Quantitative Methods for

Management
Term II
4 credits
MGT 408
Statistics for Business and
Economics
Anderson, Sweeney , Williams
Cengage learning
12e
 Additional Readings
• Business statistics- Ken Black

• Business statistics – J.K. Sharma

 Assessment
• Assignments – TWO 15x2 = 30 marks

• End term Objective questions 50/52

each carries 2 marks ( concepts and simple

problems)
 Subject Outline
• Introduction ch-1
• Data collection, classification and presentation ch-2
• Measures of central tendencies and dispersion ch-3
• Correlation and Regression analysis ch-14
• Probability concepts ch-04
• Probability distributions – Binomial and Poisson ch-05
• Probability distribution – Normal ch-06
• Sampling techniques ch-07
• Estimation and Inference statistics ch-08
• Testing of Hypothesis – Non Parametric (Chi square)
ch-9, 18
• Bayesian Analysis and decision theory
 Quantitative Methods for
Management
• Introduction
• Definition
• Importance and limitations
• Applications
• Terminologies
• Scale of measurement
• Type of variables
– Qualitative, quantitative
– Time series and cross sectional
• Types of statistics
• Sources of data
• Classification of data
• Statistical software
 Introduction….
• Of the 18000 foodmakers, the largest 20 now
account for nearly 54% of checkout sales.
• The Consumer Price Index (CPI) declined 0.3% in
April.
• The average compensation package for CEOs
across 50 large corporations was Rs. 1 million.
• E-commerce sites spend an average of Rs. 5000
to acquire each customer.
• Stocks account for 75% of the average investor’s
portfolio.
• The Hindu reaches 46% of the region’s
households during weekdays and 61% on
Sundays
• CFO’s were asked as to which initiative
they would put on hold in an uncertain
economy
– 32% Expansion
– 23% M&A
– 10% New Product Launch
– 18% Technology upgrade
– 9% None
– 8% Any other
 Why Learn Statistics?
to make better sense of the ubiquitous use of
numbers:
– Business memos
– Business research
– Technical reports
– Technical journals
– Newspaper articles
– Magazine articles

Chap 1-9
 Introduction
• Statistics – A way of thinking
– Methods that allow to work with data effectively
– Method which help to make better decisions
– DCOVA framework ( Define, collect, organize,
visualize, analyze)
• 4 broad categories of business activities
– Summarize and visualize business data
– Reach conclusions from those data
– Make reliable predictions about business activities
– Improve business processes
• Changing face of statistics
 DATA
Data- facts about the world ( a value associated
with something, or collective, a list of values
associated with something”.
Decision
making
Knowledge
Information
DATA
 What is Statistics?
“Statistics is a way to get information from data”
Statistics

Data Information

The word Statistics derived from the Latin word

‘status’ meaning a state
Statistics is a tool for creating new understanding
from a set of numbers.
 Statistics
• Art and Science of Collecting and Understanding
DATA:
– DATA = Recorded Information
• e.g., Sales, Productivity, Quality, Costs, Return, …
• Why? Because you want:
– Best use of imperfect information:
• e.g., 50,000 customers, 1,600 workers, 386,000
transactions,…
– Good decisions in uncertain conditions:
• e.g., new product launch: Fail? OK? Make you rich?
– Competitive Edge
• e.g., for you and your business!
 Activities of Statistics
1. Designing the study:
– First step
– Plan for data-gathering
– Random sample (control bias and error)

2. Exploring the data:

– First step (once you have data)
– Look at, describe, summarize the data
– Are you on the right track?
 Activities of Statistics (continued)
3. Modeling the data
– A framework of assumptions and equations
– Parameters represent important aspects of the data
– Helps with estimation and hypothesis testing
4. Estimating an unknown:
– Best “guess” based on data
– Wrong - but by how much?
– Confidence interval - “we’re 95% sure that the
unknown is between …”
 Activities of Statistics (continued)
5. Hypothesis testing:
– Data decide between two possibilities
– Does “it” really work? [or is “it” just randomly
better?]
– Is financial statement correct? [or is error
material?]
– Whiter, brighter wash?
– Is the difference statistically significant?
 Probability
• “Inverse” of statisticsStatistics
The You
world see
Probability

– Statistics: generalizes from data to the world

– Probability: “What if …” Assuming you know how the
world works, what data are you likely to see?
• Examples of probability:
– Flip coin, stock market, future sales, IRS audit, …
• Foundation for statistical inference
 Statistical View of the World
• Data are imperfect
– We do the best we can -- Statistics helps!
• Events are random
– Can’t be right 100% of the time
• Use statistical methods
– Along with common sense and good judgment
• Be skeptical!
– Statistics can be used to support contradictory
conclusions
– Look at who funded the study?
 DEFINITION
STATISTICS
COLLECTION
COMPILATION
CLASSIFICATION
PRESENTATION
ANALYSIS &
INTERPRETATION OF DATA
 Changing face of statistics
• Business analytics
– Use SM to analyze and explore data to uncover
unforeseen relationships.
– Use MS methods to develop optimization models

• Big data
– Collections of data that cannot be easily browsed or
analyzed using traditional methods.

• Integral role of software in statistics

 Statistics in Business: Examples
• Advertising
– Effective? Which commercial? Which markets?
• Quality control
– Defect rate? Cost? Are improvements working?
• Finance
– Risk - How high? How to control? At what cost?
• Accounting
– Audit to check financial statements. Is error material?
• Other
– Economic forecasting, background info, measuring
and controlling productivity (human and machine), …
• IMPORTANCE OF STATISTICS • LIMITATIONS OF STATISTICS

– It simplifies complexity – Only quantitative data

– It measures periodic changes – Does not study individual
– Facts are properly presented events
– Formulation of policies – Results are true only on
– Enlarge human experience averages
and knowledge – Does not give importance to
– Helps in comparison all items
– Forecasting – Can be misused
– Testing a hypothesis – Single purpose only
 Data Warehousing
 Organizations obtain large amounts of data on a
daily basis by means of magnetic card readers, bar
code scanners, point of sale terminals, and touch
screen monitors.

 Capturing, storing, and maintaining the data, referred

to as data warehousing, is a significant undertaking.
 Data Mining
 Analysis of the data in the warehouse might aid in
decisions that will lead to new strategies and higher
profits for the organization.
 Using a combination of procedures from statistics,
mathematics, and computer science, analysts “mine
the data” to convert it into useful information.

 The most effective data mining systems use automated

procedures to discover relationships in the data and
predict future outcomes, … prompted by only general,
even vague, queries by the user.
 Data Mining
• Search for patterns in large data sets
– Businesses data: marketing, finance, production ...
• Collected for some purpose, often useful for others
• From government or private companies
– Makes use of
• Statistics – all the basic activities, and
– Prediction, classification, clustering
• Computer science – efficient algorithms (instructions) for
– Collecting, maintaining, organizing, analyzing data
• Optimization – calculations to achieve a goal
– Maximize or minimize (e.g. sales or costs)
 Census Bureau County Data
• Over 1,000 counties with demographic, social,
economic, and housing data available for
mining
 Clusters of Households
• Identified through data mining (A Classification of
Residential Neighborhoods) Segments

Summary Groups Top One Percent

Wealthy Seaboard Suburbs

Affluent Upper Income Empty Nesters

Families
Successful Suburbanites

Prosperous Baby Boomers

.
. Semirural Lifestyle
Households
. .
.
.
Twentysomethings
Young
Mobile College Campuses
Adults
Military Proximity
.
.
. .
.
.
Terms and terminologies
* Data are the facts and figures collected, analyzed, and summarized
for presentation and interpretation.
• Data Set:
– Measurements of items
• e.g., Yearly sales volume for your 23 salespeople
• e.g., Cost and number produced, daily, for the past month
– All the data collected in a particular study are referred to as the data set for
the study
• Elementary Units:
– The items being measured
• e.g., Salespeople, Days, Companies, Catalogs, …
– Elements are the entities on which data are collected
• A Variable:
– The type of measurement being done
• e.g., Sales volume, Cost, Productivity, Number of defects, …
– A variable is a characteristic of interest for the elements.
• The set of measurements obtained for a particular element is called
an observation

• A data set with n elements contains n observations

Data, Data Sets,
Elements, Variables, and Observations
Variables

Element
Names Stock Annual Earn/
Company Exchange Sales($M) Share($)

Dataram NQ 73.10 0.86

EnergySouth N 74.00 1.67
Keystone N 365.70 0.86
LandCare NQ 111.40 0.33
Psychemedics N 17.60 0.13

Data Set
 How Many Variables?
• Univariate data set: One variable measured for
each elementary unit
– e.g., Sales for the top 30 computer companies.
– Can do: Typical summary, diversity, special features
• Bivariate data set: Two variables
– e.g., Sales and # Employees for top 30 computer firms
– Can also do: relationship, prediction
• Multivariate data set: Three or more variables
– e.g., Sales, # Employees, Inventories, Profits, …
– Can also do: predict one from all other variables
 Types of Variables
 Categorical (qualitative) variables have values
that can only be placed into categories, such as
“yes” and “no.”

 Numerical (quantitative) variables have values

that represent quantities.

 Time series or cross sectional data

Chap 1-32
 Numbers or Categories?
• Quantitative Variable: Meaningful numbers
– e.g., Sales, # Employees
– Can add, rank, count
• Qualitative Variable: Categories
– Ordinal Variable: Categories with meaningful ordering
• e.g., Bond rating (AA, A, B, …), Diamonds (VSI, SI, …)
• Can rank, count
– Nominal Variable: categories without meaningful
ordering
• e.g., State, Type of business, Field of study
• Can count
Cross-Sectional Data

Cross-sectional data are collected at the same or

approximately the same point in time.

Example: data detailing the number of building

permits issued in February 2010 in each of the
counties of Ohio
Time Series Data

Time series data are collected over several time

periods.

Example: data detailing the number of building

permits issued in Lucas County, Ohio in each of
the last 36 months
 Time-Series or Cross-Sectional?
• Time-Series Data: Data values recorded in
meaningful sequence
– Elementary units might be days or quarters or years
– e.g., Daily Dow-Jones stock market average close for
the past 90 days
– e.g., Your firm’s quarterly sales over the past 5 years
• Cross-Sectional Data: No meaningful sequence
– e.g., Sales of 30 companies
– e.g., Productivity of each sales division
– Easier than time series!
 Example

Firm Sales Industry Group S&P Rating

IBM 66,346 Office Equipment A
Exxon 59,023 Fuel A-
GE 40,482 Conglomerates A+
AT&T 34,357 Telecommunications A-
 Example (continued)
Multivariate Data (3 variables)
Firm Sales Industry Group S&P Rating
IBM 66,346 Office Equipment A
Exxon 59,023 Fuel A-
GE 40,482 Conglomerates A+
AT&T 34,357 Telecommunications A-

Elementar Quantitativ Nominal Ordinal

y e variable Qualitative Qualitative
units variable variable
 Example
Year Unemployment Rate
2003 5.7%
2004 5.4%
2005 4.9%
2006 4.4%
2007 5.0%
2008 7.3%
2009 9.9%
2010 9.4%
 Example
Year Unemployment Rate
2003 5.7%
2004 5.4%
2005 4.9%
2006 4.4%
2007 5.0%
2008 7.3%
2009 9.9%
2010 9.4%

Elementary unit
defined by “year” Quantitative data
 Stock Market – Time Series
Dow Jones Industrial Stock Market Index, Monthly from 1928 to early 2011

• 16,000
Dow Jones Stock Index, monthly since 1928
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Year
 Types of Data

Data

Categorical Numerical

Examples:
 Marital Status
 Political Party Discrete Continuous
 Eye Color
(Defined categories) Examples: Examples:
 Number of Children  Weight
 Defects per hour  Voltage
(Counted items) (Measured characteristics)
Chap 1-42
Basic Vocabulary of Statistics

POPULATION
A population consists of all the items or individuals about which
you want to draw a conclusion.

SAMPLE
A sample is the portion of a population selected for analysis.

PARAMETER
A parameter is a numerical measure that describes a characteristic
of a population.

STATISTIC
A statistic is a numerical measure that describes a characteristic of
a sample.

Chap 1-43
 Population vs. Sample

Population Sample

Measures used to describe the Measures computed from

population are called parameters sample data are called statistics

Chap 1-44
Population - the set of all elements of interest in a
particular study
Sample - a subset of the population

Statistical inference - the process of using data obtained

from a sample to make estimates
and test hypotheses about the
characteristics of a population
Census - collecting data for the entire population

Sample survey - collecting data for a sample

 Population Sample

Subset

Parameter Statistic
Populations have Parameters Samples have Statistics.
Descriptive measures of population descriptive measures of sample

A census is a complete enumeration of every item in a population.

 Symbols for
Population Parameters

 denotes population parameter


2
denotes population variance
 denotes population standard deviation
 Symbols for
Sample Statistics

x denotes sample mean

S
2
denotes sample variance
S denotes sample standard deviation
Types of statistics

Descriptive
inferential
 Types of Statistics

• Statistics
• The branch of mathematics that transforms data into
useful information for decision makers.

Descriptive Statistics Inferential Statistics

Collecting, summarizing, and Drawing conclusions and/or

describing data making decisions concerning a
population based only on sample
data

Chap 1-50
 Descriptive Statistics

• Collect data
– e.g., Survey

• Present data
– e.g., Tables and graphs

• Characterize data
– e.g., Sample mean = X i

Chap 1-51
 Inferential Statistics
• Estimation
– e.g., 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
Drawing conclusions about a large group of individuals based on a subset of the
large group.

Chap 1-52
 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 to understand.

Such summaries of data, which may be tabular,

graphical, or numerical, are referred to as descriptive
statistics.
 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 to understand.

Such summaries of data, which may be tabular,

graphical, or numerical, are referred to as descriptive
statistics.
 Statistical Inference
Statistical inference is the process of making an estimate, prediction, or
decision about a population based on a sample.

Population

Sample

Inference

Statistic
Parameter

What can we infer about a Population’s Parameters

based on a Sample’s Statistics?
 Descriptive vs.
Inferential 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
Process of Inferential Statistics

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

Select a
random sample
 Levels of Data Measurement

• Nominal — Lowest level of measurement

• Ordinal
• Interval
• Ratio — Highest level of measurement
 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
 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
Example of Ordinal Measurement

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

Faculty and staff should receive preferential

treatment for parking space.

Strongly Agree Neutral Disagree Strongly

Agree Disagree

1 2 3 4 5
 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
– Vertical intercept of unit of measure transform
function is not zero
Example: Fahrenheit Temperature
Example: Calendar Time
Example: Monetary Utility
 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)
– Vertical intercept of unit of measure transform function is
zero
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.
Usage Potential of Various
Levels of Data
Ratio
Interval
Ordinal

Nominal
 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

 Scales of Measurement

Data

Categorical Quantitative

Numeric Non-numeric Numeric

Nominal Ordinal Nominal Ordinal Interval Ratio

Sources of data collection
 Why to Collect Data?
 A marketing research analyst needs to assess the
effectiveness of a new television advertisement.

 A pharmaceutical manufacturer needs to determine

whether a new drug is more effective than those currently
in use.

 An operations manager wants to monitor a manufacturing

process to find out whether the quality of the product
being manufactured is conforming to company standards.

 An auditor wants to review the financial transactions of a

company in order to determine whether the company is in
compliance with generally accepted accounting
principles.

Chap 1-69
 Sources of Data
 Primary Sources: The data collector is the one using the data for
analysis
 Data from a political survey
 Data collected from an experiment
 Observed data Production data from your factory
 Your firm’s marketing studies

 Secondary Sources: The person performing data analysis is not the

data collector
 Analyzing census data
 Examining data from print journals or data published on the internet.
 Government data: economics and demographics
 Media reports – TV, newspapers, Internet
 Companies that specialize in gathering data

Chap 1-70
 Sources of data fall into four categories

• Data distributed by an organization or an

individual

• A designed experiment

• A survey

• An observational study

Chap 1-71
 Data Sources
• Statistical Studies - Experimental
In experimental studies the variable of interest is
first identified. Then one or more other variables
are identified and controlled so that data can be
obtained about how they influence the variable of
interest.

The largest experimental study ever conducted is

believed to be the 1954 Public Health Service
experiment for the Salk polio vaccine. Nearly two
million U.S. children (grades 1- 3) were selected.
Data Sources

 Statistical Studies - Observational

In observational (nonexperimental) studies no
attempt is made to control or influence the
variables of interest. a survey is a good example

Studies of smokers and nonsmokers are

observational studies because researchers
do not determine or control
who will smoke and who will not smoke.
• Organizing the data … Editing/ Coding/
 Statistical software
• MS- EXCEL
• Minitab
• SAS
• SPSS
• StatTools

( chapter 1 pages : 1-29)