TO 557

APPLIED BUSINESS STATISTICS

ROSS SCHOOL OF BUSINESS

FALL, 2019

INSTRUCTOR
Professor Laurie A. Morgan Office hours: Friday: 10:00 am-noon and by
R4412 appointment1
morganla@umich.edu Office phone: 734-615-3757
Cell phone: 734-276-3620
Contacting me: The best way to get in touch with me is e-mail. I check it often and make every effort to
respond to you quickly. If you have an emergency, you may call my cell number, but please don’t call after
9:00 pm.

Important note: Please set your Canvas setting to receive announcements immediately as they are
posted. I will post announcements regarding class activities, homework assignments, and other plans,
sometimes with attachments, as we go through the course. It is important that you get them in real time
rather than as a bundle at the end of the week!

No electronics policy: Except for specifically identified “Excel Example” periods where you will be
able/required to follow along on your laptop, in-class sessions will have a no electronics policy—that means
no phones, tablets, or computers, except as noted regarding the use of laptops.

COURSE OBJECTIVES

My goal for the class is that you become proficient with a basic set of quantitative tools—optimization and
inferential statistics—that are widely used in business. By the end of the class you should 1) be able to apply
these tools yourself, and 2) be a critical consumer of information and analyses based on these techniques.

In today's business world, problems are too complex to rely on intuition alone to guide tactical and strategic
decisions. Quantitative decision tools such as probability and statistics allow decision makers to account for
uncertainties in a systematic way. This course prepares students to describe, gather and analyze business data,
and to use statistical and management science tools to support business decisions in economics, operations,
finance, marketing, and other core disciplines.

The topics covered include: probability, random variables, statistical inference and computer-based regression
analysis. Business applications of these techniques are emphasized. This course is divided into three modules:

 Module I. Probability and Uncertainty: (Classes 1-4) We will learn how to characterize uncertain
events using probability and random variables. Applications include market research, revenue
management risk assessment and asset pricing.
 Module II. Statistical Inference and Hypothesis Testing: (Classes 5-7) We will develop skills to draw
conclusions about unknown population characteristics, and to test hypotheses using sample
information. Applications include quality control, market research, and new product development.

1 Note: I will not hold office hours on Friday, October 5.

  Module III. Statistical Modeling and Regression Analysis: (Class 8-12) We will learn how to apply
regression analysis for understanding, prediction and control of business systems. Applications
include discovering the real drivers of business success from large data sets, in contexts such as stock
price performance, market research, asset pricing, and business strategy.

Upon completion of this course, students will be able to use the tools of statistics and statistical modeling to
support business decisions in an uncertain environment. Specifically, students will be able to:

 Quantify uncertainty found in business situations using probability.

 Test hypotheses about business realities based on data.
 Build and test a statistical model of uncertain business realities for understanding and prediction.
 Analyze large data sets using spreadsheet models to support managerial decisions.

MATERIALS
1. There is no coursepack for this class. All material will be provided on the Canvas, described next.
2. Canvas course website (access it via the CTools homepage): The Canvas website will be the primary
source for material as well as communication. These will include, but are not limited to:
a. Lecture slides and data files.
b. Practice problems, data files, and solutions.
c. Assignments and gradebook.
d. Announcements.
e. Supplementary reading material.
f. Material to help you prepare for the final exam.
Students are responsible for checking the website regularly for announcements, assignments and
supplementary material.
3. Software: The course will involve extensive use of Microsoft Excel 2013 (2010 ok also) for Windows,
and in particular the data analysis tool pack (available as an Add-in). The use of each tool will be
discussed in class, but basic familiarity (such as copy and paste, formatting data, and entering
formulae) with Microsoft Excel is assumed. Students are encouraged to bring a laptop with Excel to
class, and use of your laptop will also be necessary for your assignments and exam.
4. Text: [Optional] D.F. Groebner, P.W. Shannon, P.C. Fry, Business Statistics: A Decision-Making
Approach, 9th edition (Prentice Hall, 2013; ISBN 013302248X). The textbook is optional. All material
used in the class will be provided on Canvas. However, the textbook can serve as an excellent
external resource if any of the following apply to you:
a. You'd like alternative explanations of concepts that complement the explanations provided
in class and on the slides.
b. You want extra practice problems. For those of you who do have the text, I will post
suggested problems for each module. Note that while earlier editions are fine for points a, c, and d,
the suggested problems will be from the 9th edition specifically.
c. You want a source for some advanced topics that we will not have time to cover, such as
forecasting using regression or hypothesis tests beyond those covered in class.
d. You want a resource that you can refer to in future classes and your work.
GRADING
Grading will be based on individual assignments, the final exam, and class participation. The weighting of
components is given below.

Deliverable Weight
Homework 10%
Midterm Quiz 15%
Participation 15%
Final exam 60%

There will be one midterm quiz. It will be administered through Canvas with a 3-day window for completion.
It will be open book and open note. That said, it is to completed ON YOUR OWN. You ARE NOT
allowed to get help on it from fellow students or others outside the class. You may ask Prof. Morgan
questions for clarification, but no other help is allowed.

The homework consists of two assignments that are preparation for each of the last two class sessions. You
may work with each other, or consult me or the TO 557 tutor for help; you may not work with or consult
others outside the class.

There will be one final exam after session 12, which will cover topics from all lectures. You will be allowed to
have up to five 8.5”x11” “cheat sheets” with any information you want on them. Note that you will have to
turn in your cheat sheets with your exam, so if you would like to keep them, please make a copy before the
start of the exam. You may not access any other files or materials on your computer hard drive or on-line
(the exception being the data file(s) you will need to download for this exam at the start of the exam period.
Other than these data files, you may not access any other resources beyond the use of Excel on your laptop
and the five cheat sheets. This means no communication with any other individual, and no access to any
other external source of knowledge (no web, no email, no other books, no notes from other universities, etc.).
The final exam will also be targeted to take two hours for a well-prepared student. The final exam will require
you to analyze Excel data sets and submit your work to Canvas.

The final course grade will follow the Ross graduate program grading distribution: No more than 25% of the
students will be awarded Excellent (EX), and approximately 35% will receive Good (G), 35% will receive
Pass (P), and 5% will receive Low Pass (LP) or Fail (F). The exact distribution of grades varies year-by-year
based on how students perform.

STRATEGIES FOR SUCCESS

1. Keeping up with the material: This class is cumulative—topics covered in later lectures will depend
on topics covered in earlier lectures. So, it is very important that you keep up with the material, and
do not fall behind. The homework assignments are designed to ensure that you keep up with the
material.
2. Class engagement: Please come prepared to fully engage in class. This means you should be on
track with the quizzes and worksheets, and also well-rested, and not distracted. Although you will be
required to use your laptop in class, please do not use them in a way that distracts you and the
students who sit around you by checking email, sports scores, etc. during class. I will offer time in class to
solve practice problems; please use this opportunity to solve the problems and ask questions if you are
unable to.
 3. Participation: The nature of contributions that students can make in class depends on whether we are
covering basic tools, or asking for managerial conclusions. Excellent participation in a course such as this
means helping the entire class with salient questions, contributions, or clarifications, including
responding to COLD CALLS. Less than excellent participation would include disruptive entrances or
departures and/or taking class time to ask for information that would be redundant for somebody properly prepared for
class, on time, and paying attention. Less than excellent participation also includes violations of the no-electronics
policy. Attendance, including being in class on time at the start of class as well as after breaks, will also
weigh heavily in your participation grade.
4. Workload Expectation: The key to competence, particularly in quantitative classes like this one, is
practice. You will be given the opportunity to work on many practice problems in this course. For
the final exam preparation, selected questions from previous years’ exams, along
with answers, will be posted on Canvas.
5. How to get help: Students are encouraged to ask questions during and outside our class hours.
The course is cumulative and moves rapidly. DO NOT FALL BEHIND! I recommend that
you contact me immediately for any difficulties.

ACADEMIC INTEGRITY
Personal integrity and professionalism are fundamental values of business and the Ross School community.
This course will be conducted in strict conformity with the Academic Honor Code. The code and its related
procedures can be found at the following website:

http://www.bus.umich.edu/Academics/Resources/communityvalues.htm

This site also contains comprehensive information on how to be sure that you have not plagiarized the work
of others.

Claimed ignorance of the code and the related information on the site will be viewed as irrelevant should a
violation take place. Non-Ross Business School students taking the course should also familiarize themselves
with the Code as they will be subject to the Ross Code while in the course.

ACCOMODATIONS

The University of Michigan is committed to providing equal opportunity for participation in all programs,
services and activities. Students wishing to receive testing accommodations must register with the University
of Michigan Services for Students with Disabilities (SSD) office as soon as possible. Students must then
submit their Verified Individualized Services and Accommodations (VISA) form online as early as
possible, but no later than two weeks prior to the first test or quiz for which accommodations are
requested. Accommodations arrangements are not guaranteed for students who submit their VISA form
with less than two weeks’ notice.

Requests must be sent using the Ross Accommodations Request Form and must include a scanned or
photographed copy of the VISA form. This form only needs to be submitted once during your academic
career with Ross unless your accommodations eligibility expires.

In rare cases, the need for an accommodation arises after the two-week deadline has passed (example: a
broken wrist). In these cases, students should still contact SSD and the Ross Accommodations Coordinator.
However, due to logistical constraints we cannot guarantee that an accommodation can be made after the
two-week deadline has passed.

Questions can be directed to the Ross Accommodations Coordinator

at RossAccommodationsCoordinator@umich.edu.
SCHEDULE
Session Date Topics
Course overview and introduction to probability
 Course structure and expectations.
1 9/4  Random events, probability spaces, and the basic laws of probability.
 Independence of two events and the concept of conditional probability.
 Preview the notions of random variables
Random variables, expected value and variance, RV combinations
 Probability distribution of random variables.
2 9/9  Expected value, variance and standard deviation of a random variable.
 Combining two or more random variables.
 Computing the mean and variance of a combination of random variables.
Discrete random variables and binomial distribution
 Recognize situations when the binomial distribution applies and learn how to
3 9/11 solve business decision-making problems using binomial.
 Understand what it means to conduct independent and identical trials.
 Recognize the difference between discrete and continuous random variables.
Continuous random variables and normal distribution
 Introduction to the normal distribution
4 9/16  Solving business decision-making problems involving the normal
distribution.
 Be able to work with normal distributions using normal tables and Excel
commands.
Sampling distributions and introduction to inference
 Learn the distinction between the population and a sample.
 Explore why sampling leads to errors.
5 9/18
 Learn the concept of “sampling distributions”
 Understand the importance of the Central Limit Theorem in sampling
distributions.
Confidence intervals and introduction to hypothesis testing
 Point and interval estimates.
 Be able to construct a confidence interval for a population parameter
 Learn how to find probabilities for the t-distribution
6 9/23
 Understand factors affecting the margin of error.
 Understand the notion of a hypothesis test.
 Understand how to formulate null and alternative hypotheses.
 Understand the p-value for a hypothesis test, and how to compute it.
Session Date Topics
Hypothesis testing continued
7 9/25  Continue studying hypothesis tests for different situations: tests of means
vs. proportions; one-tailed vs. two-tailed tests, etc.
Midter Covers Modules 1 and part of Module 2, Sessions 1 through 6. Due by 11:55
m Quiz pm on September 30
Introduction to modeling
 Be able to build a scatter plot and assess plausible relationships.
 Explore the concepts of covariance and correlated variables and their
8 9/20
applications.
 Establish a simple linear regression model.
 Understand the assumptions that underlie a linear regression model.
Simple linear regression II
 Understand how regression can be used to estimate population parameters.
9 10/2  Determine whether a regression model is significant using sample data.
 Determine confidence intervals for regression coefficients.
 Learn how to make forecasts and predictions using regression.
Multiple regression and multicollinearity
 Apply multiple regression analysis to business applications.
10 10/7  Be able to determine which independent variables are significant.
 Learn how to interpret the implications of estimated regression coefficients.
 Understand the causes, symptoms and remedies for multicollinearity.
HW 1 Pre-work for sessions 11: See instructions for what to bring to class
Modeling qualitative relationships using dummy variables
 Use dummy variables to explain qualitative relationships.
11 10/9  Learn how to build a “good” model by choosing the appropriate
independent variables.
 Understand the implications of the assumptions of the regression model.
Pre-work for session 12: See instructions for what to bring to class and what to
HW 2
submit to Canvas
Model building: Integrative case studies
12 10/14  This class will allow students to practice using the tools they have learned in
two applications of statistical modeling to business decision making.
Final 10/19 In-class final exam: 10:15 am—12:15