Descriptive Statistical Measures

Populations and Samples

 Population - all items of interest for a
particular decision or investigation
 all married drivers over 25 years old
 all subscribers to Netflix
 Sample - a subset of the population
 a list of individuals who rented a
comedy from
Netflix in the past year
 The purpose of sampling is to obtain
sufficient information to draw a valid
inference about a population.
Example Understanding
Statistical Notation
 We typically label the elements of a data set
using subscripted variables, x1, x2 , … , and so
on, where xi represents the ith observation.
 It is common practice in statistics to use Greek
letters, such as m (mu), s (sigma), and p (pi), to
represent population measures and italic letters
such as by x (called x-bar), s, and p to represent
sample statistics.
 N represents the number of items in a
population and n represents the number of
observations in a sample.
 S represents summation: Sxi = x1 + x2 + … xn
Measures of Location: Arithmetic
Mean

 Population mean:

 Sample mean:

 Excel function: =AVERAGE(data range)

 Property of the mean:

 Outliers can affect the value of the mean.

Example 4.1: Computing
Mean Cost per Order
Purchase Orders database
 Using formula:

=SUM(B2:B95)/COUNT(B2:B95)

Mean = $2,471,760/94
= $26,295.32

Using Excel AVERAGE Function

=AVERAGE(B2:B95)
Measures of Location: Median
 Themedian specifies the middle
value when the data are arranged
from least to greatest.
 The median is meaningful for ratio,
interval, and ordinal data.
 Not affected by outliers.
 1-
Debate Topic: 7
The Effectiveness of Descriptive
Analytics in Decision-Making

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 Moderator: Welcome, ladies and gentlemen, to
today's debate on the effectiveness of
descriptive analytics in decision-making. On one
side, we have Team Pro-Descriptive Analytics
advocating for its importance, and on the other,
Team Skepticism questioning its efficacy. Let's
begin with opening statements. Team Pro-
Descriptive Analytics, you have the floor.
 1-
Continue.. 8
 Team Pro-Descriptive Analytics:

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 Descriptiveanalytics is the
foundation upon which sound
decision-making rests. By
analyzing historical data trends,
we gain valuable insights into past
performance, which can inform
present actions and future
strategies.
 1-
Continue.. 9
 Without understanding where we've

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been, how can we hope to navigate
where we're going? Descriptive
analytics provides the crucial context
necessary for making informed
decisions across various domains, from
finance to marketing to operations.
 Furthermore, descriptive analytics
serves as a vital tool for performance
monitoring and benchmarking, allowing
organizations to track progress towards
goals and objectives.
Example 4.2: Finding the Median Cost per
Order
 Sort the data from smallest to largest. Since we have 90
observations, the median is the average of the 47th and
48th observation.

Median =
($15,562.50 + $15,750.00)/2
= $15,656.25

=MEDIAN(B2:B94)
Measures of Location:
Mode
 The mode is the observation that
occurs most frequently.
 The mode is most useful for data
sets that contain a relatively small
number of unique values.
 Excel function: =[Link](data
range).
 For multiple modes:
=[Link](data range)
Example 4.3: Finding the Mode
 Purchase Orders
database: A/P Terms
 Mode = 30 months

 Cost per order

 Mode is the group
between $0 and $13,000
Measures of Location: Midrange

 The midrange is the average of the greatest

and least values in the data set.
 Caution must be exercised when using the
midrange because extreme values easily distort
the result. This is because the midrange uses
only two pieces of data, whereas the mean uses
all the data; thus, it is usually a much rougher
estimate than the mean and is often used for
only small sample sizes.
Example 4.4: Computing the
Midrange
 Purchase Orders data
 Use the Excel MIN and MAX functions or sort the data and
find them easily.
 Cost per order midrange:
= ($68.78 + $127,500)/2
= $63,784.89
Using Measures of Location –
Example 4.5: Quoting Computer
Repair Times
The Excel file Computer Repair Times includes 250 repair
times for customers.

 What repair time would be

reasonable to quote to a
new customer?
 Median repair time is 2

weeks; mean and mode are

about 15 days.
 Examine the histogram.
Example 4.5 (continued)

90% are completed within 3 weeks

Measures of Dispersion

 Dispersion refers to the degree of variation in the

data; that is, the numerical spread (or compactness) of
the data.
 Key measures:
 Range
 Interquartile range
 Variance
 Standard deviation
 1-
Think-Pair & Share 18
 Think:Consider the role of

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descriptive analytics in your
organization or industry. Reflect
on how descriptive analytics is
currently being used to analyze
past data trends, identify
patterns, and provide insights into
business performance.
 1-
Continue.. 19
 Pair: Discuss with a colleague or team

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member how descriptive analytics has
impacted your work or industry. Share
examples of how descriptive analytics
has been utilized to make informed
decisions, improve processes, or drive
business outcomes. Consider any
challenges or opportunities you've
encountered when working with
descriptive analytics.
 1-
Continue.. 20
 Share: Share your insights and

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discussion points with the wider team
or group. Discuss the potential of
descriptive analytics to provide
valuable insights into historical data,
inform decision-making processes, and
drive organizational performance
improvements. Exchange ideas on how
descriptive analytics can be further
leveraged to address specific
challenges or capitalize on
opportunities within your organization
or industry.
Measures of Dispersion:
Range
 The range is the simplest and is the difference
between the maximum value and the minimum
value in the data set.
 In Excel, compute as =MAX(data range) -
MIN(data range).
 The range is affected by outliers, and is often
used only for very small data sets.
Example 4.6: Computing the
Range

 Purchase Orders data

 For the cost per order data:
 Maximum = $127,500
 Minimum = $68.78
 Range = $127,500 - $68.78 = $127,431.22
Measures of Dispersion:
Interquartile Range
 The interquartile range (IQR), or the midspread is the
difference between the first and third quartiles, Q3 – Q1.
 This includes only the middle 50% of the data and,
therefore, is not influenced by extreme values.
Example 4.7: Computing the
Interquartile Range
 Purchase Orders data
 For the Cost per order data:
 Third Quartile = Q3 = $27,593.75
 First Quartile = Q1 = $6,757.81
 Interquartile Range = $27,593.75 – $6,757.81 =$20,835.94
Measures of Dispersion: Variance
 The variance is the “average” of the squared
deviations from the mean.
 For a population:

 In Excel: =VAR.P(data range)

 For a sample:

 In Excel: =VAR.S(data range)

 Note the difference in denominators!

Example 4.8 Computing the Variance
 Purchase Orders Cost per order data
Measures of Dispersion:
Standard Deviation
 The standard deviation is the square root of the
variance.
 Note that the dimension of the variance is the square of the
dimension of the observations, whereas the dimension of
the standard deviation is the same as the data. This makes
the standard deviation more practical to use in applications.
 For a population:

 In Excel: =STDEV.P(data range)

 For a sample:

 In Excel: =STDEV.S(data range)

Example 4.9 Computing the Standard
Deviation
 Purchase Orders Cost per order data

 Usingthe results of Example 4.8, take the square root of

the variance:

 Alternatively, use the STDEV.S function for the data range.

Standard Deviation as a Measure
of Risk
Excel file: Closing Stock
Prices
Intel (INTC):
Mean = $18.81
Standard deviation =
$0.50
General Electric (GE):
Mean = $16.19
Standard deviation =
$0.35

INTC is a higher risk

investment than GE.
Chebyshev’s Theorem
 For any data set, the proportion of values that lie within k
(k > 1) standard deviations of the mean is at least 1 – 1/k2

 Examples:

 For k = 2: at least ¾ or 75% of the data lie within two standard

deviations of the mean

 For k = 3: at least 8/9 or 89% of the data lie within three

standard deviations of the mean
 1-
Role Play:
Midway through the build, the customer 31
identifies four additional data sources /
products / customer sets that they want

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included in the output.
 This scenario explores scope creep and
prioritisation and hits on another one of
my bugbears – the misconception that
Agile delivery is at odds with a
contained scope and can’t be planned.
If anything, I think Agile requires
greater clarity of scope than ever
before and sprints and increments
provide a really simple mechanism to
prioritise and make trade-offs between
features.
 1-
Continue 32

 I’mlooking for a candidate to

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query the urgency and business
impact of competing priorities,
manage a candid discussion on
feasibility and priority and explore
options of balancing partial vs
complete delivery of components.
Empirical Rules
 For many data sets encountered in practice:
 Approximately 68% of the observations fall within one standard
deviation of the mean
 Approximately 95% fall within two standard deviations of the
mean
 Approximately 99.7% fall within three standard deviations of the
mean
 These rules are commonly used to characterize the natural
variation in manufacturing processes and other business
phenomena.
 Process Capability Index
 The process capability index (Cp) is a
measure of how well a manufacturing
process can achieve specifications.
 Using a sample of output, measure the
dimension of interest, and compute the total
variation using the third empirical rule.
 Compare results to specifications using:
Example 4.11 Using Empirical Rules to
Measure the Capability of a Manufacturing
Process

Empirical rules
Standardized Values

 A standardized value, commonly called a z-

score, provides a relative measure of the
distance an observation is from the mean,
which is independent of the units of
measurement.
 The z-score for the ith observation in a data set
is calculated as follows:

 Excel function: =STANDARDIZE(x, mean,

standard_dev).
Properties of z-Scores
 The numerator represents the distance that xi is
from the sample mean; a negative value indicates
that xi lies to the left of the mean, and a positive
value indicates that it lies to the right of the
mean. By dividing by the standard deviation, s,
we scale the distance from the mean to express it
in units of standard deviations. Thus,
 a z-score of 1.0 means that the observation is one
standard deviation to the right of the mean;
 a z-score of 2 1.5 means that the observation is 1.5
standard deviations to the left of the mean.
Example 4.12 Computing z-
Scores
 Purchase Orders Cost per order data

=(B2 - $B$97)/$B$98, or
=STANDARDIZE(B2,$B$97,$B$98).
Coefficient of Variation

 The coefficient of variation (CV) provides a

relative measure of dispersion in data relative
to the mean:

 Sometimes expressed as a percentage.

 Provides a relative measure of risk to return.
 Return to risk = 1/CV, is often easier to
interpret, especially in financial risk analysis.
 The Sharpe ratio is a related measure in finance.
Example 4.13 Applying the
Coefficient of Variation
 Closing Stock Prices worksheet
 Intel (INTC) is slightly riskier than the other stocks.
 The Index fund has the least risk (lowest CV).
Measures of Shape: Skewness
 Skewness describes the lack of symmetry of data.
 Distributions that tail off to the right are called positively
skewed; those that tail off to the left are said to be negatively
skewed.

Positively skewed Symmetrical

Coefficient of Skewness
 Coefficient of Skewness (CS):

 Excel function: =SKEW(data range)

 CS is negative for left-skewed data.
 CS is positive for right-skewed data.

0.5 ≤ |CS| ≤ 1 suggests moderate skewness.

 |CS| > 1 suggests high degree of skewness.

 |CS| < 0.5 suggests relative symmetry.
Example 4.14: Measuring
Skewness

 Purchase Orders database

 Cost per order data: CS = 1.66 (high positive
skewness)
 A/P terms data: CS = 0.60 (moderate positive
skewness)
Measures of Shape:
Kurtosis
 Kurtosis refers to the peakedness (i.e., high,
narrow) or flatness (i.e., short, flat-topped) of a
histogram.
 The coefficient of kurtosis (CK) measures the
degree of kurtosis of a population

 CK < 3 indicates the data is somewhat flat with a wide

degree of dispersion.
 CK > 3 indicates the data is somewhat peaked with
less dispersion.
 Excel function: =KURT(data range).
Shape and Measures of
Location
 Comparing measures of location can
sometimes reveal information about the
shape of the distribution of
observations.
 For example, if the distribution were
perfectly symmetrical and unimodal, the
mean, median, and mode would all be the
same.
 If it were negatively skewed, we would
generally find that mean < median <
mode
 Positive skewness would suggest that mode
< median < mean
Excel Descriptive Statistics Tool
This tool provides a summary of numerical statistical
measures for sample data.

Data >
Data Analysis >
Descriptive Statistics
 Enter Input Range
 Labels (optional)
 Check Summary Statistics box

 The data must be in a single row or column. If the data

are in multiple columns, the tool treats each row or
column as a separate data set
Example 4.15: Using the
Descriptive Statistics Tool

 Purchase Orders database

Note: Results of
the Analysis
Toolpak do not
change when
changes are
made to the data.
Descriptive Statistics for Grouped
Data

 Population mean:

 Sample mean:

 Population variance:

 Sample variance:
Example 4.16: Computing Statistical
Measures from Frequency Distributions
 Computer Repair Times
Grouped Data

 If the data are grouped into k cells in a

frequency distribution, we can use modified
versions of the formulas to estimate the mean
and variance by replacing xi with a
representative value (such as the midpoint) for
all the observations in each cell.
Example 4.17: Computing Descriptive
Statistics for a Grouped Frequency Distribution

Representative
group value
Descriptive Statistics for
Categorical Data: The Proportion
 The proportion, denoted by p, is the fraction of data that
have a certain characteristic.
 Proportions are key descriptive statistics for categorical
data, such as defects or errors in quality control
applications or consumer preferences in market research.
Example 4.18: Computing a
Proportion

 Proportion of orders placed by

Spacetime Technologies
=COUNTIF(A4:A97, “Spacetime
Technologies”)/94
= 12/94 = 0.128
Statistics in PivotTables
Value Field Settings include several statistical measures:
 Average
 Max and Min
 Product
 Standard deviation
 Variance
 Example 4.19: Statistical
Measures in PivotTables
 Credit Risk Data
 First, create a PivotTable.
 In the PivotTable Field List, move Job to the
Row Labels field and Checking and Savings
to the Values field. Then change the field
settings from “Sum of Checking” and “Sum
of Savings” to the averages.
 Measures of Association
 Two variables have a strong statistical
relationship with one another if they
appear to move together.
 When two variables appear to be
related, you might suspect a cause-
and-effect relationship.
 Sometimes, however, statistical
relationships exist even though a
change in one variable is not caused
by a change in the other.
Measures of Association: Covariance
 Covariance is a measure of the linear association between two
variables, X and Y. Like the variance, different formulas are
used for populations and samples.
 Population covariance:

 Excel function: =COVARIANCE.P(array1,array2)

 Sample covariance:

 Excel function: =COVARIANCE.S(array1,array2)

 The covariance between X and Y is the average of the product
of the deviations of each pair of observations from their
respective means.
Example 4.20: Computing the
Covariance
 Colleges and
Universities
data
Measures of Association:
Correlation
 Correlation is a measure of the linear relationship
between two variables, X and Y, which does not depend
on the units of measurement.
 Correlation is measured by the correlation coefficient, also
known as the Pearson product moment correlation
coefficient.
 Correlation coefficient for a population:

 Correlation coefficient for a sample:

 The correlation coefficient is scaled between -1 and 1.

 Excel function: =CORREL(array1,array2)
Examples of Correlation
Example 4.21 Computing the
Correlation Coefficient

 Colleges and Universities data

Notes on the CORREL
Function
 When using the CORREL function, it does not matter if
the data represent samples or populations. In other
words,

CORREL(array1,array2) =
COVARIANCE.P(array1,array2) /
STDEV.P(array1)*STDEV.P(array2)

and

CORREL(array1,array2) =
COVARIANCE.S(array1,array2) /
STDEV.S(array1)*STDEV.S(array2)
Excel Correlation Tool

Data >
Data Analysis >
Correlation

 Excel
computes the correlation coefficient
between all pairs of variables in the Input
Range. Input Range data must be in contiguous
columns.
Example 4.22: Using the
Correlation Tool
 Colleges and Universities data

 Moderate negative correlation between acceptance rate

and graduation rate, indicating that schools with lower
acceptance rates have higher graduation rates.
 Acceptance rate is also negatively correlated with the
median SAT and Top 10% HS, suggesting that schools
with lower acceptance rates have higher student
profiles.
 The correlations with Expenditures/Student suggest that
schools with higher student profiles spend more money
Identifying Outliers
 Thereis no standard definition of what
constitutes an outlier.
 Some typical rules of thumb:
 z-scores greater than +3 or less than -3
 Extreme outliers are more than 3*IQR to
the left of Q1 or right of Q3
 Mild outliers are between 1.5*IQR and
3*IQR to the left of Q1 or right of Q3
Example 4.24: Applying Statistical
Thinking
 Excel file Surgery Infections
 Is month 12 simply random variation or some explainable
phenomenon?
Example 4.24 Continued
 Three-standard deviation empirical rule:

 This suggests that month 12 is statistically different from

the rest of the data.
Variability in Samples

 Different samples from any population will vary.

 They will have different means, standard
deviations, and other statistical measures
 They will have differences in the shapes of
histograms.
 Samples are extremely sensitive to the sample
size – the number of observations included in
the samples.
Example 4.25: Variation in Sample Data
 Samples from Computer Repair Times data
 Population statistics: μ = 14.91 days, σ2 = 35.5 days2
 Two samples of size 50:

 Two samples of size 25:

 1-
Group Discussion 70
 Facilitator:
Welcome everyone to

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our group discussion on
descriptive analytics. Descriptive
analytics plays a fundamental role
in understanding past data and
deriving insights from it. Let's dive
into some key points and have an
engaging discussion.
 1-
Continue 71
 Participant 1: Descriptive analytics is crucial
because it helps us understand what has

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happened in the past. By analyzing historical
data, we can identify trends, patterns, and
anomalies, which can inform decision-making
and strategy development.
 Participant 2: Absolutely! It provides a snapshot
of the current state of affairs within an
organization or a specific process. For instance,
in retail, descriptive analytics can help track
sales trends over time, identify peak seasons,
and understand customer purchasing
behaviors.
 1-
Continue.. 72
 Participant 3: While descriptive

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analytics is essential, we should also
acknowledge its limitations. It mainly
focuses on summarizing past data and
may not always provide actionable
insights for the future. It's more about
understanding what happened rather
than why it happened or what might
happen next.
 1-
Continue.. 73
 Facilitator: It's clear that while

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descriptive analytics is essential, it's not
without its challenges. From handling
large datasets to extracting meaningful
insights, there are various
considerations to keep in mind.
However, when used effectively,
descriptive analytics can provide
valuable insights that drive
organizational success. Thank you all
for your contributions to this discussion.
 1-
Descriptive Analytics Caselets: Employee
Performance Analysis 74

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 Employee Engagement and Performance:
1) Do employees with higher engagement
scores tend to have higher performance
scores? What actionable insights can be
derived from this relationship?
2) Analyze performance trends over time
(e.g., quarterly or monthly) to identify any
seasonal or cyclical patterns.
3) Are there any noticeable trends or
fluctuations in performance scores over the
past year? What could be the underlying
factors driving these trends?