Chapter 1

Introduction: Defining the

Role of Statistics in Business
 Statistics
 Art and Science of Collecting and
Understanding DATA:
 DATA = Recorded Information
 e.g., Sales, Productivity, Quality, Costs,
Return, …
 Why? Because you want:
 Best use of imperfect information:
 e.g., 50,000 customers, 1,600 workers,
386,000 transactions,…
 Good decisions in uncertain conditions:
 e.g., new product launch: Fail? OK? Make
 Activities of Statistics
1. Designing the study:
 First step
 Plan for data-gathering

 Random sample (control bias and error)

2. Exploring the data:

 First step (once you have data)
 Look at, describe, summarize the data

 Are you on the right track?

 Activities of Statistics
(continued)
3. Modeling the data
 A framework of assumptions and
equations
 Parameters represent important aspects
of the data
 Helps with estimation and hypothesis
testing
4. Estimating an unknown:
 Best “guess” based on data
 Wrong - buy by how much?
 Activities of Statistics
(continued)
5. Hypothesis testing:
 Data decide between two possibilities
 Does “it” really work? [or is “it” just
randomly better?]
 Is financial statement correct? [or is
error material?]
 Whiter, brighter wash?
 Data Mining
 Search for patterns in large data
sets
 Businesses data: marketing, finance,
production ...
 Collected for some purpose, often useful for
others
 From government or private companies

 Makes use of
 Statistics – all the basic activities, and
 Prediction, classification, clustering
 Computer science – efficient algorithms
 Census Bureau County
Data
 1,203 counties with demographic,
social, economic, and housing data
available for mining
 Clusters of Households
 Identified through data mining
Segments

(ACORN®) Summary Groups Top One Percent

Wealthy Seaboard Suburbs

Affluent Upper Income Empty Nesters

Families
Successful Suburbanites

Prosperous Baby Boomers

.
. Semirural Lifestyle
Households
. .
.
.
Twentysomethings
Young
Mobile College Campuses
Adults
Military Proximity
. .
. .
.
.
 Probability
 “Inverse” of statistics
Statistics
The You
world see
Probability

 Statistics: generalizes from data to the

world
 Probability: “What if …” Assuming you
know how the world works, what data
are you likely to see?

 Statistical View of the
World
 Data are imperfect
 We do the best we can -- Statistics
helps!
 Events are random
 Can’t be right 100% of the time
 Use statistical methods
 Along with common sense and good
judgment
 Be skeptical!
 Statistics can be used to support
 Statistics in Business:
 Advertising
Examples
 Effective? Which commercial? Which
markets?
 Quality control
 Defect rate? Cost? Are improvements
working?
 Finance
 Risk - How high? How to control? At
what cost?
 Accounting
 Audit to check financial statements. Is
error material?