Business Statistics, 3e

by Ken Black

Chapter 1
Discrete Distributions

Introduction
to Statistics

Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 1-1
 Learning Objectives

• Define statistics
• Become aware of a wide range of
applications of statistics in business
• Differentiate between descriptive and
inferential statistics
• Classify numbers by level of data and
understand why doing so is important

Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 1-2
 What is Statistics?
• Science of gathering, analyzing, interpreting, and
presenting data

• Branch of mathematics

• Course of study

• Facts and figures

• A death

Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 1-3
 Statistics in Business
• Accounting : auditing and cost estimation
• Economics : regional, national, and international
economic performance
• Finance : investments and portfolio
management
• Management:human resources, compensation, and
quality management
• MIS: performance of systems which gather,
summarize, and disseminate
information to various managerial levels
• Marketing: market analysis and consumer research
• Int’l Business: market and demographic analysis

Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 1-4
 Population Versus Sample

• Population — the whole

– a collection of persons, objects, or items under
study

• Census — gathering data from the entire

population

• Sample — a portion of the whole

– a subset of the population
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 1-5
Population, Census or Sample Data?
Identifier Color MPG

RD1 Red 12
RD2 Red 10
RD3 Red 13
RD4 Red 10
RD5 Red 13
BL1 Blue 27
BL2 Blue 24
GR1 Green 35
GR2 Green 35
GY1 Gray 15
GY2 Gray 18
GY3 Gray 17

Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 1-6
Population, Census, or Sample Data ?
Identifier Color MPG

RD2 Red 10

RD5 Red 13

GR1 Green 35

GY2 Gray 18

Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 1-7
 Parameter vs. Statistic

• Parameter — descriptive measure of the

population
– Usually represented by Greek letters

• Statistic — descriptive measure of a sample

– Usually represented by Roman letters

Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 1-8
Symbols for Population Parameters

 denotes population parameter


2
denotes population variance
 denotes population standard deviation

Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 1-9
 Symbols for Sample Statistics

x denotes sample mean

S
2
denotes sample variance
S denotes sample standard deviation

Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 1-10
 Descriptive
Descriptive vs.
vs. Inferential
Inferential Statistics
Statistics

• Descriptive Statistics — using data gathered

on a group to describe or reach conclusions
about that same group only

• Inferential Statistics — using sample data to

reach conclusions about the population
from which the sample was taken

Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 1-11
 Process of Inferential Statistics

Calculate x
to estimate 
Population Sample
 x
(parameter) (statistic)

Select a
random sample
Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 1-12
 Levels of Data Measurement

• Nominal — Lowest level of measurement

• Ordinal
• Interval
• Ratio — Highest level of measurement

Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 1-13
 Nominal Level Data
• Numbers are used to classify or categorize
Example: Employment Classification
– 1 for Educator
– 2 for Construction Worker
– 3 for Manufacturing Worker
Example: Ethnicity
– 1 for African-American
– 2 for Anglo-American
– 3 for Hispanic-American
– 4 for Oriental-American

Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 1-14
 Ordinal Level Data
• Numbers are used to indicate rank or order
– Relative magnitude of numbers is meaningful
– Differences between numbers are not comparable

Example: Ranking productivity of employees

Example: Taste test ranking of three brands of soft drink
Example: Position within an organization
– 1 for President
– 2 for Vice President
– 3 for Plant Manager
– 4 for Department Supervisor
– 5 for Employee

Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 1-15
Example of Ordinal Measurement

1 f
6 i
2 n
4 i
s
3
h
5

Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 1-16
 Ordinal Data

Faculty and staff should receive preferential

treatment for parking space.

Strongly Agree Neutral Disagree Strongly

Agree Disagree

1 2 3 4 5

Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 1-17
 Interval Level Data

• Distances between consecutive integers are

equal
– Relative magnitude of numbers is meaningful
– Differences between numbers are comparable
– Location of origin, zero, is arbitrary

Example: Fahrenheit Temperature

Example: Calendar Time

Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 1-18
 Ratio Level Data
• Highest level of measurement
– Relative magnitude of numbers is meaningful
– Differences between numbers are comparable
– Location of origin, zero, is absolute (natural)

Examples: Height, Weight, and Volume

Example: Monetary Variables, such as Profit and
Loss, Revenues, and Expenses
Example: Financial ratios, such as P/E Ratio,
Inventory Turnover, and Quick Ratio.

Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 1-19
 Usage Potential of Various
Levels of Data
Ratio
Interval
Ordinal

Nominal

Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 1-20
 Data Level, Operations,
and Statistical Methods
Statistical
Data Level Meaningful Operations
Methods

Nominal Classifying and Counting Nonparametric

Ordinal All of the above plus Ranking Nonparametric

Interval All of the above plus Addition, Parametric

Subtraction, Multiplication, and
Division

Ratio All of the above Parametric

Business Statistics: Contemporary Decision Making, 3e, by Black. © 2001 South-Western/Thomson Learning 1-21