Statistics For Managers

PEMP-GP-POM
Session 8
Statistics for Managers
Session Speaker
K.M. Sharath Kumar
M.S Ramaiah School of Advanced Studies - Bangalore
Basic
PEMP-GP-POM
Statistics
PEMP-GP-POM
Session Objectives
To describe the relevance of statistics and model building process
To explore different graphical and numerical representation of data
To develop regression models to ascertain the relationship between

dependent and independent parameters
PEMP-GP-POM
Session Outline
Introduction to Statistics
Representation of Data
Normal Distribution
Skewness and Kurtosis
Correlation and regression
PEMP-GP-POM
PEMP-GP-POM
Business
Finance
Economy
PEMP-GP-POM
Statistics
Include numerical facts and figures
Earth quake
Male Prisoners
Elderly Population
PEMP-GP-POM
Statistics
Rely upon data
Rely upon how data are selected/chosen and statistics are
interpreted
Sometime have problematic interpretations
Consider some examples
MS Ramaiah School of Advanced Studies - Bangalore
PEMP-GP-POM
Ice-cream Sales
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Temples and Crime
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What is Statistics?
Is the branch of mathematics which organises,

analyses and interprets data
Statistics is concerned with making inferences from

sampling about characteristics of general population
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A Case
You hear a commercial that 80% of children prefer to eat a
certain kind of noodles for breakfast . What do you conclude ?
1.
2.
3.
This noodles is superior to all others. at least according to

kids.
You need to know about where these data come from
before making any conclusion.
20% of children prefer other brand.
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Piece of caution about stats

What should one take into consideration when evaluating
statistical claims?
1.
2.
3.
The source of the data

How the data is presented
The procedure used to generate the claims
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First step : Question Statistics
Benjamin Disraeli
Former British Prime Minister
There are three kinds of lies

lies, Damned lies and Statistics
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Importance of Statistics
Complete information about any subject matter may not be
always available
Helps to take decision based on facts not on opinions
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Example of Descriptive Statistics
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Example of Inferential Statistics
Pre Poll Opinion
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Example of Inferential Statistics

Cooking Rice
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Data
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Types of Data - Two Types
Qualitative Categorical or
Nominal:
Examples are Color
Gender
Nationality
Quantitative Measurable or
Countable:
Examples are Temperatures
Salaries
Number of points
scored on a 100
point exam
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Scales of Measurement
Nominal Scale - groups or classes
Gender
Ordinal Scale - order matters
Ranks (top ten videos)
Interval Scale - difference or distance matters has
arbitrary zero value
Temperatures (0F, 0C)
Ratio Scale - Ratio matters has a natural zero value
Salaries
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Population and Sample

Sample1
Population
Sample 2
Population
A set of characteristics that defines membership in the complete set.

Example - All employees of BOSCH.
Example - randomly chosen employees from four different functions (25 each).
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Samples and Populations
A population consists of the set of all measurements for which

the investigator is interested
A sample is a subset of the measurements selected from the

population
A census is a complete enumeration of every item in a

population
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Samples and Populations
Population (N)
Sample (n)
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Why Sample?
Census of a population may be:
Impossible
Impractical
Too costly
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Basics of Data Collection

Data must be in numerical form
Verbal data must be coded into numbers
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Tabulation
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Basics of data collection

Computer Experience
Mean amount of computer experience is required
Convert the verbal descriptions to numbers
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Basics of data collection
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Example
To prove children that study more leads to better
grades
Develop a questionnaire to collect data
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Example
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Example continued
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CROSS TABULATION
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CROSS TABULATION
An approach to summarize and identify the relation

between two variables or parameters
Expressed as two way table
Parameters need to be categorical or grouped
Input or Process
Variable
Output Variable
Very
Good
Good
Average
Below
Average
Poor
03
3-6
6 - 12
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PEMP-GP-POM
CROSS TABULATION
Example:
A project was undertaken to improve the CSat score of transaction processing.
Based on brainstorming, the project team concluded that lack of experience is a
cause of low CSat score.
The following data was collected. Analyze the data and verify whether lack of
experience is a cause of low CSat score
Experience
(Months)
CSat Score
VD
VS
03
50
40
30
10
10
3- 6
30
50
35
6 - 12
30
40
50
Note: Table gives the count of CSat score of 1, 2 etc for each group of
agents
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PEMP-GP-POM
CROSS TABULATION
Example:
Step 1:
Take the column wise (output variable category wise) total
Experience
(Months)
CSat Score
VD
VS
03
50
40
30
10
10
3- 6
30
50
35
6 - 12
30
40
50
Total
61
77
110
85
67
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PEMP-GP-POM
CROSS TABULATION
Example:
Step 2:
Take the percentages based on column total
Experience
(Months)
CSat Score
03
VD
81.97
D
51.95
N
27.27
S
11.76
VS
14.93
3- 6
8.20
38.96
45.45
41.18
10.45
6 - 12
9.84
9.09
27.27
47.06
74.63
Total
100
100
100
100
100
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Representation of Data
Data can be represented in two ways
Representation of data
Graphical
representation
Numerical
representation
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Graphical representation
Bar chart
Pie chart
Histogram chart
Weight distribution of TVS-M Mysore

14
12
Frequency
10
8
6
4
2
0
40
50
60
70
TVSM-Mysore
80
90
100
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Frequency Distributions
A frequency distribution is an organisation of raw data into
tabular form using classes (or intervals) and frequencies.
Frequency count: The frequency or frequency count for a
data value is the number of times the value occurs in the data
set.
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Source : Statistics and Probability for Engineering Applications By W L DeCoirsey , college of engineering, University of
Saskatchhewan , Saskatoon.
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Categorical or Qualitative Frequency

Distributions
Categorical frequency distributions represent data that can be
placed in specific categories, such as gender, hair color, or
religious affiliation
Ex: The blood types of 25 blood donors are given below
Summarise the data using a frequency distribution
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Example continued
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Grouped Data and Histogram

A histogram is a graphical display of a frequency
distribution that uses classes and vertical bars (rectangles)
of various heights to represent the frequencies.
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Group Data and the Histogram
Dividing data into groups or classes or intervals
Groups should be:

Mutually exclusive
Not overlapping - every observation is assigned
to only one group
Exhaustive
Every observation is assigned to a group
Equal-width (if possible)
First or last group may be open-ended
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PEMP-GP-POM
Example:
The weights (in pounds ) of 30 female students in biology
class of a college are given below.
Summarise the information with a frequency
distribution using seven classes.
143 151 136 127 132 132 126 138 119 104
113 90 126 123 121 133 104 99 112 129
107 139 122 137 112 121 140 134 133 123
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Frequency table
Note: In the group frequency distribution, observe that the

relative frequency column did not add up to exactly 1, and
the percentage column did not add up to exactly 100
percent. This is due to rounding of the relative frequency
values to three decimal places.
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Histogram
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Numerical Representation
How to characterise numerical data?
Central tendency
Spread
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Numerical representation
Central Tendency
Measures of central tendency
Mean
Median
Mode
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Central tendency
Mean
Mean: It is the arithmetic average.
Consider a list x1, x2 , . . . . , xn of n data values. Then
Mean =
xi
N
Mean is calculated for sample and / or population.

Population Mean
&
Sample Mean
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Central tendency
Mean
Example
Calculate the mean for
10, 12, 22, 18, 25, 15
Solution
x =
xi
N
= 10+12+22+18+25+15
6
= 102/6 = 17
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Central tendency
Median
~
Median: Is the middle value denoted by x when the data

is arranged in ascending / descending order.
Consider a list x1, x2 , . . . . , xn of n data values which are
sorted in increasing/decreasing order. Then
Median
~
x =
[(n+1)/2]th term
When n is odd,
(n/2)th term + [(n/2) +1]th term
when n is even.
~
Note that x is the average of the (n/2)th and [(n/2)+1]th terms
when n is even
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Central tendency
Median
Example1
Calculate the median for
10, 12, 22, 18, 25, 15
Solution
Arrange the numbers in ascending order
10, 12, 15, 18, 22, 25
~
x
= (n/2)th term + [(n/2) +1]th term

2
Example 2
Calculate the median for
10, 12, 22, 18, 15
Solution
Arrange the numbers in
ascending order
10, 12, 15, 18, 22
= [(n+1)/2]th term
~
= 3rd term
= 3rd term + 4th term
2
= 15
= 15 + 18 / 2 = 33/2 = 16.5
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Mode
.
. . . . : . : : : . . . .
--------------------------------------------------------------6
9 10 12 13 14 15 16 17 18 19 20 21 22 24
Mode = 16
The mode is the most frequently occurring value. It
is the value with the highest frequency.
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Numerical representation
Spread
Measures of spread
Range
Standard deviation
Inter quartile range
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Spread
Range
Range is the difference between the maximum value and

minimum value.
Range, R = Maximum value Minimum value
Example
Calculate the range for 10, 12, 22, 18, 25, 15
Solution
Range, R
= Max. value Min. value

= 25 10
= 15
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Spread
Standard Deviation
Let x be the sample mean of the n values x1, x2 , . . . . , xn.

The difference xi - x is called the deviation of the data value about
the mean x.
2 + (x x)2 + . . . . + (x x)2
2
(x
x)
(x
x)
Sample
1
2
n
i
s2 =
=
variance
n-1
n-1
Population variance, 2 = (xi )
The sample standard deviation s is the non-negative square root of

the sample variance
Sample standard deviation, s = s2

Population standard deviation, = 2
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Spread
Standard Deviation
Example
Calculate the standard deviation for 10, 12, 22, 18, 25, 15
Solution
Variance, s2 = {(10-17) 2 + (12-17) 2 + (22-17) 2 + (18-17) 2
+ (25-17) 2 + (15-17) 2}
6-1
= 33.6
S.D, s = s2 = 33.6 = 5.797
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Spread
Inter Quartile Range (IQR)
IQR = Q3 - Q1
These values are plotted
in a box called box plot.
Max value
IQR
3rd Quartile
Median [2nd Quartile]
First Quartile
Min value
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Exercise
Calculate the
1.
Mean
2.
Median
3.
Range
4.
Variance
5.
Standard deviation
6.
Inter quartile range
for the following data
4, 6, 10, 7, 6, 9
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Probability Distribution of Data

Continuous Data
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Continuous distribution
Normal Distribution
Most widely occurring distribution

Describes many natural phenomena, industrial and
scientific situations
It has got a bell shaped curve
Example
Physiological characteristics (weight, height, size, etc), yield of
agricultural crops, experimental and measurement error
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PEMP-GP-POM
Normal Curve Main Focus

A normal curve is a graphical representation of the mathematical expression used to
describe the normal distribution
Standard deviation,
Characterisation of normal curve

Central tendency or Mean =
Dispersion or Std deviation =
Mean,
=0
=1
Standardized normal distribution is represented by
x-
= u or z
u = difference from mean in std. dev.

x = a particular value under consideration
= mean of the distribution of the values
= std. dev. of the distribution of the values
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Normal Curve and Probability Areas
68%
93%
99.73%
-3
-2
-1
+1 +2 +3
A randomly selected item has 99.73% chance of being

between plus / minus ( ) 3 standard deviations from the mean
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Standardised Normal Distribution An

Example
Lets understand how a process data can be expressed in terms of

a standardised normal distribution.
Consider a heat treatment process with the process output as hardness in BHN. The
mean and std. dev of 20 data points are calculated to be as follows:
= 250 BHN
= 8.5 BHN
Now lets substitute the sigma values in the standardised normal curve.
68%
Formulae
-3
-2
-1
+1
+2
+3
Values
224.5
233
241.5
250
258.5
267
275.5
93%
99.73%
-3
-2
-1
+1
+2
+3
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Skewness and Kurtosis
Skewness
Measure of asymmetry of a frequency distribution
Skewed to left
Symmetric or unskewed
Skewed to right
Kurtosis
Measure of flatness or peakedness of a frequency
distribution
Platykurtic (relatively flat)
Mesokurtic (normal)
Leptokurtic (relatively peaked)
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Skewness
Skewed to left
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Skewness
Symmetric
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Skewness
Skewed to right
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Kurtosis
Platykurtic - flat distribution
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Kurtosis
Mesokurtic - not too flat and not too peaked
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Kurtosis
Leptokurtic - peaked distribution
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Bi-variate and Multi-variate Analysis
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Scatter Diagram
This is a diagram, used to study and
identify the possible relationship
between two variables.
Also, it can be used to establish
Existence of Correlation
Type of Correlation
Strength of the relation
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Scatter Diagram Interpretation Guide
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Correlation
Statistical measure of the degree of association between
two variables
Is there a relationship between speed at which a car travels
and rate at which it consumes fuel
Car Speed and Fuel
Consumption
Speed
20
25
30
35
40
45
50
55
60
Cons..
22
21
20
23
19
18
16
14
11
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Consumption in Mill liters
Plotting the data

25
20
15
10
5
0
0
10
20
30
40
50
60
70
Speed in Km/hr
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Linear Correlation co-efficient
Where n is the number of data points
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Speed
Computing
Linear correlation
co-efficient
r = - 0. 906
Totals
Con
xy
x2
y2
20
22
440
400
484
25
21
525
625
441
30
20
600
900
400
35
23
805
1225
529
40
19
760
1600
361
45
18
810
2025
324
50
16
800
2500
256
55
14
770
3025
196
60
11
660
3600
121
360
164
6170
15,900
3112
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Interpretation of r
If the computed r, has a value greater than +1 or less than -1 then
error must be present in the computations
Strong positive correlation is indicated by r near to + 1
Strong negative correlation is indicated by r near to 1
If r is near to 0 indicates less or no significant correlation
In general, correlation greater than 0.7 is generally described
as strong, whereas a correlation less than 0.7 is generally
described as weak
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Exercise
In each of the following sample of paired data calculate

linear correlation co-efficient r. What do you conclude in
each case ?
x
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Regression
Regression helps derive a relation between two
sets of data (Cause and Effect).
Understanding equation for straight line
y = a + bx
b = slope of the line
a = y-axis intercept
y = Estimated average (mean) value of dependent variable for
a given value of independent variable x
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The Method of Least Squares
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Least Square Method

Normal Equation Method
Let y = a + bx be the least squares line of y on x
Normal Equations are
y = na + b x
xy = a x + b x
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An Example
Use
least
squares
regression line to estimate
the increase in sales
revenue expected from an
increase of 7.5 percent in
advertising expenditure
Assume sales revenue (y) is

dependent
on
advertising
expenditure (x)
Firm
Annual
percentage
increase in ad
budget
Annual
percentage
increase in sales
budget
11
14
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Calculation for Normal Equations

Sales Revenue y
Ad Expenditure
x
x2
xy
16
36
24
64
48
81
72
11
121
88
14
196
126
Total = 40
56
524
373
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Calculation by Normal Equations

We know,
y = na + b x
xy = a x + b x
40 = 8a + 56b
2
373 = 56a + 524b
Solving these two equations, we get
a = 0.072 and b = 0.704

Substituting these values in a regression equation
Y = a + bx = 0.072 + 0.704x
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Contd.
For x = 7.5% or 0.075 increase in advertising
expenditure, the estimated increase in sales revenue will
be
y = 0.072 + 0.704(0.075) = 0.1248 or 12.48 %
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PEMP-GP-POM
Exercise
Big bazaar is hopeful that its sales are rising significantly
week by week. Treating the sales for the previous six weeks
as a typical rising trend, recorded them in 1000s and
analysed the results
Week:
1
2
3
4
5
6
Sales: 2.69 2.62 2.80 2.70 2.75 2.81
Fit a linear regression equation to estimate expected sales
for the 7th week
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Linear Multiple Regression

A linear regression equation with more than one independent
variables is called a multiple linear regression model.
It is an extension of simple linear regression equation
Through multiple correlation analysis, we can measure
the degree of association between the dependent variable
y and two or more independent variables
y = a + b1 x1 + b2 x2 + .................... + bn xn
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PEMP-GP-POM
VRL Case Study

VRL Trucking Company is an independent trucking company
in Southern India. A major portion of its business involves
deliveries throughout its local area. To develop better work
schedules, the managers want to estimate the total daily travel
time for their drivers.
Initially the managers believed that the total daily travel
time would be closely related to the number of kms
traveled in making the daily deliveries.
A simple random sample of 10 driving assignments is
provided in the following table.
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VRL Case Study Contd

Driver
X1 = Kms traveled
Y = Travel time
100
9.3
50
4.8
100
8.9
100
6.5
50
4.2
80
6.2
75
7.4
65
6.0
90
7.6
10
90
6.1
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Extended VRL Case Study Contd

(Multiple Regression)
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Summary (1/2)
Descriptive Statistics:
It includes collection, organising, summarising, graphical
display from the data
Inferential Statistics:
It includes making inferences, hypothesis
determining relationships, making prediction
testing,
Statistical techniques and tools:

Completely dependent on type of data used (Continuous or
discrete)
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PEMP-GP-POM
Summary (2/2)
Data Collection and Questionnaire Design:
Scaling techniques play a pivotal role for collecting right
sample for conducting statistical analysis
Normal Distribution:
Describes many natural phenomena, industrial and scientific
situations. A normal curve is a graphical representation of
the mathematical expression used to describe the normal
distribution
Data Analysis Package:
Helps to perform bi-variate and multi-variate analysis faster
100

Statistics For Managers

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Statistics For Managers

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Statistics for Managers

M.S Ramaiah School of Advanced Studies - Bangalore

To explore different graphical and numerical representation of data

To develop regression models to ascertain the relationship between

M.S Ramaiah School of Advanced Studies - Bangalore

M.S Ramaiah School of Advanced Studies - Bangalore

M.S Ramaiah School of Advanced Studies - Bangalore

MS Ramaiah School of Advanced Studies - Bangalore

MS Ramaiah School of Advanced Studies - Bangalore

Temples and Crime

MS Ramaiah School of Advanced Studies - Bangalore

Is the branch of mathematics which organises,

Statistics is concerned with making inferences from

M.S Ramaiah School of Advanced Studies - Bangalore

This noodles is superior to all others. at least according to

MS Ramaiah School of Advanced Studies - Bangalore

Piece of caution about stats

The source of the data

MS Ramaiah School of Advanced Studies - Bangalore

First step : Question Statistics

There are three kinds of lies

Helps to take decision based on facts not on opinions

MS Ramaiah School of Advanced Studies - Bangalore

M.S Ramaiah School of Advanced Studies - Bangalore

Example of Descriptive Statistics

MS Ramaiah School of Advanced Studies - Bangalore

Example of Inferential Statistics

Pre Poll Opinion

MS Ramaiah School of Advanced Studies - Bangalore

Example of Inferential Statistics

MS Ramaiah School of Advanced Studies - Bangalore

M.S Ramaiah School of Advanced Studies - Bangalore

Types of Data - Two Types

M.S Ramaiah School of Advanced Studies - Bangalore

Population and Sample

A set of characteristics that defines membership in the complete set.

M.S Ramaiah School of Advanced Studies - Bangalore

Samples and Populations

A population consists of the set of all measurements for which

A sample is a subset of the measurements selected from the

A census is a complete enumeration of every item in a

M.S Ramaiah School of Advanced Studies - Bangalore

Samples and Populations

M.S Ramaiah School of Advanced Studies - Bangalore

M.S Ramaiah School of Advanced Studies - Bangalore

Basics of Data Collection

MS Ramaiah School of Advanced Studies - Bangalore

MS Ramaiah School of Advanced Studies - Bangalore

Basics of data collection

MS Ramaiah School of Advanced Studies - Bangalore

Basics of data collection

MS Ramaiah School of Advanced Studies - Bangalore

MS Ramaiah School of Advanced Studies - Bangalore

MS Ramaiah School of Advanced Studies - Bangalore

MS Ramaiah School of Advanced Studies - Bangalore

MS Ramaiah School of Advanced Studies - Bangalore

An approach to summarize and identify the relation

MS Ramaiah School of Advanced Studies - Bangalore

MS Ramaiah School of Advanced Studies - Bangalore

MS Ramaiah School of Advanced Studies - Bangalore

M.S Ramaiah School of Advanced Studies - Bangalore

Weight distribution of TVS-M Mysore