1 is that 25 %

billionaires have equity holdings less than Rs.
(15 – 13)
Q3 = -------------  1000 +5000
4
2
= -------  1000 +5000
4
= 5500
The interpretation of this value of Q3 is that 75 %
billionaires have equity holdings less than Rs. 5500 Millions.

Percentiles
(95/100)  n – fc
P95 = L + ------------------- x wP95
P95
f
P95
where, L P95 is the lower point of the class interval

containing 95th percent of total frequency, fc is the
cumulative frequency up to the 95th percentile interval, f P95
is the frequency of the 95th percentile interval and wP95 is the
width of the 95th percentile interval.
Deciles
 Just like quartiles divide the data in four parts, the

deciles divide the data into ten parts – first deciles
( 10% ) , second ( 20% ) , and so on. In fact, P10 ,
P20 , ……………….., P90 are the same as deciles.
And just as second quartile and median are the
same, so the fifth decile i.e. P50 and the median are the
same.

Mode
fm - f0
Mode = Lm + -----------------  wm
fm - f 0 - f2
where ,
 Lm is the lower point of the modal class interval

 fm is the frequency of the modal class interval
 f0 is the frequency of the interval just before the modal interval
 f2 is the frequency of the interval just after the modal interval
 wm is the width of the modal class interval

Equity Holding Data
the modal interval i.e., the class interval with the

maximum frequency (6) is 4000 to 5000. Further,
Lm = 4000
wm = 1000
fm = 6
f0 = 5
f2 = 4
Therefore

Equity Holding Data
( 6 – 5)
Mode = 4000 + --------------------  1000
26–5–4
= 4000 +  1000
= 4000 + 333.3
= 4333.3
Thus the modal equity holdings of the billionaires is
Rs. 4333.3 Millions.

Empirical Relationship among
Mean, Median and Mode
In a moderately skewed distributions, it is found that
the following relationship, generally, holds good :
Mean – Mode = 3 (Mean – Median)
From the above relationship between, Mean, Median

and Mode, if the values of two of these are given,
the value of third measure can be found out

Equity Holding Data
4333 4500 4565

(mode) (median) (mean)

Right Skewed Distribution
Mode Median Mean

Symmetrical
Mode Median Mean

Left Skewed Distribution
Mean Median Mode

Features of a Good Statistical
Average
 Readily computable, comprehensible and easily understood
 It should be based on all the observations
 It should be reliable. enough to be taken as true representative of the
population
 It should not be much affected by the extreme values in the data
 It should be amenable to further mathematical treatment. This properly
helps in assessing the reliability of conclusions drawn about the population
value with the help of sample value
 Should not vary much from sample to sample taken from the same
population.

Comparison of Measures of Location
Arithmetic Mean
Advantages Disadvantages
(i) Easy to understand and (i ) Unduly influenced by extreme

calculate values
(ii) Makes use of full data (ii) Cannot be calculated from the
(iii) Only number and sum of the data with open-end class- intervals
observations need be known in grouped data or when values of
for its calculation. all observations are available – all
that is known that some
observations are either less than or
greater than some value, in
ungrouped data

Median
Advantages Disadvantages
(i) Simple to understand

(ii) Extreme values do not have (i) Arranging values in ascending
any impact /descending order may
(iii) Can be calculated even if sometime be tedious
values of all observations are not (ii) Sum of the observations
known or data has cannot be found out, if only
open-end class intervals Median is known
(iv) Used for measuring qualities (iii) Not amenable for
and factors mathematical calculations
which are not quantifiable
(v) Can be approximately
determined with the help of a
graph (ogives)

Measure of Variation & Dispersion
 Standard Deviation
 Coefficient of Variation/SD
 Variance
 Mean Deviation
 Quartile Deviation
 Skewness
 Etc…..

Standard Deviation
 Standard Deviation-
Standard Deviation is the square root of the arithmetic mean of
the square of deviations of all items of the distribution from
arithmetic mean.
 Important property of standard deviation-

The sum of the square of the deviations of items from
arithmetic mean is minimum.
 Measures of Standard Deviation-

sigma= √∑x 2
Ravi Lakhani (Assistant Professor, JLBS)

MBA 1 Sem (EQSM)
Standard Deviation
 Merits of Standard Deviation-
1) It is based on all items of the distribution.
2) It is least affected by fluctuation of sampling.
3) It facilitates the calculation of combined Standard
Deviation of two or more groups.
4) It is facilitates the calculation of coefficient of
variation which is used to compare the variability of
two or more distributions.
5) It facilitates the calculation of other statistical
measures like skewness, correlation etc.
6) It provides a unit of measurement for normal
distribution
Standard Deviation
 Limitations of Standard Deviation-
1) It cannot be used for comparing the variability of
two or more series of observations given in
different units. A coefficient of Standard deviation
is to be calculated for this purpose.
2) It is difficult to compute as compared to other
measures.
3) It is very much affected by the extreme values.
4) The standard deviation cannot be computed for a
distribution with open-end classes.

Coefficient of Variation
 Interpretation of Coefficient of Variation-

% of coefficient of interpretation
variation
I. Lower Group is more Consistent/uniform/stable/homogeneous
II. Higher Group is less Consistent/uniform/stable/homogeneous
Calculating coefficient of variation=

Coefficient of SD= Sigma/actual mean
method.
Variance
 Variance-
Variance is the arithmetic mean of the squares of
deviations of all items of the distributions from
arithmetic mean.
In other words, variance is the square of the standard
deviation or standard deviation is the square root of
the variance.
Variance= (SD)2

Variance
 Interpretation of Variance-
Value of Variance interpretation
Smaller the value of Lesser the variability or greater the uniformity
in the population.
Larger the value of Greater the variability or lesser the uniformity
in the population

Numerical/s
 Example 1.
From the following data, calculate standard
deviation, coefficient of variation and
variance in case of an individual series by
actual mean method.
Roll 1 2 3 4 5 6
no.
Marks 5 15 25 35 45 55

Numerical/s
 Example 2.
deviation coefficient of variation and
variance in case of an individual series by
assumed mean method.
No. of 10 20 30 50 40 30
Students
Marks 5 15 25 35 45 55

Numerical/s
 Example 3.
variance in case of an discrete series by
actual mean method.
Marks 5 15 25 35 45 55
No. of Students 10 20 30 50 40 30

Numerical/s
 Example 4.
variance in case of an continuous series by
actual mean method.
marks 0-10 10-20 20-30 30-40 40-50 50-60
No. of 10 20 30 50 40 30
Students

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Faculty: Ravi Lakhani,

BE (Electronics), MBA (HR), UGC-NET (Management)

MBA 1 Sem (EQSM) Ravi Lakhani (Assistant Professor, JLBS)

Data description (Statistics – Definition, Types. Types of variables– Organizing data -

MBA 1 Sem (EQSM) Ravi Lakhani (Assistant Professor, JLBS)

MBA 1 Sem (EQSM) Ravi Lakhani (Assistant Professor, JLBS)

Statistical Tools/Techniques involves are:

 Simplifies unwieldy and complex mass of data, and

MBA 1 Sem (EQSM) Ravi Lakhani (Assistant Professor, JLBS)

 Discovers past and emerging patterns in a data.

 Helps in estimation and validating assumptions.

MBA 1 Sem (EQSM) Ravi Lakhani (Assistant Professor, JLBS)

MBA 1 Sem (EQSM) Ravi Lakhani (Assistant Professor, JLBS)

MBA 1 Sem (EQSM) Ravi Lakhani (Assistant Professor, JLBS)

MBA 1 Sem (EQSM) Ravi Lakhani (Assistant Professor, JLBS)

12 Forecasting HRD Manpower Planning

13 Forecasting Insurance Determining Premiums

14 Forecasting Marketing Demand Forecasting,

Wholesale and Consumer

Market Research Sample Surveys

Predicting EPS Regression Analysis

Derivatives ‘b’ Analysis and Regression

HRD Performance Appraisal and Normal Distribution

MBA 1 Sem (EQSM) Ravi Lakhani (Assistant Professor, JLBS)

 Measures of Central Tendency

 Median, Quartiles, Percentiles, Deciles

MBA 1 Sem (EQSM) Ravi Lakhani (Assistant Professor, JLBS)

MBA 1 Sem (EQSM) Ravi Lakhani (Assistant Professor, JLBS)

– Median, Quartiles, Percentiles and Deciles

MBA 1 Sem (EQSM) Ravi Lakhani (Assistant Professor, JLBS)

 It should be easy to understand and calculate

MBA 1 Sem (EQSM) Ravi Lakhani (Assistant Professor, JLBS)

MBA 1 Sem (EQSM) Ravi Lakhani (Assistant Professor, JLBS)

MBA 1 Sem (EQSM) Ravi Lakhani (Assistant Professor, JLBS)

2717 2796 3098 3144 3527

3534 3862 4186 4310 4506

4745 4784 4923 5034 5071

5424 5561 6505 6707 6874

MBA 1 Sem (EQSM) Ravi Lakhani (Assistant Professor, JLBS)

For the above data, the A.M. is

2717 + 2796 +…… 4645+….. + 5424 + ….+ 6874

= Rs. 4565.4 Millions

MBA 1 Sem (EQSM) Ravi Lakhani (Assistant Professor, JLBS)

MBA 1 Sem (EQSM) Ravi Lakhani (Assistant Professor, JLBS)

Mid Value of f ixi

2000 – 3000 2 2500 5000

3000 – 4000 5 3500 17500

4000 – 5000 6 4500 27000

5000 – 6000 4 5500 22000

6000 – 7000 3 6500 19500

Sum  fi = 20  fixi = 91000

MBA 1 Sem (EQSM) Ravi Lakhani (Assistant Professor, JLBS)

 Further, whenever, exact values of some

 In both the situations, another measure of

MBA 1 Sem (EQSM) Ravi Lakhani (Assistant Professor, JLBS)

Here, the number of observations is 20, and therefore there is no middle

4506 + 4745 9251

Thus, the median equity holdings of the 20 billionaires is Rs.4625.5 Millions.

MBA 1 Sem (EQSM) Ravi Lakhani (Assistant Professor, JLBS)

Class Interval Frequency Cumulative

MBA 1 Sem (EQSM) Ravi Lakhani (Assistant Professor, JLBS)

 This property makes median very useful measure

MBA 1 Sem (EQSM) Ravi Lakhani (Assistant Professor, JLBS)

 Median divides the data into two parts such that 50 %