Statistics for management -1 Chapter 1: Introduction

CHAPTER 1
1. INTRODUCTION
1.1 Definition and classifications of statistics
Definition:
We can define statistics in two ways.
1. Plural sense (lay man definition).
It is an aggregate or collection of numerical facts.
2. Singular sense (formal definition)
Statistics is defined as the science of collecting,
organizing, presenting, analyzing and interpreting
numerical data for the purpose of assisting in making a
more effective decision.
Classifications:
Depending on how data can be used statistics is some times
divided in to two main areas or branches.
1. Descriptive Statistics: is concerned with summary
calculations, graphs, charts and tables.
2. Inferential Statistics: is a method used to generalize
from a sample to a population. For example, the average
income of all families (the population) in Ethiopia can be
estimated from figures obtained from a few hundred (the
sample) families.
 It is important because statistical data usually arises
from sample.
 Statistical techniques based on probability theory are
required.

1.2 Stages in Statistical Investigation

There are five stages or steps in any statistical investigation.

1. Collection of data: the process of measuring, gathering,
assembling the raw data up on which the statistical
investigation is to be based.
 Data can be collected in a variety of ways; one of the
most common methods is through the use of survey.
Survey can also be done in different methods, three
of the most common methods are:
 Telephone survey

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 Mailed questionnaire
 Personal interview.
Exercise: discuss the advantage and disadvantage of
the above three methods with respect to each other.
2. Organization of data: Summarization of data in some
meaningful way, e.g table form
3. Presentation of the data: The process of re-organization,
classification, compilation, and summarization of data to
present it in a meaningful form.
4. Analysis of data: The process of extracting relevant
information from the summarized data, mainly through
the use of elementary mathematical operation.
5. Inference of data: The interpretation and further
observation of the various statistical measures through
the analysis of the data by implementing those methods
by which conclusions are formed and inferences made.
 Statistical techniques based on probability theory are
required.

1.3 Definitions of some terms

a. Statistical Population: It is the collection of all possible
observations of a specified characteristic of interest
(possessing certain common property) and being under
study. An example is all of the students in AAU 3101
course in this term.
b. Sample: It is a subset of the population, selected using
some sampling technique in such a way that they
represent the population.
c. Sampling: The process or method of sample selection
from the population.
d. Sample size: The number of elements or observation to
be included in the sample.
e. Census: Complete enumeration or observation of the
elements of the population. Or it is the collection of data
from every element in a population
f. Parameter: Characteristic or measure obtained from a
population.
g. Statistic: Characteristic or measure obtained from a
sample.

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h. Variable: It is an item of interest that can take on many

different numerical values.

Types of Variables or Data:

1. Qualitative Variables are nonnumeric variables and

can't be measured. Examples include gender, religious
affiliation, and state of birth.
2. Quantitative Variables are numerical variables and can
be measured. Examples include balance in checking
account, number of children in family. Note that quantitative
variables are either discrete (which can assume only certain
values, and there are usually "gaps" between the values,
such as the number of bedrooms in your house) or
continuous (which can assume any value within a specific
range, such as the air pressure in a tire.)

1.4 Applications, Uses and Limitations of statistics

Applications of statistics:
 In almost all fields of human endeavor.
 Almost all human beings in their daily life are subjected
to obtaining numerical facts e.g. abut price.
 Applicable in some process e.g. invention of certain
drugs, extent of environmental pollution.
 In industries especially in quality control area.
Uses of statistics:
The main function of statistics is to enlarge our knowledge of
complex phenomena. The following are some uses of
statistics:
1. It presents facts in a definite and precise form.
2. Data reduction.
3. Measuring the magnitude of variations in data.
4. Furnishes a technique of comparison
5. Estimating unknown population characteristics.
6. Testing and formulating of hypothesis.

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7. Studying the relationship between two or more

variable.
8. Forecasting future events.
Limitations of statistics
As a science statistics has its own limitations. The following
are some of the limitations:
 Deals with only quantitative information.
 Deals with only aggregate of facts and not with
individual data items.
 Statistical data are only approximately and not
mathematical correct.
 Statistics can be easily misused and therefore should
be used be experts.

1.5 Scales of measurement

Proper knowledge about the nature and type of data to be
dealt with is essential in order to specify and apply the
proper statistical method for their analysis and inferences.
Measurement scale refers to the property of value assigned
to the data based on the properties of order, distance and
fixed zero.

In mathematical terms measurement is a functional mapping

from the set of objects {Oi} to the set of real numbers
{M(Oi)}.

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The goal of measurement systems is to structure the rule for

assigning numbers to objects in such a way that the
relationship between the objects is preserved in the numbers
assigned to the objects. The different kinds of relationships
preserved are called properties of the measurement system.

Order

The property of order exists when an object that has more of

the attribute than another object, is given a bigger number
by the rule system. This relationship must hold for all objects
in the "real world".

The property of ORDER exists

When for all i, j if Oi > Oj, then M(Oi) > M(Oj).

Distance

The property of distance is concerned with the relationship

of differences between objects. If a measurement system
possesses the property of distance it means that the unit of
measurement means the same thing throughout the scale of
numbers. That is, an inch is an inch, no matters were it falls -
immediately ahead or a mile downs the road.

More precisely, an equal difference between two numbers

reflects an equal difference in the "real world" between the
objects that were assigned the numbers. In order to define
the property of distance in the mathematical notation, four
objects are required: Oi, Oj, Ok, and Ol . The difference
between objects is represented by the "-" sign; O i - Oj refers
to the actual "real world" difference between object i and
object j, while M(Oi) - M(Oj) refers to differences between
numbers.

The property of DISTANCE exists, for all i, j, k, l

If Oi-Oj ≥ Ok- Ol then M(Oi)-M(Oj) ≥ M(Ok)-M( Ol ).

Fixed Zero

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A measurement system possesses a rational zero (fixed

zero) if an object that has none of the attribute in question is
assigned the number zero by the system of rules. The object
does not need to really exist in the "real world", as it is
somewhat difficult to visualize a "man with no height". The
requirement for a rational zero is this: if objects with none of
the attribute did exist would they be given the value zero.
Defining O0 as the object with none of the attribute in
question, the definition of a rational zero becomes:

The property of FIXED ZERO exists if M(O0) = 0.

The property of fixed zero is necessary for ratios between

numbers to be meaningful.

SCALE TYPES

Measurement is the assignment of numbers to objects or

events in a systematic fashion. Four levels of measurement
scales are commonly distinguished: nominal, ordinal, interval,
and ratio and each possessed different properties of
measurement systems.

Nominal Scales

Nominal scales are measurement systems that possess none

of the three properties stated above.

 Level of measurement which classifies data into

mutually exclusive, all inclusive categories in which no
order or ranking can be imposed on the data.
 No arithmetic and relational operation can be applied.

Examples:

o Political party preference (Republican, Democrat,

or Other,)
o Sex (Male or Female.)

o Marital status(married, single, widow, divorce)

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o Country code

o Regional differentiation of Ethiopia.

Ordinal Scales

Ordinal Scales are measurement systems that possess the

property of order, but not the property of distance. The
property of fixed zero is not important if the property of
distance is not satisfied.

 Level of measurement which classifies data into

categories that can be ranked. Differences between the
ranks do not exist.
 Arithmetic operations are not applicable but relational
operations are applicable.

 Ordering is the sole property of ordinal scale.

Examples:

o Letter grades (A, B, C, D, F).

o Rating scales (Excellent, Very good, Good, Fair,
poor).

o Military status.

Interval Scales

Interval scales are measurement systems that possess the

properties of Order and distance, but not the property of
fixed zero.

 Level of measurement which classifies data that can be

ranked and differences are meaningful. However,
there is no meaningful zero, so ratios are meaningless.
 All arithmetic operations except division are applicable.
 Relational operations are also possible.

Examples:

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o IQ
o Temperature in oF.

Ratio Scales

Ratio scales are measurement systems that possess all three

properties: order, distance, and fixed zero. The added power
of a fixed zero allows ratios of numbers to be meaningfully
interpreted; i.e. the ratio of Bekele's height to Martha's
height is 1.32, whereas this is not possible with interval
scales.

 Level of measurement which classifies data that can be

ranked, differences are meaningful, and there is a true
zero. True ratios exist between the different units of
measure.
 All arithmetic and relational operations are applicable.

Examples:

o Weight
o Height

o Number of students

o Age

2.1 INTRODUCTION TO METHODS OF DATA

COLLECTION
There are two sources of data:
1. Primary Data
 Data measured or collect by the investigator or
the user directly from the source.
 Two activities involved: planning and measuring.
a) Planning:
 Identify source and elements of the
data.
 Decide whether to consider sample or
census.

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 If sampling is preferred, decide on

sample size, selection method, etc
 Decide measurement procedure.
 Set up the necessary organizational
structure.
b) Measuring: there are different options.
 Focus Group
 Telephone Interview
 Mail Questionnaires
 Door-to-Door Survey
 Mall Intercept
 New Product Registration
 Personal Interview and
 Experiments are some of the sources
for collecting the primary data.
2. Secondary Data
 Data gathered or compiled from published and
unpublished sources or files.
 When our source is secondary data check that:
 The type and objective of the situations.
 The purpose for which the data are
collected and compatible with the
present problem.
 The nature and classification of data is
appropriate to our problem.
 There are no biases and misreporting in
the published data.
Note: Data which are primary for one may be secondary for
the other.

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