Data & Statistics

Statistics for Business & Economics

David R. Anderson, Dennis J. Sweeney, Thomas A. Williams, Jeffrey D. Camm, James J. Cochran
Chapter 1
Statistics
• A poll of 1,320 corporate recruiters indicated that 68% of the
recruiters ranked communication skills as one of the top five most
important skills for new hires (Bloomberg Businessweek April 13–
April 19, 2015).
• At a Sotheby’s art auction held on February 5, 2013, Pablo Picasso’s
painting Woman Sitting Near a Window sold for $45 million (The Wall
Street Journal, February 15, 2013).

In this usage, the term statistics refers to numerical facts such as

averages, medians, percentages, and maximums that help us
understand a variety of business and economic situations.
Applications in Business and Economics
▪ Accounting- Public accounting firms use statistical sampling
procedures when conducting audits for their clients.
▪ Finance- Financial analysts use a variety of statistical information to
guide their investment recommendations. Analysts make informed
buy, sell, or hold recommendations for stocks based on statistical
information.
▪ Marketing- Brand managers can review the scanner statistics and the
promotional activity statistics to gain a better understanding of the
relationship between promotional activities and sales. Such analyses
often prove helpful in establishing future marketing strategies for
various products.
Applications in Business and Economics
▪ Production- Today’s emphasis on quality makes quality control an
important application of statistics in production. A variety of statistical
quality control charts are used to monitor the output of a production
process. In particular, an x-bar chart can be used to monitor the average
output. An x-bar chart can help determine when adjustments are
necessary to correct a production process.
▪ Economics- Economists frequently provide forecasts about the future of
the economy or some aspect of it. They use a variety of statistical
information in making such forecasts. For instance, in forecasting inflation
rates, economists use statistical information on such indicators as the
Producer Price Index, the unemployment rate, and manufacturing capacity
utilization. Often these statistical indicators are entered into computerized
forecasting models that predict inflation rates.
Applications in Business and Economics
▪ Information Systems- Information systems administrators are
responsible for the day-to-day operation of an organization’s
computer networks. A variety of statistical information helps
administrators assess the performance of computer networks,
including local area networks (LANs), wide area networks (WANs),
network segments, intranets, and other data communication systems.

Statistics such as the mean number of users on the system, the

proportion of time any component of the system is down, and the
proportion of bandwidth utilized at various times of the day are
examples of statistical information that help the system administrator
better understand and manage the computer network.
Data
• Data are the facts and figures collected, analyzed, and summarized
for presentation and interpretation.
• All the data collected in a particular study are referred to as the data
set for the study.
Elements, Variables, and Observations
• Elements are the entities on which data are collected.
• A variable is a characteristic of interest for the elements.
• Measurements collected on each variable for every element in a
study provide the data. The set of measurements obtained for a
particular element is called an observation.
• With 60 nations, the
data set contains 60 elements.
• There are 5 variables.
• A data set with 60 elements
contain 60 observations.
Scales of Measurement
Data collection requires one of the following scales of measurement:
Nominal Scale Ordinal Scale Interval Scale Ratio Scale
• When the data for a • The scale of • The scale of • The scale of
variable consist of measurement for a measurement for a measurement for a
labels or names used variable is considered variable is an interval variable is a ratio scale
to identify an attribute an ordinal scale if the scale if the data have if the data have all the
of the element, the data exhibit the all the properties of properties of interval
scale of measurement properties of nominal ordinal data and the data and the ratio of
is considered a data and in addition, interval between two values is
nominal scale. the order or rank of values is expressed in meaningful.
• In cases where the the data is meaningful. terms of a fixed unit of • Variables such as
scale of measurement measure. distance, height,
is nominal, a • Ordinal data can also • Interval data are weight, and time use
numerical code as well be recorded by a always numerical. the ratio scale of
as a nonnumerical numerical code, for measurement. This
label may be used. example, your class • Example: SAT scores, scale requires that a
rank in school. Temperature. zero value be included
• Example: Gender, to indicate that
Name, marital status. nothing exists for the
variable at the zero
point.
Categorical and Quantitative Data
Cross-Sectional and Time Series Data
Categorical Data Quantitative Data Cross-Sectional Data Time Series Data
• Data that can be grouped • Data that use numeric • Cross-sectional data are • Time series data are data
by specific categories are values to indicate how data collected at the same collected over several time
referred to as categorical much or how many are or approximately the same periods.
data. referred to as quantitative point in time. • Example: Quarterly sales,
data. • Example: Gross annual rainfall measurements,
• Categorical data use either income for each of 1000 temperature readings.
the nominal or ordinal • Quantitative data are randomly chosen
scale of measurement. obtained using either the households in New York
• A categorical variable is a interval or ratio scale of City for the year 2000.
variable with categorical measurement.
data • A quantitative variable is a
variable with quantitative
data.
• Quantitative data can be
discrete (counted i.e. 1, 2,
3…) or continuous
(measured i.e. 1.67, 2.5,
etc… ).
Data Sources
• Data can be obtained from
➢Existing sources- In some cases, data needed for a particular
application already exists. Companies maintain a variety of
databases about their employees, customers, and business
operations.
➢By conducting an observational study- In an observational study
we simply observe what is happening in a particular situation,
record data on one or more variables of interest, and conduct a
statistical analysis of the resulting data.
➢By conducting an experiment-The key difference between an
observational study and an experiment is that an experiment
is conducted under controlled conditions.
Time and Cost Issues
• Anyone wanting to use data and statistical analysis as aids to decision-
making must be aware of the time and cost required to obtain the
data. The use of existing data sources is desirable when data must be
obtained in a relatively short period of time. If important data are not
readily available from an existing source, the additional time and cost
involved in obtaining the data must be taken into account.
Data Acquisition Errors
• Managers should always be aware of the possibility of data errors in
statistical studies. Using erroneous data can be worse than not using
any data at all. An error in data acquisition occurs whenever the data
value obtained is not equal to the true or actual value that would be
obtained with a correct procedure.
Descriptive Statistics
• Most of the statistical information in newspapers, magazines,
company reports, and other publications consists of data that are
summarized and presented in a form that is easy for the reader to
understand. Such summaries of data, which may be tabular, graphical,
or numerical, are referred to as descriptive statistics.
• Tabular and graphical displays (bar chart, histogram) are used to
summarize descriptive data.
• In addition, numerical descriptive statistics such as average or mean
are used to summarize data.
Descriptive Statistics
Statistical Inference
• A population is the set of all elements of
interest in a particular study
• A sample is a subset of the population.
Population • The process of conducting a survey to collect
data for the entire population is called a
census.
Sample • The process of conducting a survey to collect
data for a sample is called a sample
survey.
• As one of its major contributions, statistics
uses data from a sample to make estimates
and test hypotheses about the
characteristics of a population through a
process referred to as statistical inference.
Analytics
• Analytics is the scientific process of transforming data into insight for
making better decisions.
• Analytics is used for data-driven or fact-based decision making, which
is often seen as more objective than alternative approaches to
decision making.
Analytics
Descriptive Analytics Predictive Analytics Prescriptive Analytics
• Encompasses the set of • Consists of analytical • Optimization models, which
analytical techniques that techniques that use models generate solutions that
describe what has happened constructed from past data to maximize or minimize some
in the past. predict the future or to assess objective subject to a set of
the impact of one variable on constraints, fall into the
another. category of prescriptive models.
• For example, past data on sales
of a product may be used to • The airline industry’s use of
construct a mathematical revenue management is an
model that predicts future example of a prescriptive
sales. model. The airline industry uses
past purchasing data as inputs
into a model that recommends
the pricing strategy across all
flights that will maximize
revenue for the company.
Big Data and Data Mining
• Larger and more complex data sets are now often referred to as big data.
• Many data analysts define big data by referring to the three v’s of data: volume,
velocity, and variety.
Volume refers to the amount
of available data (the typical
unit of measure for is now a
terabyte, which is 1012 bytes);

Velocity refers to
Variety refers to
the speed at which
the different data
data is collected and
types
processed
Big Data and Data Mining
• The term data warehousing is used to refer to the process of
capturing, storing, and maintaining the data.
• The subject of data mining deals with methods for developing useful
decision-making information from large databases.
• Using a combination of procedures from statistics, mathematics, and
computer science, analysts “mine the data” in the warehouse to
convert it into useful information, hence the name data mining