1. Complete the Ethical Dilemma on page p141.

Answer the following questions:

• What does r2 mean in context? To help answer this question, see discussion of
correlation on pages 134 – 136.
• Is it ethical for colleges to base admissions and financial aid decisions on scores alone?
• What role do these tests take at your school?
A statistical method that explains how much of the variability of a factor can be caused or
explained by its relationship to another factor.

Answer:

Can University scores be used as (one of) legitimate selection criteria in equal-opportunity
job contests?

By taking into account the case of Croatian Transmission System Operator, Ltd., it can
be said that the companies miss out on too many talented candidates by defining intelligence
through exams and scores that are completely inadequate and compressed. Thus, it cannot be
said that university scores can be taken as one of the important selection criteria in equal-
opportunity job contests because the graduates that did excellent in their studies have not done
relatively well in their job positions at companies. Although the answer to this question cannot
be given ‘in black and white’. However, having a good university degree does not guarantee a
good job because students get knowledge from going to university and not experience.

Offering training to the employees prior their final selection for the available post(s) is
one of the solutions to the problem. Also, the hiring process should not be robotic, other aspects
such as activeness of the candidates, their communication skills, and confidence should be
taken into account for employment (González, T. and Guillén, M., 2002).

Can companies rely on these scores as a reasonable forecast of future job performance?

To some extent certainly, yes! However, the companies should not completely rely on
these scores as a reasonable forecast of future job performance because I personally know some
students who were poor at the studies but did exceptionally well in their job positions at the
companies.

Is it OK to teach students that they would get better jobs with higher university scores?

I think teaching the students that they would be getting good jobs with good university
scores is absurd. But we live in world where people are obsessed with test scores and good
grades. Again, the students might get jobs based upon their credit scores, but it is only their
performance at work that will be taken into consideration for their survival at the company.

Is it even important to score students with more detailed grades than just pass/fail?

Yes, I think the students must be given more detailed grades than simply declaring them
pass/fail. This way the students will get to know about the areas where they are lagging behind.

Will persons graduated with honors do better than their less successful colleagues or is it
just a reflection of modern obsession with test scores and best performance?

The pace with which hiring being done today has never been done by the businesses in
the past. Huge amount of money has been spent on doing it. And they’ve probably never carried
out a poor job of it. It won’t be wrong to say that today scores have become the important
priority for the employers during the hiring process.

Is it ethical for colleges to base admissions and financial aid decisions on scores alone?

No, I don’t think so that it is ethical for colleges to give admissions and financial aid
decisions based solely on the scores of the students. Preparatory class or tutoring sessions are
some of the ideal options that one could opt for, which proves how coachable these tests are. I
am of the opinion that what matters in the future are the reliability and intelligence of the
candidates, and how they tackle the problems at work, and in general. Taking examinations in
order to measure the intelligence of the students, is surely, as restricted as the examination
itself. While, it can be verified to be a justifiable sifter, it possibly cannot figure out even those
who are intuitively perceived as intelligent. The capabilities of the students cannot be
manifested with standardized test scores. As believed by the researchers, neither the student’s
abilities nor their skills are measured by standardized tests. Particularly, it is for high school
grades that the standardized testing is extremely popular (Helgadottir, Hilder, 2008).

What role do these tests take at your school?

Normally, the high school juniors as well as seniors are subjected to SAT. the primary
objective of SAT, which is carried out by educational institutes, is to gauge the numeracy,
literacy and writing skills for academic brilliancy in colleges, as stated by College Board. The
SAT evaluates how good do the test-takers(students) interpret and solve problems—skills they
learnt in institutes that they will require in future. Nonetheless, in a very restricted time frame,
the tests are conducted in order to generate a range of scores. Reading, Writing and Language
and Math are namely, the four sections included in SAT. In certain cases, fifth test section is
also occasionally performed which is an essay section. Three hours (or additionally more fifty
minutes when the fifth test section is conducted) is the time duration for conducting the SAT
(Helgadottir, Hilder, 2008).

What does r2 mean in context?

The proportionate of the difference in the dependent variable that is anticipated from
the independent variable is known as r2. Primarily coefficient of determination is carried out in
trend analysis. Its value is calculated within 0 and 1 (i.e., 0 to 100%). Its increased value
represents the better fit. r2 stands for coefficient of determination since r signifies the square of
the coefficient of correlation. In order to determine the amount of linear-correlation regarding
variables (i.e., fitting excellency), the coefficient of determination can be made use of. The
percentage of variation in the dependent variable (y) is shown by the coefficient of
determination and that is explained by the regression equation. Let’s say that in SAT’s case the
value of r2 is 0.014, indicating that 1.4% of the total variation between SAT score and the
academic success is justified by the regression equation.

Generally, the model will be a perfect fit concerning the data, if the value of r2 is high
even though the context of analysis relies upon the interpretations of fit. As an illustration, a
0.35 value of r2 signifies that, by the usage of covariates involved in the model, the deviation
in the end result can be elucidated simply through the forecasting of outcome. Social science
is a field wherein forecasting that percentage perchance be a lot of difference whereas in fields
like rocket science, r2 is anticipated to be very proximate to 100 percent. The value of r2 is 0 in
theoretical minimal. Nonetheless, r2 will invariably be above zero as linear regression depends
upon the most feasible fit even if the forecaster and outcome variables have no relation between
each other.
2. Complete Problem 4.53.

4.53 Using the date in problem 4.47, the company wants to find out how closely sales are
related to the money spend on advertisements.

a) Calculate the coefficient of correlation for the data given in problem 4.47, and comment on
the degree of the linear relationship

Answer:

Forecasting with least square:

By following this approach, the strength of the association between advertising and sales can
be known:

Approach: The objective is to compute the r value.

Sales,y Advertising,x x2 y2 xy

42 750 562500 1764 31500

6 150 22500 36 900
35 701 491401 1225 24535
1 41 1681 1 41
3 97 9409 9 291
8 167 27889 64 1336
4 110 12100 16 440
5 254 64516 25 1270
1 51 2601 1 51
2 90 8100 4 180
9 191 36481 81 1719
2 92 8464 4 184
6 142 20164 36 852
25 377 142129 625 9425
14 197 38809 196 2758
2 63 3969 4 126
17 265 70225 289 4505
7 92 8464 49 644
 13 232 53824 169 3016
32 548 300304 1024 17536
∑y=234 ∑x=4610 ∑x2=1885530 ∑y2=5622 ∑xy=101309

Therefore, by calculating the data points, we got:

n= 20

∑x= 4610;

∑y=234;

∑x2= 1885530, ∑y2=5622

∑xy= 101309

The mathematical equation can be known with the help of least-squares regression approach:

∑x 4610
x̅= 𝑛 = =230.5
20

∑y 234
y̅= 𝑛 = = 11.7
20

∑xy − nx̅y̅
𝑏=
∑x2 − nx̅

𝟏𝟎𝟏𝟑𝟎𝟗−𝟐𝟎(𝟐𝟑𝟎.𝟓)(𝟏𝟏.𝟕)
= 𝟏𝟖𝟖𝟓𝟓𝟑𝟎−(𝟐𝟎)(𝟐𝟑𝟎.𝟓)
47372
= 1880920 = 0.02518

a= y̅-bx̅

=11.7-(0.02518) (230.5)

= 11.7-5.8052

= 5.8948

Thus, the least square trend equation is: ŷ= 5.8948+0.02518x

 To project demand for the upcoming year, adding the value of x =150,000, which is
given in the data.

ŷ= 5.8948+0.02518(150,000)

= 3770.8948 sales (in euros).

Therefore, if the company spends 150,000 euros in advertising then the sales for the
upcoming year will be 3770.8948.

Finding out the coefficient of correlation:

To get the answer of finding the strength of the association between advertising and
sales, the r value is computed:

The correlation coefficient formula is used, which is (Fildes, Robert, and Paul Goodwin, 2007):

𝑛∑xy − ∑x∑y
𝑟=
√[(𝑛∑x2 − (∑x)2][n∑y2 − (∑y)2]

Now, substituting the above values into the above formula, we get:

20(101309) − (4610)(234)
=
√[20{1885530) − (21252100)[20(5622) − (54756)]

= 0.9723

This r of 0.972 value can be taken as a strong correlation and helps to confirm the
closeness of the relationship shared between sales and advertising. This signifies that the
volume of sales increases linearly with advertising cost.

b) If the correlation coefficient was the same but negative what would it tell you?

Assuming that the value of correlation coefficient (R) is positive, then the value of Y
increases as the value of X increases, but the value of Y decreases as the value of X increases
when the correlation coefficient R is negative. However, If the correlation coefficient was -
0.9723 and not +0.9723, it would tell that as the advertising cost increases, the sales decreases.
In other words, both the variables travel in opposite way (Gilliland, M., and M. Leonard, 2006).

c) List some advantages and disadvantages of the correlation coefficient

Some of the benefits of correlation coefficient are that formulation of it is uncomplicated

as well as interpretation is also easy.

The disadvantages of correlation coefficient are that only linear relationships can be
measured amongst X and Y and Y need to have a proportionate change whenever there is a
change in X concerning the existence of any other relationship. The result will be inaccurate
whenever the relationship is not linear. Furthermore, if the data is categorical then the
correlation will become insignificant, like gender or hair colour (Diebold, F. X, 2013).

d) Calculate the model’s coefficient of determination

Coefficient of determination is nothing but the square of correlation coefficient (r), or r2.

Therefore, coefficient of determination= (correlation coefficient)2

r=0.9723, now squaring the r value, we get;

= (0.9723)2= 0.9453

The value of r2 is close to 1 reflecting that the value is a good fit.

e) Identify the differences between correlation coefficient and coefficient of

determination. How are they similar and how are they different? Explain the differences
in the organizational objectives they are trying to achieve.

Correlation Coefficient: The computation of relationship among two variables numerically is

called correlation coefficient, such as X and Y and it is expressed with R symbol. The value of
correlation coefficient always lies within -1 and 1, hence -1 < R < 1. Nonetheless, no causality
is suggested by the correlation coefficient, i.e., the two variables are shown to be solidly
correlated by it, nevertheless it never implies that they are held accountable for one another.
As an illustration: there exists a correlation between the height and weight of an individual. if
0.8 is the correlation coefficient, it suggests that the correlation is very strong. It signifies that
an individual’s height and weight increase or decrease simultaneously (positive) and strong is
their relationship(linear).

Coefficient of Determination: Linear relationship amongst two variables is measured by the

correlation, whereas the interpreted variations are measured by the coefficient of determination
(R-squared).

Simply put, the “linear” relationship is measured amongst two variables by the
Correlation Coefficient. On the other hand, the measure of goodness of fit for the model under
study is represented by Coefficient of Determination, that is, it represents to what degree
variation is justified by the model with regards to the complete variation present in the data set
(Georgoff, D. M., and R. G. Murdick, 1986).

3. Complete problem 4.4:

4.4 A check-processing center uses exponential smoothing to forecast the number of incoming
checks each month. The number of checks received in June was 40 million, while the forecast
was 42 million. A smoothing constant of .2 is used.

a) What is the forecast for July?

b) If the center received 45 million checks in July, what would be the forecast for August?

c) Why might this be an inappropriate forecasting method for this situation?

Answer

Part A:

In order to know the forecast for the month of July, basic exponential smoothing
formula can be used, which is given as:

New forecast= Last period’s forecast+ α (last period’s actual demand- last period’s forecast)

The mathematical representation for the above statement is 𝐹𝑡 = 𝐹𝑡−1 + 𝛼(𝐴𝑡−1 − 𝐹𝑡−1)

Where, ‘α’- weight, or smoothing constant (0 ≤α ≤1); the value of ‘α’ in this case is
given as .2.
Now, by adding all the given values into the formula, we get:

Predicted value= 42 million checks

Actual value= 40 million checks

α= .2

Thus, new forecast= 42+.2 (40-42)

=42+.2(-2)

=41.6

Therefore, the forecast for the month of July is 41.6 million checks.

Part B:

If the center received 45 million checks in the month of July, then the forecast for the
upcoming month (august) will be:

Actual forecast= 45 million

Predicted forecast= 41.6 (value determined in part A)

Adding values in the formula, we get:

= 41.6+.2(45-41.6) = 42.28

Thus, the August demand forecast for check-processing center is rounded to 42 million checks.

Part C:

Exponential Smoothing might be an unsuitable method in this situation, primarily for two
reasons:

 It is beneficial for short-term forecasting only.

 It uses past history of sales to make upcoming forecasts. There are events where precise
forecasts are given by subjective estimates. Certain efforts were made to complement
the two that is, forecasts from Exponential smoothing and subjective estimates, good
results were obtained, however not completely satisfactory (Urs, Rajiv, 2008).
4. Answer discuss questions #11 and #12

11. Does Lean production work in the service sector? Provide an example.

Lean for service organisations

Yes, lean production is certainly applicable everywhere. There prevails a constant

pressure on the companies performing in the service sector to deliver exceptional customer
service, rapid response times and essential support for their consumers. Lean operations assist
in improving all the service delivery systems by reducing wastes by either getting rid of them
totally or shift to a more competent state as a unit of a journey of continuous development.

An IT company has been considered as an instance in order to back up the above

statement; IT firm is very different from a manufacturing firm, yet it still contains various
irrelevant processes that could be eliminated or lessened. The customer experiences can be
made better by using lean tools and methods which mitigates irrelevant operations, like total
count of call transfers, and redundant IT processes, at the same time offering solutions to
minimize errors, optimize workforce performance, and become more cost-efficient (Dahlgaard,
J. and Mi Dahlgaard‐Park, S., 2006).

Could you benefit from lean?

In a nutshell, lean production can help the companies performing in the service sector
by generating a more feasible method, also it helps to motivate the workforce, enhance
customer value and productivity of the business.

12. Which Lean techniques work in both the manufacturing and service sectors?

Practically both in manufacturing and service sector, all lean techniques have
applications. There exist certain boundaries for the lean techniques of JIT, inventory reduction,
layout, and tight scheduling.

Lean operations are nothing but the products which are obtained through carefully-
performed operations management that aims to find out the value of customers via a detailed
analysis of all that goes into the manufacturing of a product and eventually tweaking to
optimize the process from the viewpoint of customers. These operations are useful within the
service sector because Just-in-Time (JIT) are optimal more on scheduling as opposed to the
inventory. Just in Time layouts, level scheduling, and inventory reduction are the lean
operations that can be used in manufacturing as well as service sector conveniently (Dahlgaard,
J. and Mi Dahlgaard‐Park, S., 2006).

References

Helgadottir, Hilder. “The Ethical Dimension of Project Management.” International Journal of

Project Management 26, no. 7 (October 2008): 781.

Evans, J. (1977), "The Management of Human Capacity", Management Decision, Vol. 15 No.
7/8, pp. 563-726

González, T. and Guillén, M. (2002), "Leadership ethical dimension: a requirement in TQM

implementation", The TQM Magazine, Vol. 14 No. 3, pp. 150-164.

Karlos, A., et al. “Foundations of Project Management.” International Journal of Project

Management 27, no. 1 (January 2009): 39.

Campbell, Omar. “Forecasting in Direct Selling Business: Tupperware’s Experience.” The

Journal of Business Forecasting 27, no. 2 (Summer 2008): 56–57.

Diebold, F. X. Elements of Forecasting, 6th ed. Cincinnati: South-Western College Publishing,

2013.

Fildes, Robert, and Paul Goodwin. “Against Your Better Judgment? How Organizations Can
Improve Their Use of Management Judgment in Forecasting.” Decision Sciences 37, no. 6
(November–December 2007): 608–614.

Georgoff, D. M., and R. G. Murdick. “Manager’s Guide to Forecasting.” Harvard Business

Review 64 (January–February 1986): 148–158.

Gilliland, M., and M. Leonard. “Forecasting Software—The Past and the Future.” The Journal
of Business Forecasting 25, no. 1 (Spring 2006): 71–74.

Urs, Rajiv. “How to Use a Demand Planning System for Best Forecasting and Planning
Results.” The Journal of Business Forecasting 27, no. 2 (Summer 2008): 60–63.
Dahlgaard, J. and Mi Dahlgaard‐Park, S. (2006), "Lean production, six sigma quality, TQM
and company culture", The TQM Magazine, Vol. 18 No. 3, pp. 263-281.