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CHAPTER ONE Introductionand Data Collection

1.'I WHY LEARNSTATISTICS


The reality TV seriesTheApprenticestarsthe real estatedeveloperDonald Trump. When
it premieredseveralyearsago,Trump assignedtwo teamsof contestants the task of setting
up and running a lemonadestand.At the time, a number of businesspeople criticizedthat
task as not beinga realisticbusinesstask.They sawthe task of sellinglemonadeas a sim-
ple act of salesmanship that was moredependent on the persuasive skills of the sellerthan
anythingelse.
If you haveeversold lemonadeor held otherchildhoodjobs suchas sellingcookiesor
deliveringdaily newspapers, you know your task was fairly simple.For example,to delive
newspapers, you needonly to keeptrackof a list of addresses andperhapsrecordthe weeklyor
monthlypayments.In contrast,salesand marketingmanagersof the newspaperneedto keep
track of muchmoredata-including the incomes,educationlevels,lifestyles,andbuyingpref-
erencesof their subscribers-in orderto makeappropriatedecisionsaboutincreasingcircula
tion andattractingadvertisers. But unlessthat newspaper hasa tiny circulation,thosemanager
are probablynot looking at datadirectly.Insteadthey are looking at summaries,suchas the
percentage of subscriberswho attendedat leastsomecollege,or trying to uncoverusefulpat-
terns,suchaswhethermoresubscriptions aredeliveredto single-familyhomesin areasassoc
atedwith heavysalesof luxury automobiles. That is to say,the managersat the newspaper are
usingstatistics,the subjectofthis text.
Statistics is the branchof mathematicsthat transformsdatainto useful informationfor
decisionmakers.Thesetransformations often requirecomplexcalculationsthat arepracti
if
cal only doneby computer,so usingstatisticsusuallymeansalsousingcomputers. This is
especiallytrue whendealingwith the largevolumesof datathat a typicalbusinesscollects
Attempting to do statisticsusing manualcalculationsfor such data would be too time-
consumingto benefita business.
Whenyou learnstatistics,you learna setof methodsand the conditionsunderwhich it is
appropriatefor you to usethosemethods.And becauseso manystatisticalmethodsarepracti
cal only when you use computers,learningstatisticsalso meanslearningmore aboutusing
computerprogramsthatperformstatisticalanalyses.

1.2 FOR MANAGERS


STATISTICS
Today,statisticsplaysan everincreasingimportantrole for businessmanagers.
Thesedecisio
makersusestatisticsto:

T Presentanddescribebusinessdataand informationproperly
I Draw conclusionsaboutlargepopulations,usinginformationcollectedfrom samplesl
I Make reliableforecastsabouta businessactivitv
I Improvebusinessprocesses

"Statistics for managers" means knowing more than just how to perform these tasks
Managers need a conceptual understanding of the principles behind each statistical analysis
they undertake in order to have confidence that the information produced is correct and appro-
priate for a decision-making situation.
To help you master these necessaryskills, every chapter of Statisticsfor Managers Using
Microsoft Excel has a Using Statistics scenario. While the scenarios are fictional, they represen
realistic situations in which you will be asked to make decisions while using Microsoft Excel
to transform data into statistical information. For example, in one chapteq you will be askedto
lThe statisticalterms decide the location in a supermarket that best enhancessales of a cola drink, and in another
population and sample are chapter,you will be asked to forecast sales for a clothing store. (You will not be asked,as the
formally defined in Section television apprenticeswere asked,to decide how best to sell lemonadeon a New York City stree
1.3,on page 5. corner.)
1.2: Statistics
for Managers

How This Text ls Organized


en Table 1.1 shows the chapters of Srali.sric'.s
Jbr Managers [Jsing Microxlft Exc'el organized
no
accordinsto the four activitiesfor which decisionmakersuse statistics.
lat
1l-
TABLE 1 .1 Presentingand DescribingInformation
an
of ThisText
Organization DataCollection(ChapterI )
PresentingDatain TablesandCharts(Chapter2)
NumericalDescriptiveMeasures(Chapter3)
DrawingConclusions
About PopulationsUsing SampleInformation
BasicProbability(Chapter4), a prerequisitefor the restof the chaptersof this group
SomeImportantDiscreteProbabilityDistributions(Chapter5)
The Normal Distributionand OtherContinuousDistributions(Chapter6) and Sampling
and SamplingDistributions(Chapter7), which leadto ConfidenceIntervalEstimation
(Chapter8) andHypothesis Testing(Chapters 9 12)
DecisionMaking(Chapterl7)
Making ReliableForecasts
SimpleLinearRegression (Chapterl3)
lntroduction
to MultipleRegression(Chapter14)
MultipleRegressionModel Building(Chapter15)
Time-SeriesForecastingand IndexNumbers(Chapter16)
ImprovingBusinessProcesses
Statistical
Applications
in QualityandProductivity (Chapterl8)
Management

Methodspresented in the ChaptersI 3 areall examplesof descriptivestatistics,thebranch


of statisticsthat collects,summarizes, and presentsdata.Methodsdiscussed in Chapters7
through12 areexamplesof inferential statistics,the branchof statisticsthat usessampledata
to drawconclusionsaboutan entirepopulation.(Chapters4 6 providethe foundationin proba-
bility and probabilitydistributionsneededfor Chapters1-12.) The definitionof inferential
statisticsusesthe termssampleandpopulation,the secondtime you haveencountered these
wordsin this section.You can probablyfigure out that you cannotlearnmuch aboutstatistics
until you learnthe basicvocabularyof statistics.Continuenow with the first Using Statistics
scenario, which will help introduceyou to severalimportanttermsusedin statistics.

@ Good Tunes
USINGSTATISTICS
Good Tunes,a growing four-storehome entertainmentsystemsretailer,seeksto dou-
ble their number of stores within the next three years.The managershave decided to
approach local area banks for the cash neededto underwrite this expansion.They need
to prepare an electronic slide show and a formal prospectusthat will argue that Good
Tunesis a thriving businessthat is a good candidatefor expansion.
You have been asked to assist in the process of preparing the slide show
and prospectus.What data would you include that will convincebankersto extendthe
credit it needsto Good Tunes?How would you presentthat data?
In this scenario,you needto identifythe mostrelevantdatafor the bankers.BecauseGood
Tunesis an ongoingbusiness,you can startby reviewingthe company'srecords,which show
both its currentand recentpaststatus.BecauseGoodTirnesis a retailer,presentingdataabout
the company'ssalesseemsa reasonable thing to do.Youcould includethe detailsof everysales
transactionthat hasoccurredfor the pastfew yearsasa way of demonstrating that GoodTunes
is a thrivingbusiness.
However,presentingthe bankerswith the thousandsof transactions would overwhelm
them and not be very useful.As mentionedin Section1.1,you needto transformthe transac-
tions datainto informationby summarizingthe detailsof eachtransactionin someusefulway
that would allow the bankersto (perhaps)uncovera favorablepatternaboutthe salesover
time.
Onepieceof informationthat the bankerswouldpresumablywantto seeis the dollarsales
totalsby year.Tallyingandtotalingsalesis a commonprocessof transformingdatainto infor-
mation and a very commonstatisticalanalysis.When you tally sales or any otherrelevant
dataaboutGoodTunesyou chooseto use-you follow normalbusinesspracticeandtally by a
businessperiodsuchas by month,quarter,or year.Whenyou do so, you end up with multiple
values:salesfor this year,salesfor lastyear,salesfor the yearbeforethat,andso on. How best
to referto thesemultiplevaluesrequireslearningthe basicvocabularyof statistics.

1 . 3 BASICVOCABULARY
OF STATISTICS
of itemsor individualsand arewhat you analyzewhenyou usea
Variablesare characteristics
statisticalmethod.For the GoodTunesscenario,sales,expensesby year,andnet profit by year
arevariablesthat the bankerswould wantto analyze.

VARIABLE
of an item or individual.
A variable is a characteristic

When usedas an adjectivein everydayspeech,variablesuggeststhat somethingchangesor


varies,andyou would expectthe sales,expenses, andnet profit to havedifferentvaluesfrom year
to year.Thesedifferentvaluesarethe data associated with a variable,andmoresimply,the "data"
to be analyzed.In latersections,you will be sometimesaskedto enterthecell rangeof a variablein
Excel.Whenyou seesuchan instruction,you shouldenterthecell rangeof thedifferentvaluesthat
collectivelyarethe datato be analzyed.(Section1.6on page I 1 explainswhat a cell rangeis and
furtherdiscusses how to enterdatain Excel.)
Variablescan differ for reasonsotherthantime. For example,if you conductedan analysis
of the compositionof a largelectureclass,you would probablywant to includethe variables
classstanding,gender,and major field of study.Thosevariableswould vary,too, becauseeach
studentin the classis different.Onestudentmight be a freshmanmaleEconomicsmajor,while
anothermay be a sophomorefemaleFinancemajor.
You alsoneedto rememberthat valuesaremeaningless unlesstheir variableshaveopera-
tional definitions. Thesedefinitionsare universallyacceptedmeaningsthat are clearto all
associated with an analysis.While the operationaldefinitionfor salesper yearmight seem
clear,miscommunication couldoccurif onepersonwasreferringto salesper yearfor theentire
chain of storesand anotherto salesper year per store.Even individual valuesfor variables
sometimesneeddefinition-for the classstandingvariable,for example,whatexactlyis meant
by the words sophomorearrdjunior? (Perhapsthe most famous exampleof vaguedefinitions
wasthe definitionof a valid vote in the stateof Floridaduringthe 2000U.S.presidential elec-
tion. Vagueness aboutthe operationaldefinitionsthere ultimately required a U.S. Supreme
Courtruling.)
Understandingthe distinctionbetweenvariablesand their valueshelps in learningfour
otherbasicvocabularyterms,two of which you havealreadyencountered in previoussections.
POPULATION
A population consistsof all the items or individualsaboutwhich you want to draw
a conclusion.

SAMPLE
A sampleis the portion of a populationselectedfor analysis.

PARAMETER
A parameter is a numericalmeasurethat describesa characteristicof a population.

STATISTIC
A statistic is a numericalmeasurethat describesa characteristicof a sample.

All the GoodTunessalestransactionsfor a specific year,all the customerswho shoppedat


GoodTunesthis weekend" all the full-time studentsenrolledin a college,and all the registered
votersin Ohio are examplesof populations.Examplesof samplesfrom thesefour populations
would be 200 GoodTunessalestransactionsrandomlyselectedby an auditorfor study,30 Good
Tunescustomers askedto completea customersatisfaction survey,50 full-timestudentsselected
for a marketingstudy,and 500 registeredvotersin Ohio contactedvia telephonefor a political
poll. In eachsample,the transactions or peoplein the samplerepresent a portionof the itemsor
individualsthat makeup the population.
"The averageamountspentby all customerswho shoppedat GoodTunesthis weekend"is an
exampleof a parameterbecausethe amountspentin the entirepopulationis needed.In contrast,
"the averageamountspentby the 30 customerscompletingthe customersatisfactionsurvey"is
an exampleof a statisticbecausethe amountspentfrom only the sampleof 30 peopleis required.

s Ithoughwe havetalkeda lot


to this point,
aboutstatistics
we haven'tmentioned much
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1.4 DATACOLLECTION
The managersat Good Tunesbelievethat they will havea strongerargumentfor expansionif
they can showthe bankersthat the customersof GoodTlnes are highly satisfiedwith the ser-
vice theyreceived.How couldthe managersdemonstrate thatgoodservicewasthetypicalcus-
tomerexperienceat GoodTunes?
Unlike the earlierGoodTirnesscenario,in which salesper yearwasautomatically collected
as part of normal businessactivities,the managersnow facethe twin challengesto first identiff
relevant variablesfor a customersatisfactionstudy and then devise a method for data
collection-that is, collectingthevaluesfor thosevariables.
Many differenttypesof circumstances, suchasthe following,requiredatacollection:
: A marketingresearchanalystneedsto assessthe effectivenessof a new television
advertisement.
r A pharmaceuticalmanufacturerneedsto determinewhethera new drug is more effective
thanthosecurrentlyin use.
r An operationsmanagerwantsto monitor a manufacturingprocessto find out whetherthe
quality of productbeing manufacturedis conformingto companystandards.
r An auditor wantsto review the financial transactionsof a companyin order to determine
whetherthe companyis in compliancewith generallyacceptedaccountingprinciples.
In eachof theseexamples,andfor theGoodTunesmanagers aswell, collectingdatafrom every
item or individualin the populationwould be too difficult or too time-consuming. Becausethis is
the typical case,datacollectionalmostalwaysinvolvescollectingdatafrom a sample.(Chapter7
discusses methodsof sampleselection.)
Unlike the GoodTunesexamplethat beginsthis section,the sourceof the datato be col-
lectedis not alwaysobvious.Data sourcesare classifiedas being eitherprimary sourcesor
secondarysources.Whenthe datacollectoris the oneusingthe datafor analysis,the sourceis
primary.Whenthepersonperformingthe statisticalanalysisis not the datacollector,the source
is secondary. Sourcesofdata fall into oneoffour categories:
I Data distributedby an organizationor an individual
' A designedexperiment
I A survey
r An observational study
and individualsthat collectandpublishdatatypicallyusethat dataasa pri-
Organizations
mary sourceand then let othersuse it as a secondarysource.For example,the United States
federal governmentcollects and distributesdata in this way for both public and private pur-
poses.The Bureauof Labor Statisticscollectsdata on employmentand also distributesthe
monthly consumerprice index. The CensusBureauoverseesa variety of ongoing surveys
r e g a r d i n gp o p u l a t i o n ,h o u s i n g ,a n d r n a r r u f - a c t u r i nagn d u n d e r t a k e ss p e c i a ls t u d i e so n t o p r c s
such as crime. travel,and healthcare.
Market researchfirms and tradeassociations alsodistributedatapertainirrgto specificindus-
tries or markcts.Investmcntservicessuch as Mergent'sprovidefinancial dataon a cornpany-by-
corrpanybasis.SyndicatedservicessuchasAC Nielsenprovideclientswith datathat enablesthe
cor.nparison of client productswith thoseof thcir competitors.Daily newspapersare filled with
numericalinfbmrationregardingstockprices.weatherconditions,and sportsstatistics.
O u t c o m e so f a d e s i g n e de x p e r i m e n ta r e a n o t h e r d a t a s o u r c e .T h e s e o u t c o m e sa r e t h e
resultsof an experirnent,such as a test of severallaundry detergentsto comparehow well each
detergentreulovesa ccrtain type of stain.Developingproper experimentaldesignsis a subject
rnostlybeyondthe scopeofthis text becausesuchdesignsoften involve sophisticatedstatistical
procedures.However.some of the fundamentalexperimentaldesignconceptsare discussedin
C h a p t e r s1 l a n c l1 2 .
Conductinga survey is a third type of data source.Peoplebeing sr-rrveyed are askedques-
tions about their beliefs, attitudes,behaviors,and other characteristics.For example,people
could be askcdtheir opinion about which laundry detergentbestremovesa certaintype of stain.
(This could lead to a resultdifferentfrorn a designedexperimentseekingthe sameanswer.)
Conducting an observationalstudy is the fourth important data source.A researcherco[-
lectsdataby directly observinga behavior,usuallyin a naturalor neutralsetting.Observational
studiesare a colnlron tool fbr data collection in business.Market researchers use./bclt.s grottps
to elicit unstructured responses to open-ended questions posed by a moderator to a target audi-
ence.Other, more strllcturedtypes of str.rdies involve group dynamics and consensus building.
Observationalstudy techniquesare also used in situationsin which cnhancingteamwork or
improving the quality of prctductsar.rdserviceis a rnanagetnent goal.
l d e n t i f y i n g t h e r n o s t a p p r o p r i a t es o u r c ei s a c r i t i c a l t a s k b e c a u s ei f b i a s e s .a r n b i g u i t i e s ,
o r o t h e r t y p e s o f e r r o r s f l a u , t h e d a t a b e i n g c o l l e c t e d ,e v e n t h e m o s t s o p h i s t i c a t e ds t a t i s -
tical rnethodswill not produce useful infbruration. For the Good Tunes exarnple,variables
r e l c v a n t t o t h e c u s t o m e r e x p e r i c n c ec o u l d t a k e t h e f o r m o f s u r v e y q u e s t i o n sr e l a t c d t o
v a r i o u s a s p e c t so f t h e c u s t o n r e re r p e r i e n c e ,e x a l l r p l e so f w h i c h a r e s h o w u i n F i g u r e l . l .

F I G U R E1 . 1
1. H o w m a n v d a v s d i d i t t a k e f r o m t h e t i m e y o u o r d e r e d y o u r m e r c h a n d i s e t o t h e t i m e
O u e s t i o n sa b o u t t h e
G o o d T u n e sc u s t o m e r you received it?_

expenence
2. Did you buy any merchandise that was featured in the Good Tunes Sunday newspaper

sales flyer for the week of your purchase? Yes - No

3 . W a s t h i s y o u r f i r s t p u r c h a s ea t G o o dT u n e s ?Y e s- No

4, Are you likely to buy additional merchandise from Good Tunes in the next 12

months? Yes _- No

5 . H o w m u c h m o n e y { i n U . S . d o l l a r s )d o y o u e x p e c t t o s p e n d o n s t e r e o a n d c o n s u m e r

electronics equipment in the next 12 months?'-

6 . H o w d o y o u r a t e t h e o v e r a l l s e r v i c e p r o v i d e d b y G o o d T u n e s w i t h r e s p e c tt o y o u r

recent purchase?

Excellent E Very good n Fair ! Poor !

7. How do you rate the selection of products offered by Good Tunes with respect to other

retailersof home entertainment systems?

Excellent I Very good n Fair E Poor n

8. How do you rate the quality of the items you recently purchased f rom Good Tunes?

Excellent ! Very good n Fair I Poor !


The survey might also ask questionsthat seekto classify customersinto groups for later
analysis.
One good way for Good Tunesto avoid data-collectionflaws would be to distributethe
questionnaire to a randomsampleof customers(asdiscussed in Chapter7). A poor way would
be to rely on a businessrating Web site that allows online visitors to ratea merchant.SuchWeb
sitescannotprovide assurancethat thosewho do the rating are customers.

eb-based surveys andrat- thatInternettravelsiteshadto closely monitor Whatwouldyousayabouta ratings Web


ingsseemto beofgrowing submitted reviews to avoidfraudulent claims sitethataccepts advertising frommerchants
*\< importance for manymar- "HotelReviews
(C.Elliott, Online:In Bedwith thatareratedon thesite?Whatwouldyou
f-1 keters.Iheiruseandmis- Hope,Half-Truths andHype,"TheNewYork sayabouta ratings Websitethatgetspaida

a 4.1
useraisemanyconcerns.
writing Section
requesting
Bycoincidence,
1.4,oneof usreceived
thatheratetheManiottRewards
while
anemail
Ilmes,February
alsoreported
offered
7,2006,

itsguests
pp.C1, C8).lhe

a 10%discount
article
thata hotelin KeyWest,Florida,
if theypub-
commission if a visitor
firstviewsa rating
thenclickson a linkforthemerchant?
areamongthe several practices
and
These
thatmay
travelloyaltyprogram a perfect" 10" inthevot- lisheda ravereviewof thathotelona particu- raiseethical
concerns forsome.
ing for the InsideFlyer Freddie Awards.The lartravelWebsite!Ourco-author withallthe lf youdousea ratings Website,besure
*S authorhadneverheardof thoseawards, but "Freddie" emailsfeltcheated. to checkoutthe "fineprint"on yournext
soonhe received otheremailsfromvarious Haveyoueverreceived an emailasking visit.Although youwill finda privacy state-
othertravelloyalty programl alsoasking that you to ratean onlinemerchant? Manyof mentthatexplains howtheWebsiteuses
\ thesame highrating besubmitted. Heevengot us have,especially whenwe havejustpur- datathatcanpersonally identifyyou,most
anemailfora program forwhichhehadjust chased something froman onlinemerchant. likelyyouwill not find a "datacollection
*S signed up in thepriormonth(andfora travel Often,suchemails comewithanincentive, not statement" thatexolains the methods the
($ company ofwhichhewasnotyeta customer). unlikethe KeyWesthotel'sdiscount. Would Websiteusesto collectits data.Perhaps
Atthesame time,another oneof usfound an incentive causeyou to rate the mer- voushould findsucha statement.
|i,/ anarticlein IheNer,v YorkTimes thatreoorted chant?Wouldtheincentive affectyouropinion?
t\

1.5 TYPESOF VARIABLES


Statisticiansclassifyvariables as eitherbeing categoricalor numericaland further classify
numericalvariablesas havingeitherdiscreteor continuousvalues.Fisure 1.2 showsthe rela-
tionshipsandprovidesexamplesof eachtype of variable.

F I G U R E1 . 2
Typesof variables Data Type AuestionTypes Fesponses

Categorical -*--.t- Do you currently own any stocks or bonds? Yes I No n

.-_- "_--_*_;:J:#,TilJ,T;::;';$o"
Discret" Number
Numerical
\
Continuous ,---.) How tall are you? lnches

Categoricalvariables(alsoknownas qualitative variables)havevaluesthat canonly be


placedinto categories,suchas "yes" and "no". Questions24 in Figure l.l are examplesof
categoricalvariables,all ofwhich have"yes" or "no" astheir values.Categoricalvariablescan
alsoresultin more thantwo possibleresponses. An exampleof this type of variableis asking
customersto indicatethe day of the week on which they madetheir purchases.Questions6-8
resultin oneoffour possibleresponses.
Numerical variables (alsoknown as quantitative variables)havevaluesthat represent
quantities.For example,Questions1 and 5 in Figure l.l are numericalvariables.Numerical
variablesare further subdividedas discreteor continuousvariables.
1.5: Typesof Variables

Discrete variables havenumericalvaluesthat arisefrom a countingprocess."The number


of magazinessubscribedto" is an exampleof a discretenumericalvariablebecausethe response
is one of a finite numberof integers.You subscribeto zero,one,two, and so on magazines.The
numberof daysit takesfrom the time you orderedyour merchandiseto the time you receiveit is
a discretenumericalvariablebecauseyou arecountingthe numberof days.
Continuous variables producenumericalresponsesthat arise from a measuringprocess.
The time you wait for teller serviceat a bank is an exampleof a continuousnumerical vari-
ablebecausetheresponsetakeson anyvaluewithin a continuum,or interval,dependingon thepre-
cision of the measuringinstrument.For example,your waiting time could be I minute, 1.I min-
utes,I . I I minutes,or 1.I 13minutes,dependingon the precisionof the measuringdeviceyou use.
Theoretically,with sufficient precision of measurement,no two continuousvalues
will be identical.As a practicalmatter,however,most measuringdevicesarenot preciseenough
to detectsmall differences,and tied valuesfor a continuousvariable(i.e., two or more items
or individualswith the samevalue)are often found in experimentalor surveydata.

Levelsof Measurementand MeasurementScales


Using levels of measurementis anotherway of classifyingdata.There are four widely recog-
nizedlevelsof measurement:nominal,ordinal.interval,andratio scales.

Nominal and Ordinal Scales Data from a categoricalvariableare measuredon a nom-


inal scaleor on an ordinalscale.A nominal scale(seeFigure 1.3)classifiesdatainto distinct
categoriesin which no ranking is implied. In the GoodTirnescustomersatisfactionsurvey,the
answerto the question'Are you likely to buy additionalmerchandise from GoodTirnesin the
next 12 months?" is an exampleof a nominal scaledvariable,as are your favorite soft drink,
your political party affiliation, and your gender.Nominal scalingis the weakestform of mea-
surementbecauseyou cannotspecify any ranking acrossthe variouscategories.

Categorical Variable Categories

PersonalComputer Ownership ( -- *," ','w*-{r.--.-.--. - Yes n No[]

Type of StocksOwned .fr-* ------------> Growth E Value E Other E NoneI

Internet
Provider+* *-+ Microsoft
Network! nol fl otherE

F I G U R E 1 . 3 E x a m o l eosf n o m i n asl c a l e s

An ordinal scaleclassifiesdatainto distinct categoriesin which ranking is implied. In the


GoodTlrnessurvey,the answersto the question"How do you rate the overall serviceprovided
by Good Tuneswith respectto your recent purchase?"representan ordinal scaledvariable
becausethe responses"excellent,very good"fair, and poor" are rankedin order ofsatisfaction
level.Figure1.4lists otherexamplesof ordinalscaledvariables.

r* l
I Categorical Variable Ordered Categories j
]

Student classdesignation < -> Freshman Sophomore Junior Senior


Product satisfaction <* *> Very Unsatisfied Fairly Unsatisfied Neutral
Fairly Satisfied Very Satisfied
Faculty rank + + Professor Associate Professor Assistant Professor
lnstructor
Standard& Poor'sbond ratings+ -> AAA AA A BBB BB B CCC CC C DDD DD
Studentgrades +-*ABCDF
F I G U R E 1 . 4 E x a m o l eosf o r d i n asl c a l e s
Ordinal scalingis a strongerform of measurement than nominalscalingbecausean observed
value classified into one categorypossessesrnore of a property than does an observedvalue
classified into another category.However, ordinal scaling is still a relatively weak form of
measurementbecausethe scale does not accourrtfor the amount of the differencesbetvveenthe
categories.The ordering implies oriy which categoryis "greater,""better,"or "more preferred"
notby hrnr nruc'h.

Intervgl snd Rutio Scales Data from a numerical variable are measuredon an interval or a
ratio scale.An interval scale (seeFigure 1.5) is an orderedscalein which the diflerencebefween
measurementsis a meaningful quantity but doesnot involve a true zero point. For example,a noon-
time ter.nperaturereadingof 67 degreesFahrenheitis 2 degreeswarmer than a noontirnereadingo1'
65 degrees.In addition, the 2 degreesFahrenheitdifferencein the noontime temperaturereadings
is the same as if the two noontirnetemperaturereadingswere 74 andl6 degreesFahrenheit
becausethe differencehas the samemeaninganywhereon the scale.

F I G U R E1 . 5
Numerical Variable Level of Measurement
E x a m p l e so f i n t e r v a l
and ratio scales T e m p e r a t u r (ei n d e g r e e sC e l s i u so r F a h r e n h e i t ) Interval
Standardizedexam score (e.9.,ACT or SAT) Interval
H e i g h t( i n i n c h e so r c e n t i m e t e r s ) Ratio
W e i g h t( i n p o u n d so r k i l o g r a m s ) Ratio
A g e ( i n y e a r so r d a y s ) Ratio
S a l a r y( i n A m e r i c a nd o l l a r so r J a p a n e s ey e n ) .,-****..-.-......} Ratio

A ratio scale is an ordered scale irl which the dif'ferencebetween the rneasurements
involvesa true zero point, as in height,weight, age,or salaryrreasurements. ln the Good Tunes
customer satisfactionsurvey,the amount of money (in U.S. dollars) you expect to spendon
stereoequipment in the next l2 months is an example of a ratio scaledvariable.As another
e x a m p l e . a p e r s o n w h o w e i g h s 2 4 0 p o u n d s i s t w i c e a s h e a v y a s s o m e o n ew h o w e i g h s
t n d C e l s i u s( c e n t i g r a d e )s c a l e sa r e
1 2 0 p o u n d s .T e r n p e r a t u r ei s a t r i c k i e r c a s e : F a h r e n h e i a
intervalbut not ratio scales;the "zero" value is arbitrary.not real.You cannotsaythat a noontime
temperaturereadingof 4 degreesFahrenheitis twice as hot as 2 degreesFahrenheit.But a Kelvrn
temperaturereading,in which zero degrecsmeansno molecularmotion, is ratio scaled.In con-
trast,the Fahrenheitand Celsiusscalesuse arbitrarilyselectedzero-degreebegirrningpoints.
D a t a r r e a s u r e do n a n i n t e r v a l s c a l e o r o n a r a t i o s c a l ec o n s t i t u t et h e h i g h e s tl e v e l s o f
measllrement.They are strongerforms of rreasurementthan an ordinal scalebecauseyou can
deterr.nine not only which observedvalue is the largestbut also by how much.

Learning the Basics a. E,xplainwhy the downloadtime is a continuousnumen-


1.1 Three different beveragesare sold at a fast- cal variable.
I nsstsr I food restaurant soft drinks, tea, and coffee. b. Explain why the download time is a ratio scaled
a. E,xplainwhy the type of beveragesold is an exampleof variable.
a categoricalvariable.
Applying the Concepts
b. Explain why the type of beveragesold is an erarnplc of
|-l-Elil1.4 For eachof the following variables,determine
a nominal scaledvariable.
ffiffi whether the variable is categoricalor numerical.
1.2 Soft drinks are sold in three sizes at a fast-food If the variable is numerical.detennine whether the
restaurant-small, rncdium,and large. Explain why the variableis discreteor continuous.In addition.determinethe
size of the soft drink is an examolcof an ordinal scaled level of r.neasurement for eachof the following.
variable. a. Nunrber oftelephonesper household
1.3 Supposethat you measurethe tirne it takes to down- b . L e n g t h ( i n m i n u t e s ) o f t h e l o n g e s t l o n g - d i s t a n c ec a l l
load an MP3 file fiom the Internct. made per month
c. Whethersomeonein the householdowns a cell phone 1.8 Supposethe following informationis collectedfrom
d. Whetherthereis a high-speedInternetconnectionin the RobertKeeler on his applicationfor a homemortgageloan
household at the Metro County Savingsand Loan Association:
a. Monthly payments:51,427
1.5 The following informationis collectedfrom b. Numberofjobs in past l0 years:I
studentsupon exiting the campusbookstoredur- c. Annual family income:$86,000
ins the first weekof classes: d. Marital status:Married
a. Amountof time spentshoppingin the bookstore Classifueachofthe responses
by type ofdata and level of
b. Numberof textbookspurchased measurement.
c. Academicmajor
1.9 Oneof the variablesmostoften includedin surveysis
d. Gender
income.Sometimesthe questionis phrased"What is your
Classifyeachof thesevariablesas categoricalor numeri- income (in thousandsof dollars)?" In other surveys,the
cal.If the variable is numerical.determinewhether the respondentis askedto "Place an X in the circle corre-
variableis discreteor continuous.In addition.determine spondingto your income level" and given a number of
thelevelof measurementfor thesevariables. incomerangesto choosefrom.
a. In the first format,explainwhy incomemightbe consid-
eredeitherdiscreteor continuous.
1.6 For eachof the following variables,determine
b. Which of thesetwo formats would you prefer to use if
whetherthe variableis categoricalor numerical.If
you were conductinga survey?Why?
the variableis numerical,determinewhetherthe
c. Which of thesetwo formats would likely bring you a
vuiableis discreteor continuous.In addition,determinethe
greaterrate of response?Why?
lwel of measurement for eachof the following.
t. Nameof Internetprovider 1.10 If two studentsscorea 90 on the same
b. Amountof time spentsurfing the Internetper week examination,what argumentscould be usedto
c. Numberof emailsreceivedin a week showthat the underlyingvariable-test score-is
d. Numberof online purchasesmadein a month continuous?
1.1 1 The directorof marketresearchat a largedepartment
1.7 Foreachof the following variables,determinewhether storechain wantedto conducta surveythroughouta metro-
thevariableis categoricalor numerical.If the variableis politan area to determinethe amount of time working
numerical,determinewhether the variable is discrete or womenspendshoppingfor clothing in a typical month.
@ntinuous. In addition,determinethe level of measurement a. Describeboth the populationandthe sampleof interest,
foreachof the following. and indicatethe type of datathe director might want to
l. Amountof moneyspenton clothing in the pastmonth collect.
h Favoritedepartmentstore b. Developa first draft ofthe questionnaire neededin (a)
g Most likely time period during which shopping for by writing a seriesof three categorical questionsand
clothingtakesplace(weekday,weeknight,or weekend) threenumericalquestionsthat you feel would be appro-
d"Numberof pairsof winter glovesowned priate for this survey.

1.6 MICROSOFT
EXCELWORKSHEETS
When you use Microsoft Excel, you place the data you have collected in worksheets.
Worksheetsappearas pagescontaininggridlinesthat separateindividuallyletteredcolumns
from numberedrows. While worksheetslook like the simple tablesyou can createin a word
processingprogram,worksheetshavespecialfeaturesthat areparticularlysuitedto dataanaly-
sis. Understandingthe special featuresof worksheetswill help you to better understandthe
interplayof dataandresultsin MicrosoftExcel.

WorksheetCells
The intersectionsof the columnsand rows of worksheetsform boxescalledcells.You refer to a
cell by its column letter and row number.For example,you refer to the cell in the first column
and secondrow as cellA2 andthe cell in the fifth columnand first row ascell E 1. You enterin a
cell a singlevalue or an expressionthat can includea referenceto anothercell. This flexibiliry
asexplainedfurtherin SectionEl.3 of theExcelCompanionto this chapter,is oneof the special
featuresthat makesMicrosoft Excel more thanjust a fancy table-orientedword processor.
You can refer to more than one cell in a cell reference. If you want to refer to a group of
cells that forms a contiguous rectangular area, you can use a cell range in which referencesto
the upper leftmost cell and the lower rightmost cell are joined with a colon. For example, the
cell range Al:C2 refers to the six cells found in the first two rows and three columns of a work-
sheet.Excel also allows rangessuch asA:A or 4'.4,as a shorthandway of referring to all the
cells in a column or a row. Later in this text, you will seecell rangessuch as D I :D8,FI :F8 that
refer to cells from two non-adjacentarea of a worksheet.
Worksheetsexist inside a workbook, a collection of worksheetsand other types of sheets,
including chart sheetsthat help visualize data. Usually, you will use only one sheetat any given
time and open to a worksheetby clicking its sheettab (see Section El.l). If someonesaysthat
they are opening an "Excel file," they are most likely opening a workbook file. All versions of
Excel can open workbook files saved using the .xls file format (and all Excel files on the
Student CD are in this format). Excel 2007 can also open workbooks saved in the newer .xlsx
format discussedin Appendix F.

Designing Effective Worksheets


Becausethousands of cellsareavailableon individualworksheets, you will neverhaveto worry
aboutrunningout of cells to use.This spaciousness of worksheets invitescarelessuseand
causessometo ignore the importantprocessof effectivelyarrangingworksheetdata.Poor
arrangements can increasethe chanceofuser errors,createconfusingresults,leadto unattrac-
tiveprintouts.or worse.
To be consistentwith standard business usage,you shouldassociate columncell rangeswith
variables.[n this arrangement, you usethe first (row 1) cell of a columnfor a namelabelfor a
variableandplacethe datafor the variablein the subsequent cellsof thecolumn.Youdo not skip
any rows as you enterdata,so columncell rangeswill nevercontainany emptycells.(Empty
cellscaninterferewith Excelability'sto processyour dataandcanleadto inaccurate results.)
This standardpracticeis alwaysusedin this text andin all of the Excelfiles on the student
CD. Becauseall of the Excelinstructionsassumethis dataarrangement, you shouldneverdevi-
atefrom this practicewhenyou usethis book.
Anothergoodpracticeis to placeall the variableson a worksheetthat is separatefrom the
worksheetcontainingthe results.Suchseparationwill increasethe reusabilityof your results
worksheetand minimize the chanceof inadvertentchangesto the valuesof your variables
as you constructyour results.In the workbooksfound on the book'sCD as well as the work-
booksproducedby PHStat2,you will generallyfind a Resultsworksheetshowingthe results
separate from the worksheetcontainingthe variables.
Sometimes, worksheetsusedin this book requireonly the valuesof certainparameters or
statisticsandnot the valuesassociated with a variable.For suchworksheets, goodpracticeis to
placethe parameters and statisticsat the top of the worksheetso that a usercaneasilyperform
what-if analyses,changingvaluesto seetheir effectson the results.In this book, thesevalues
alwaysappearin bol4 in cellstinteda shadeExcel callslight turquoiseand underthe heading
Data.Whenyou seesuchtintedcells,you know that you canchangethe valuesin thosecellsto
performwhat-if analysesand solveotheqsimilarproblems.
Anothergood designpracticeis to allow the userto be ableto explicitly seethe chainof
calculationsfrom the startingdata,throughany intermediatecalculations, to the results.This
practiceis particularlyadvantageous whenpreparingstatisticalworksheets because most"inter-
mediatecalculations"are statisticsthemselves.Showingthe chain of calculationshelpsyou
reviewyour worksheetfor errorsandhelpsothersbetterunderstand whatyour worksheetdoes.
In the worksheetsof this book, intermediatecalculationsappearunder the heading
Intermediate Calculationsand are in a cell rangethat immediatelyprecedesthe cell range
containingthe results.The resultsappearin cells that are tinted a light yellow and contain
boldfacedtext.Thereis alsoa headingoverthe resultscellsthat varieswith the type of statis-
tical analysisperformed.
Whetheryou usethe worksheetdesignof this book or your own design,do not overlook
the importanceof skippingrowsor columnsto createwhite spaceto separate differentregions
of the worksheetthat presentresults.In this book, worksheetstend to skip only a singlerow or
a singlecolumn.This choiceis due moreto makingall illustrationscompactthan any hardor
fast rule. You shouldexperimentwith your own worksheetswith an eyeto making them easyto
follow on both the displayscreenand the printedpage.Do not hesitateto createtwo copiesof
your worksheets-one optimized for the screen,the other for the printer, if you haveanything
but the simplestworksheetto produce.

erhapsyou haveheardfromsome i . Using Excel means nothavingto incur


the produces. Unfortunately,
someinvestigators
$
}|
people that Microsoft Excel I extracostsof usingspecializedstatistical havedetermined thatcertain Microsoft Excel
*\t or r
shouldn'tbe usedfor statistics programs. statistical
capabilities
contain flawsthatcan
Vj vou havesearched the Internet . Mostbusiness usersalreadvhavesome leadto invalidresults,especially whendata
a) anddiscovered thatstatistics
educators have familiaritywithExcel. setsareverylargeor haveunusual statistical

S hada long-running overtheuseof


discussion . Excel is easyto useandeasyto learn,
leastforcasual users.
at properties (seereference
usingMicrosoft Excel
1,2,and4).Even
withsmalldatasetsto
ro Excelintheclassroom.
Asauthors of a textwhose
thephraseUsingMicrosoft
titleincludes . Excel
Excelwe believe
graphical andstatistical
canusethesameworksheet-based
functions
data
produce
tistics
therelativelysimple
canleadto nonstandard
descriptive
results.
sta-
(Asan
-S thatMicrosoftExcel providesa goodwayto thatusers havecreatedforotherbusiness example, seethediscussion for creatinghis-
\ introduceyouto basicstatistical
methods and purp0ses. tograms in theExcelCompanion to chapter2
demonstratehowto applythesemethods in r SomeExcel graphicalfunctionsproduce on page86.)Clearly,whenyouuseMicrosoft
\ businessdecision making. Manymanagers, morevividvisualoutputs thansomespe- Excel,youmustbecareful aboutthedataand
q) programs. youareusing.
notingtheprevalence of Microsoft Excelon cializedstatistical themethod Whether thiscom-
.S thecomputers in theirbusinesses,havesimi- plication outweighs the benefits of Excel's
Whilethesetraitsareattractive, those attractive featuresis still an unanswered
s larlyconsidered
specialized
usingExcel,
program,
statistical
ratherthana
for statistical who havechosen MicrosoltExcelhavenot question in business
today.
I analysis.
MicrosoftExcelseems likeanattrac- necessarily consideredtheaccuracyandcom-
ri tivechoicebecause: pleteness of thestatistical
results
thatExcel

Inthischapter, you havebeenintroducedto the role ofsta- ducenumericaldata.Questions2,3, and4 will produce
tisticsin turning data into information and the importance nominalcategoricaldata.Questions6-8 will produceordi-
of usingcomputerprogramssuch as Microsoft Excel. In nal categoricaldata.The responsesto the first question
addition,you have studieddata collection and the various (numberof days)arediscrete,and the responsesto the fifth
typesof datausedin business.In conjunctionwith the question(amountof money spent)are continuous.In the
UsingStatisticsscenario,you were askedto reviewthe cus- next two chapters,tables and charts and a variety of
hmersurveyusedby the GoodTunescompany(seepage7). descriptivenumerical measuresthat are useful for data
Thefirst and fifth questionsof the survey shownwill pro- analysisaredeveloped.

categoricalvariable intervalscale 10 quantitativevariable 8


cell I I nominalscale 9 ratio scale l0
cellrange 12 numericalvariable 8 sample 5
chartsheet 12 operationaldefinition 4 secondarysource 6
continuous variable ordinalscale 9 statistic 5
data 4 parameter 5 statistics 2
descriptivestatistics population 5 variable 4
discrete variable 9 primary source 6 workbook 12
inferentialstatistics qualitativevariable 8 worksheet 11
l4 CHAPTER ONE Introductionand Data Collection

CheckingYour Understanding 1.23 On the U.S.CensusBureausite,www.census.gov,


click on Surveyof BusinessOwners in the "Business&
trI#q 1.12 What is the differencebetweena sample
l A s s r sI randa population? Industry" sectionand read aboutThe Surveyof Business
Owners.Click on SampleSBO-1Form to view a survey
1.13 What is the differencebetweena statistic form.
@
l A s s r sI Tand a parameter? a. Give an exampleof a categoricalvariablefound in this
survey.
1.14 Whatis the differencebetweendescriptive
@ b. Give an exampleof a numericalvariablefound in this
l A s s r sI rand inferential
statistics?
survey.
c. Is the variableyou selectedin (b) discreteor continuous?
mffi 1.15 What is the difference betweena categori-
I A S S | sIr cal variableand a numericalvariable?
1.24 An online survey of almost 53,000 people
1.16 What is the differencebetweena discretevariable (N. Hellmich, "AmericansGo for the Quick Fix for
anda continuousvariable? Dinner,"USA Today,February14,2005,p.Bl) indicated
that3To/o
decidewhatto makefor dinnerat homeat the last
1.17 What is an operationaldefinitionand why is it so minuteand that the amountof time to preparedinneraver-
important? agesl2 minutes,while the amountof time to cook dinner
1.18 Whatarethe four levelsof measurement
scales? averages28 minutes.
a. Which of the four categoriesof datasourceslistedin
Applyingthe Concepts Section1.4 on page 6 do you think were usedin this
study?
1.19 The Data and Story Library, lib.stat.cmu.edu/
b. Namea categoricalvariablediscussed in this article.
DASL, is an online library of datafiles and storiesthat
c. Namea numericalvariablediscussed in this article.
illustratethe useof basicstatisticalmethods.The stories
are classifiedby methodand by topic. Go to this site and 1.25 According to a Harris Interactivesurvey of 502
click on List all topics. Pick a story and summarizehow seniorhuman resourceexecutives,58% respondedthat
statisticswereusedin the story. referralswereone of the methodsfor finding the bestcan-
1.20 Go to the official Microsoft Excel Web site, didates.("USA Snapshots," USAToday,February9,2006,
p.Al).
www.microsoft.com/office/excel.Explain how you
think Microsoft Excel could be useful in the field of a. Describethepopulationfor theHarrisInteractivesurvey.
b. Is a responseto the question"By which methodsdo
statistics.
you feel you find the bestcandidates?"categorical or
1.21 The Gallup organizationreleasesthe results of numerical?
recentpolls at its Web site,www.galluppoll.com.Go to c. Fourteenpercentof the seniorhumanresourcesexecu-
this siteandreadtoday'stop analysis. tives polled indicatedthat professionalassociations
a. Give an exampleof a categoricalvariablefound in the wereoneof the methodsfor finding the bestcandidates.
poll. Is this a Darameter
or a statistic?
b. Give an exampleof a numericalvariablefound in the
poll. 1.26 A manufacturerof cat food was planningto survey
c. Is thevariableyou selectedin (b) discreteor continuous? households in the United Statesto determinepurchasing
habitsof cat owners.Among the questionsto be included
1.22 The U.S.CensusBureausite,www.census.gov, con- arethosethat relateto
tains surveyinformationon people,business,geography, 1. wherecat food is primarilypurchased.
and othertopics.Go to the site and click on Housing in 2. whetherdry or moist cat food is purchased.
the "Peopleand Households"section.Then click on 3. thenumberof catsliving in thehousehold.
AmericanHousingSurvey. 4. whetherthe cat is pedigreed.
a. Briefly describetheAmericanHousingSurvey. a. Describe thepopulation.
b. Give an exampleof a categoricalvariablefound in this b. For eachof the four items listed.indicatewhether
survey. variableis categoricalor numerical.If it is numerical,
i
c. Give an exampleof a numericalvariablefound in this it discreteor continuous?
survey. c. Developfive categoricalquestionsfor the survey.
d. Is thevariableyou selectedin (c) discreteor continuous? d. Developfive numericalquestionsfor the survey.
End-of-Chapter
Cases I5

Student Survey Data Base l. What is your gender? Female_ Male_


answered
the 2. What is your age (a.s o./last birthclq,)'l-
1.27 A sample
of 50undergraduate
students
following survey. 3. What is your height (in inche.s)?_
l. What is your gender'/ Female- Male- 4. What is your current major areaof study?
2. What is your age (a.so/'la.stbirthday)'!- Accounting _ Economics/Finance_
3. What is your height (in inches)?_ Information Systems_ InternationalBusiness-
4. What is your current registeredclassdesignation? Management_ Marketing/Retailing._ Other_
Freshman_ Sophomore_ Junior_ Senior- Undecided_
5. What is your major areaof study'/ 5. What is your graduate cumulative grade point
Accounting_ Economics/Finance_ index?_
InformationSystems_ InternationalBusiness- 6. What was your undergraduatearea of specialization'?
Management_ Marketing/Retailing_ Other_ Biological Sciences_ BusinessAdministration_
Undecided_ Computers or Math_ Education-
6. At the presenttirne, do you plan to attend graduate Engineering_ Humanities_ PerformingArts-
school? PhysicalSciences_ Social Sciences_
Yes_ No_ Not sure- Other_
7. What is your current cumulative grade point 7. What was your undergraduate cumulativegradepoint
average'J_ average'?_
8. What would you expect your starting annual salary 8. What was your GMAT score'?_
(in $000) to be if you were to seek employment 9. What is your current employment status'/_
immediately after obtaining your bachelor's Full-time_ Part-time_ Unernployed_
degree?_ 10. How many different full-time jobs have you held in
9. What do you anticipate your salary to be (in $000) the past l0 years'.'_
after five years of full-time work experience?_ | 1. What do you expectyour annual salary (in 5000)
10.What is your current employmentstatus'l to be immediately after completion of the MBA
Full-time_ Part-time_ Unemployed_ program'?_
1 1 .H o w r n a n y c l u b s , g r o u p s . organizationso
, r teams 1 2 . W h a t d o y o u a n t i c i p a t ey o u r s a l a r yt o b e ( i n $ 0 0 0 )
are you currently affiliated with on campus'/ after five years of full-time work experience follow-
12.How satisfied are you with the student advisement ing the completionof the MBA program'?_
serviceson campus?_ 13. How satisfied are you with the student advisement
Extremely | 2 3 4 5 6 7 Extremely serviceson campus?
unsatisfied Neutral satisfied E,xtremelyl23456 7 Extremely
13.About how much money did you spendthis semester unsatisfied Neutral satisfied
for textbooksand supplies'l_ 14. About how much money did you spendthis semester
for textbooks and supplies?_
Theresultsof the survey are in the file GEEEE@!$iIIE.
a. Whichvariablesin the survey are categorical'/ The results of the survey are in the file FfFfl?lS.
b. Whichvariablesin the survey are numerical? a. Which variablesin the survey are categorical?
c. Whichvariablesare discretenumericalvariables? b. Which variablesin the survey are nurnerical'.)
c. Which variablesare discretenumericalvariables'J
1.28 A sampleof 50 MBA studentsansweredthe follow-
lngsurveY:

End-of-Chapter
Cases
A t t h e e n d o f m o s t c h a p t e r s ,y o u w i l l f i n d a c o n t i n u i n g newspaper.Complementing this case are a seriesof Web
casestudy that allows you to apply statisticsto problerns C a s e st h a t e x t e n d r n a n y o f t h e U s i n g S t a t i s t i c ss c e n a r i o s
facedby the managementof the Springville Herald, a daily t h a t b e g i ne a c hc h a p t e r .