Business Statistics

CHAPTER 1
INTRODUCTION

LEARNING
OBJECTIVES
Definition

of Statistics

How

statistics
Business

is

used

in

The

sources of data used in

Business

The

types
Business

of

data

used

in

BASIC CONCEPTS OF
STATISTICS
Statistics is concerned
with:
Processing and analyzing
data
Collecting, presenting,
and transforming data to
assist decision makers

APPLICATION OF
STATISTICS IN VARIOUS
AREAS

Marketing

:
Market
survey,
Sales
performance, forecasting sales, market shares
and demand for various types of industrial
products.
Economics
:
Economical
problems,
formulation of economic policies
Finance
: Comparing the performances
mutual funds and shares, calculating financial
risk and comparing returns on investment in
two or more companies and selection of
portfolio of stocks etc.

 Insurance

: Insurance is based on the

concept of probability and determining
the premium of each customers etc.
Operations
: Sampling inspection,
inventory
management,
statistical
quality control, six sigma method and
supply chain management.
HR or Development : Evaluating the
performances,
developing
rating
systems,
evolving
compensatory
rewards and training system etc.

 Information

Technology
:
problem solving, optimization
of server time, assessing
performance of a program and
testing of the software.

KEY DEFINITIONS
A

population (universe) is the

collection of all members of a group
A
sample is a portion of the
population selected for analysis
A parameter(census) is a numerical
measure
that
describes
a
characteristic of a population
A statistic is a numerical measure
that describes a characteristic of a
sample

POPULATION VS.
SAMPLE
Populatio
n
a b

Sample

cd

ef gh i jk l m n
o p q rs t u v w
x y

Measures used to
describe a population are
called parameters

gi
o

n
r

y
Measures computed
from sample data are
called statistics

TWO BRANCHES OF STATISTICS

Descriptive

statistics

Collecting,

summarizing,
presenting data

Inferential
Drawing

and

statistics

conclusions about a
population based only on sample
data

DESCRIPTIVE STATISTICS
Collect
e.g.,

data

Survey

Present
e.g.,

data

Tables and graphs

Characterize
e.g.,

data

Sample mean=X i
n

INFERENTIAL STATISTICS

Estimation
Estimate the population
mean weight using the sample
mean weight

Hypothesis testing
e.g.,

Test the claim that the

population mean weight is 120
pounds

Business Statistics, A First Course (4e)

2008 Pearson Education

e.g.,

Cha
Drawing conclusions about a population based on
p 1sample results.
11

COLLECTING DATA

Primary Sources

Secondary Sources

Data Collection

Data Compilation
Print or Electronic

Observation

Survey

Experimentation

TYPES OF DATA
Data

Categorical

Numerical

Examples:

Marital Status
Political Party
Eye Color
(Defined categories)

Discrete
Examples:

Number of Children
Defects per hour
(Counted items)

Continuous
Examples:

Weight
Voltage
(Measured characteristics)

PRIMARY SCALES OF MEASUREMENT

Scale
Nominal

Ordinal

Interval

Numbers
Assigned
to Runners

Rank Order
of Winners

Performance
Rating on a
0 to 10 Scale

Ratio

Finish

Time to Finish
in Seconds

Finish
Third
place

Second
place

First
place

8.2

9.1

9.6

15.2

14.1

13.4

PRIMARY SCALES OF MEASUREMENT

NOMINAL SCALE

The numbers serve only as labels or tags for identifying and

classifying objects.
When used for identification, there is a strict one-to-one
correspondence between the numbers and the objects.
The numbers do not reflect the amount of the characteristic
possessed by the objects.
The only permissible operation on the numbers in a
nominal scale is counting.
Only a limited number of statistics, all of which are based
on frequency counts, are permissible, e.g., percentages, and
mode.

ILLUSTRATION OF PRIMARY SCALES OF

MEASUREMENT
Nominal
Scale

Ordinal
Scale

Interval
Scale

Ratio
Scale

Preference
Rankings

Preference
Ratings

$ spent last
3

79
25
82
30
10
53
95
61
45
115

1-7
5
7
4
6
7
5
4
5
6
2

No. Store
months

1. Parisian
2. Macys
3. Kmart
4. Kohls
5. J.C. Penney
6. Neiman Marcus
7. Marshalls
8. Saks Fifth Avenue
9. Sears
10.Wal-Mart

7
2
8
3
1
5
9
6
4
10

11-17
15
17
14
16
17
15
14
15
16
12

0
200
0
100
250
35
0
100
0
10

PRIMARY SCALES OF MEASUREMENT

ORDINAL SCALE

A ranking scale in which numbers are assigned to objects to

indicate the relative extent to which the objects possess
some characteristic.
Can determine whether an object has more or less of a
characteristic than some other object, but not how much
more or less.
Any series of numbers can be assigned that preserves the
ordered relationships between the objects.
In addition to the counting operation allowable for nominal
scale data, ordinal scales permit the use of statistics based
on centiles, e.g., percentile, quartile, median.

PRIMARY SCALES OF MEASUREMENT

INTERVAL SCALE

Numerically equal distances on the scale represent equal

values in the characteristic being measured.
It permits comparison of the differences between objects.

The location of the zero point is not fixed. Both the zero point
and the units of measurement are arbitrary.
Any positive linear transformation of the form y = a + bx will
preserve the properties of the scale.
It is not meaningful to take ratios of scale values.
Statistical techniques that may be used include all of those
that can be applied to nominal and ordinal data, and in
addition the arithmetic mean, standard deviation, and other
statistics.

PRIMARY SCALES OF MEASUREMENT

RATIO SCALE

Possesses all the properties of the nominal, ordinal, and

interval scales.

It has an absolute zero point.

It is meaningful to compute ratios of scale values.

Only proportionate transformations of the form y = bx,

where b is a positive constant, are allowed.
All statistical techniques can be applied to ratio data.

PRIMARY
SCALES OF MEASUREMENT
Table 8.1

DATA MEASUREMENT SCALES

Nominal

scale : Nominal data is

called
as
categorical
data.
Numbers are used to label an
item or category. Example : we
could record martial status using
the following category :
Single, Married , Divorced,
Widowed.

 Ordinal

Scale or rank data : are

used to rank objects and attributes.
Ordinal data appear to be nominal, but
their values are in order. For example,
at the completion of most colleges and
university courses, students are asked
to evaluate the course, Suppose in
particular college the values are
poor, fair good, very good and
excellent.

 Interval

Scale
:
Interval
data
is
quantitative data that can be measured on
the numerical scale. However, the zero point
does not mean the absence of something.
Examples are temperature, time etc.
Ratio Scale : Ratio is the quantitative data
can be measured on a numerical scale.
Here, the zero point does mean the absence
of what is being measured. Example, height,
weight, production cycle time & no. of
trucks sold etc.