STATISTICS FOR MANAGEMENT

ASSIGNMENT ON
STATISTICS FOR
MANAGEMENT

BY RAHUL
GUPTA
Question 1: What do you mean by sample survey?
What are the different sampling methods? Briefly
describe them?
Answer

Introduction:
In statistics, survey sampling describes the process of selecting a sample of
elements from a target population in order to conduct a survey.

A survey may refer to many different types or techniques of observation, but in the
context of survey sampling it most often refers to a questionnaire used to measure
the characteristics and/or attitudes of people. The purpose of sampling is to reduce
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the cost and/or the amount of work that it would take to survey the entire target
population. A survey that measures the entire target population is called a census.

Probability Sampling:
In a probability sample (also called "scientific" or "random" sample) each member
of the target population has a known and non-zero probability of inclusion in the
sample. A survey based on a probability sample can in theory produce statistical
measurements of the target population that are:

• unbiased, the expected value of the sample mean is equal to the population
mean E(ȳ)=μ, and
• Have a measurable sampling error, which can be expressed as a confidence
interval, or margin of error.

A probability based survey sample is created by constructing a list of the target

population, called the sample frame, a randomized process for selecting units from
the sample frame, called a selection procedure, and a method of contacting selected
units to and enabling them complete the survey, called a data collection method or
mode. For some target populations this process may be easy, for example, sampling
the employees of a company by using payroll list. However, in large, disorganized
populations simply constructing a suitable sample frame is often a complex and
expensive task. Common methods of conducting a probability sample of the
household population in the United States are Area Probability Sampling, Random
Digit Dial telephone sampling, and more recently Address Based Sampling. Within
probability sampling there are specialized techniques such as stratified sampling and
cluster sampling that improve the precision or efficiency of the sampling process
without altering the fundamental principles of probability sampling.

Bias in Probability Sampling:

Bias in surveys is undesirable, but often unavoidable. The major types of bias that
may occur in the sampling process are:

• Non-response bias: When individuals or households selected in the survey

sample cannot or will not complete the survey there is the potential for bias
to result from this non-response. No response bias occurs when the observed
value deviates from the population parameter due to differences between
respondents and no respondents.
• Coverage bias: Coverage bias can occur when population members do not
appear in the sample frame (under coverage). Coverage bias occurs when the
observed value deviates from the population parameter due to differences

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between covered and non-covered units. Telephone surveys suffer from a

well known source of coverage bias because they cannot include households
without telephones.
• Selection Bias: Selection bias occurs when some units have a differing
probability of selection that is unaccounted for by the researcher. For
example, some households have multiple phone numbers making them more
likely to be selected in a telephone survey than households with only one
phone number.

Non-Probability Sampling:
Many surveys are not based on a probability samples, but rather by finding a
suitable collection of respondents to complete the survey. Some common examples
of non-probability sampling are:

• Judgment Samples: A researcher decides which population members to

include in the sample based on his or her judgment. The researcher may
provide some alternative justification for the representativeness of the
sample.
• Snowball Samples: Often used when a target population is rare, members of
the target population recruit other members of the population for the survey.
• Quota Samples: The sample is designed to include a designated number of
people with certain specified characteristics. For example, 100 coffee
drinkers. This type of sampling is common in non-probability market
research surveys.
• Convenience Samples: The sample is composed of whatever persons can be
most easily accessed to fill out the survey.

In non-probability samples the relationship between the target population and the
survey sample is immeasurable and potential bias is unknowable. Sophisticated
users of non-probability survey samples tend to view the survey as an experimental
condition, rather than a tool for population measurement, and examine the results for
internally consistent relationships

Sampling Methods:
Random sampling is the purest form of probability sampling. Each member of the
population has an equal and known chance of being selected. When there are very

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large populations, it is often difficult or impossible to identify every member of the

population, so the pool of available subjects becomes biased.

Systematic sampling is often used instead of random sampling. It is also called an

Nth name selection technique. After the required sample size has been calculated,
every Nth record is selected from a list of population members. As long as the list
does not contain any hidden order, this sampling method is as good as the random
sampling method. Its only advantage over the random sampling technique is
simplicity.

Stratified sampling is commonly used probability method that is superior to

random sampling because it reduces sampling error. A stratum is a subset of the
population that shares at least one common characteristic. Examples of stratums
might be males and females, or managers and non-managers. The researcher first
identifies the relevant stratums and their actual representation in the population.
Random sampling is then used to select a sufficient number of subjects from each
stratum. "Sufficient" refers to a sample size large enough for us to be reasonably
confident that the stratum represents the population.

Convenience sampling is used in exploratory research where the researcher is

interested in getting an inexpensive approximation of the truth. As the name implies,
the sample is selected because they are convenient. This no probability method is
often used during preliminary research efforts to get a gross estimate of the results,
without incurring the cost or time required to select a random sample.

Judgment sampling is a common no probability method. The researcher selects the

sample based on judgment. This is usually an extension of convenience sampling.
For example, a researcher may decide to draw the entire sample from one
"representative" city, even though the population includes all cities. When using this
method, the researcher must be confident that the chosen sample is truly
representative of the entire population.

Quota sampling is the no probability equivalent of stratified sampling. Like

stratified sampling, the researcher first identifies the stratums and their proportions
as they are represented in the population. Then convenience or judgment sampling is
used to select the required number of subjects from each stratum. This differs from
stratified sampling, where the stratums are filled by random sampling.

Snowball sampling is a special no probability method used when the desired

sample characteristic is rare. It may be extremely difficult or cost prohibitive to
locate respondents in these situations. Snowball sampling relies on referrals from
initial subjects to generate additional subjects.

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Question 2: What is the different between correlation and

regression? What do you understand by Rank Correlation?
When we use rank correlation and when we use Pearsonian
Correlation Coefficient? Fit a linear regression line in the
following data –
X 12 15 18 20 27 34 28 48
Y 123 150 158 170 180 184 176 130
Answer

Correlation:

Several sets of (x, y) points, with the correlation coefficient of x and y for each set.
Note that the correlation reflects the noisiness and direction of a linear relationship
(top row), but not the slope of that relationship (middle), nor many aspects of
nonlinear relationships (bottom). N.B.: the figure in the center has a slope of 0 but in
that case the correlation coefficient is undefined because the variance of Y is zero. In
statistics, correlation (often measured as a correlation coefficient, ρ) indicates the
strength and direction of a relationship between two random variables. The
commonest use refers to a linear relationship, but the concept of nonlinear
correlation is also used. In general statistical usage, correlation or co-relation refers
to the departure of two random variables from independence. In this broad sense
there are several coefficients, measuring the degree of correlation, adapted to the
nature of the data.

Pearson's product-moment
coefficient:

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A number of different coefficients are used for different situations. The best known
is the Pearson product-moment correlation coefficient, which is obtained by
dividing the covariance of the two variables by the product of their standard
deviations. Karl Pearson developed the coefficient from a similar but slightly
different idea by Francis Galton.

Regression analysis:
In statistics, regression analysis includes any techniques for modeling and
analyzing several variables, when the focus is on the relationship between a
dependent variable and one or more independent variables. More specifically,
regression analysis helps us understand how the typical value of the dependent
variable changes when any one of the independent variables is varied, while the
other independent variables are held fixed. Most commonly, regression analysis
estimates the conditional expectation of the dependent variable given the
independent variables — that is, the average value of the dependent variable when
the independent variables are held fixed. Less commonly, the focus is on a quantile,
or other location parameter of the conditional distribution of the dependent variable
given the independent variables. In all cases, the estimation target is a function of
the independent variables called the regression function. In regression analysis, it is
also of interest to characterize the variation of the dependent variable around the
regression function, which can be described by a probability distribution.

Regression analysis is widely used for prediction (including forecasting of time-

series data). Use of regression analysis for prediction has substantial overlap with
the field of machine learning. Regression analysis is also used to understand which
among the independent variables are related to the dependent variable, and to
explore the forms of these relationships. In restricted circumstances, regression
analysis can be used to infer causal relationships between the independent and
dependent variables.

Mathematical properties:
The correlation coefficient ρX, Y between two random variables X and Y with
expected values μX and μY and standard deviations σX and σY is defined as:

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where E is the expected value operator and cov means covariance. A widely used
alternative notation is

Since μX = E(X), σX2 = E[(X − E(X))2] = E(X2) − E2(X) and likewise for Y, and since

we may also write

The correlation is defined only if both of the standard deviations are finite and both
of them are nonzero. It is a corollary of the Cauchy–Schwarz inequality that the
correlation cannot exceed 1 in absolute value.

The correlation is 1 in the case of an increasing linear relationship, −1 in the case of

a decreasing linear relationship, and some value in between in all other cases,
indicating the degree of linear dependence between the variables. The closer the
coefficient is to either −1 or 1, the stronger the correlation between the variables.

If the variables are independent then the correlation is 0, but the converse is not true
because the correlation coefficient detects only linear dependencies between two
variables. Here is an example: Suppose the random variable X is uniformly
distributed on the interval from −1 to 1, and Y = X2. Then Y is completely
determined by X, so that X and Y are dependent, but their correlation is zero; they
are uncorrelated. However, in the special case when X and Y are jointly normal,
uncorrelatedness is equivalent to independence.

A correlation between two variables is diluted in the presence of measurement error

around estimates of one or both variables, in which case disattenuation provides a
more accurate coefficient.

Sample correlation:
If we have a series of n measurements of X and Y written as xi and yi where i = 1,
2, ..., n, then the Pearson product-moment correlation coefficient can be used to
estimate the correlation of X and Y . The Pearson coefficient is also known as the

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"sample correlation coefficient". The Pearson correlation coefficient is then the best
estimate of the correlation of X and Y. The Pearson correlation coefficient is written:

where and are the sample means of X and Y , sx and sy are the sample standard
deviations of X and Y and the sum is from i = 1 to n. As with the population
correlation, we may rewrite this as

Again, as is true with the population correlation, the absolute value of the sample
correlation must be less than or equal to 1. The above formula conveniently suggests
a single-pass algorithm for calculating sample correlations, but, depending on the
numbers involved, it can sometimes be numerically unstable.

The square of the sample correlation coefficient, which is also known as the
coefficient of determination, is the fraction of the variance in yi that is accounted for
by a linear fit of xi to yi. This is written

Where sy|x2 is the square of the error of a linear regression of xi on yi by the equation
y = a + bx:

And sy2 is just the variance of y:

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Note that since the sample correlation coefficient is symmetric in xi and yi, we will
get the same value for a fit of yi to xi:

This equation also gives an intuitive idea of the correlation coefficient for higher
dimensions. Just as the above described sample correlation coefficient is the fraction
of variance accounted for by the fit of a 1-dimensional linear sub manifold to a set
of 2-dimensional vectors (xi, yi), so we can define a correlation coefficient for a fit of
an m-dimensional linear sub manifold to a set of n-dimensional vectors. For
example, if we fit a plane z = a + bx + CY to a set of data (xi, yi, zi) then the
correlation coefficient of z to x and y is

The distribution of the correlation coefficient has been examined by R. A. Fisher

and A. K. Gayen.

Geometric interpretation:
For centered data (i.e., data which have been shifted by the sample mean so as to
have an average of zero), the correlation coefficient can also be viewed as the cosine
of the angle between the two vectors of samples drawn from the two random
variables.

Some practitioners prefer a un centered (non-Pearson-compliant) correlation

coefficient. See the example below for a comparison.

As an example, suppose five countries are found to have gross national products of
1, 2, 3, 5, and 8 billion dollars, respectively. Suppose these same five countries (in
the same order) are found to have 11%, 12%, 13%, 15%, and 18% poverty. Then let
x and y be ordered 5-element vectors containing the above data: x = (1, 2, 3, 5, 8)
and y = (0.11, 0.12, 0.13, 0.15, 0.18).

By the usual procedure for finding the angle between two vectors (see dot product),
the uncentered correlation coefficient is:

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Note that the above data were deliberately chosen to be perfectly correlated: y =
0.10 + 0.01 x. The Pearson correlation coefficient must therefore be exactly one.
Centering the data (shifting x by E(x) = 3.8 and y by E(y) = 0.138) yields x = (−2.8,
−1.8, −0.8, 1.2, 4.2) and y = (−0.028, −0.018, −0.008, 0.012, 0.042), from which

As expected.

Motivation for the form of the

coefficient of correlation:
Another motivation for correlation comes from inspecting the method of simple
linear regression. As above, X is the vector of independent variables, xi, and Y of the
dependent variables, yi, and a simple linear relationship between X and Y is sought,
through a least-squares method on the estimate of Y:

Then, the equation of the least-squares line can be derived to be of the form:

Which can be rearranged in the form?

Where r has the familiar form mentioned above

Rank correlation coefficients:

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Rank correlation coefficients, such as Spearman's rank correlation coefficient and

Kendall's rank correlation coefficient (τ) measure the extent to which, as one
variable increases, the other variable tends to increase, without requiring that
increase to be represented by a linear relationship. If, as the one variable increase,
the other decreases, the rank correlation coefficients will be negative. It is common
to regard these rank correlation coefficients as alternatives to Pearson's coefficient,
used either to reduce the amount of calculation or to make the coefficient less
sensitive to non-normality in distributions. However, this view has little
mathematical basis, as rank correlation coefficients measure a different type of
relationship than the product moment correlation coefficient, and are best seen as
measures of a different type of association, rather than as alternative measure of the
population correlation coefficient. To illustrate the nature of rank correlation, and its
difference from linear correlation, consider the following four pairs of numbers
(x, y): (0, 1), (100, 10), (101, 500), (102, 2000).

As we go from each pair to the next pair x increases, and so does y. This relationship
is perfect, in the sense that an increase in x is always accompanied by an increase
in y. This means that we have a perfect rank correlation, and both Spearman's and
Kendall's correlation coefficients are 1, whereas in this example Pearson's product
moment correlation coefficient is 0.456, indicating that the points are far from lying
on a straight line. In the same way if y always decreases when x increases, the rank
correlation coefficients will be −1, while the product moment correlation coefficient
may or may not be close to 1, depending on how close the points are to a straight
line. Although in the extreme cases of perfect rank correlation the two coefficients
are both equal (being both +1 and both -1) this is not in general so, and values of the
two coefficients cannot meaningfully be compared. For example, for the three pairs
(1, 1) (2, 3) (3, 2) Spearman's coefficient is 1/2, while Kendall's coefficient is 1/3.

Correlation and linearity

Four sets of data with the same correlation of 0.816

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The Pearson correlation coefficient indicates the strength of a linear relationship

between two variables, but its value generally does not completely characterize their
relationship. In particular, if the conditional mean of Y given X, denoted E (Y|X), is
not linear in X, the correlation coefficient will not fully determine the form of E (Y|
X).

The image on the right shows scatter plots of Anscombe's quartet, a set of four
different pairs of variables created by Francis Anscombe. The four y variables have
the same mean (7.5), standard deviation (4.12), correlation (0.816) and regression
line (y = 3 + 0.5x). However, as can be seen on the plots, the distribution of the
variables is very different. The first one (top left) seems to be distributed normally,
and corresponds to what one would expect when considering two variables
correlated and following the assumption of normality. The second one (top right) is
not distributed normally; while an obvious relationship between the two variables
can be observed, it is not linear, and the Pearson correlation coefficient is not
relevant. In the third case (bottom left), the linear relationship is perfect, except for
one outlier which exerts enough influence to lower the correlation coefficient from 1
to 0.816. Finally, the fourth example (bottom right) shows another example when
one outlier is enough to produce a high correlation coefficient, even though the
relationship between the two variables is not linear.

If a pair (X, Y) of random variables follows a bivariate normal distribution, the

conditional mean E (X|Y) is a linear function of Y, and the conditional mean E (Y|X)
is a linear function of X. The correlation coefficient r between X and Y, along with
the marginal means and variances of X and Y, determines this linear relationship:

where EX and EY are the expected values of X and Y, respectively, and σx and σy are
the standard deviations of X and Y, respectively.

a) Fit a linear regression line in the following data –

X 12 15 18 20 27 34 28 48
Y 123 150 158 170 180 184 176 130
Answer:
 Assumed mean of X is 26.
 Assumed mean of Y is 158

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X dx dx2 Y dy= Y-158 dy2 dxdy

=X-26
12 -14 196 123 -35 1225 490
15 -11 121 150 -8 64 88
18 -8 64 158 0 0 0
20 -6 36 170 12 12 -72
27 1 1 180 22 484 22
34 7 49 184 26 676 182
28 2 4 176 18 324 36
48 22 484 130 -28 784 -616

Total=202 -7 955 1271 7 3701 130

 Mean of X= 202/8 = 25.25, Mean of Y= 1271/8 = 158.8

 Regression equation of Y on X
Y-158.8= byx (X-25.25) where byx= N*dxdy – dx*dy/N*dx2 – (dx)2
byx= 8*130- (-7)(7)/ 8*955- (-7)2
byx= 540+49/ 7640-49
byx = 589/ 7591
byx= 0.07

Y-158.8= 0.07(X-25.25)

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Y-158.8 = 0.07X- 1.7675

Y=0.07X+ 157.0325
 Regression equation of X on Y
X-25.25= bxy (X-158.8) where bxy= N*dxdy – dx*dy/N*dy2 – (dy)2
bxy= 8* 130 – (-7)(7)/ 8* 3701 – (7)2
bxy= 540 +49 / 29559
bxy= 589/ 29559
bxy = 0.019

X-25.25 = 0.019 (Y- 158.8)

X – 25.25 = 0.019Y – 3.0172

X = 0.019Y + 22.2328

• Regression equation of Y on X:
Y=0.07X+ 157.0325

• Regression equation of X on Y :
X = 0.019Y + 22.2328

Question 3: What do you mean by business

forecasting? What are the different methods of
business forecasting? Describe the effectiveness of
time-series analysis as a mode of business

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forecasting. Describe the method of moving

averages?
Answer

Introduction:
Business forecasting has always been one component of running an enterprise.
However, forecasting traditionally was based less on concrete and comprehensive
data than on face-to-face meetings and common sense. In recent years, business
forecasting has developed into a much more scientific endeavor, with a host of
theories, methods, and techniques designed for forecasting certain types of data. The
development of information technologies and the Internet propelled this
development into overdrive, as companies not only adopted such technologies into
their business practices, but into forecasting schemes as well. In the 2000s,
projecting the optimal levels of goods to buy or products to produce involved
sophisticated software and electronic networks that incorporate mounds of data and
advanced mathematical algorithms tailored to a company's particular market
conditions and line of business. Business forecasting involves a wide range of tools,
including simple electronic spreadsheets; enterprise resource planning (ERP) and
electronic data interchange (EDI) networks, advanced supply chain management
systems, and other Web-enabled technologies. The practice attempts to pinpoint key
factors in business production and extrapolate from given data sets to produce
accurate projections for future costs, revenues, and opportunities. This normally is
done with an eye toward adjusting current and near-future business practices to take
maximum advantage of expectations.

In the Internet age, the field of business forecasting was propelled by three
interrelated phenomena. First, the Internet provided a new series of tools to aid the
science of business forecasting. Second, business forecasting had to take the Internet
itself into account in trying to construct viable models and make predictions.
Finally, the Internet fostered vastly accelerated transformations in all areas of
business that made the job of business forecasters that much more exacting. By the
2000s, as the Internet and its myriad functions highlighted the central importance of
information in economic activity, more and more companies came to recognize the
value, and often the necessity, of business forecasting techniques and systems.
Business forecasting is indeed big business, with companies investing tremendous
resources in systems, time, and employees aimed at bringing useful projections into
the planning process. According to a survey by the Hudson, Ohio-based Answer
Think Consulting Group, which specializes in studies of business planning, the
average U.S. Company spends more than 25,000 person-days on business
forecasting and related activities for every billion dollars of revenue.
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Forecasting systems draw on several sources for their forecasting input, including
databases, e-mails, documents, and Web sites. After processing data from various
sources, sophisticated forecasting systems integrate all the necessary data into a
single spreadsheet, which the company can then manipulate by entering in various
projections—such as different estimates of future sales—that the system will
incorporate into a new readout.

A flexible and sound architecture is crucial, particularly in the fast-paced, rapidly

developing Internet economy. If a system's base is rigid or inadequate, it can be
impossible to reconfigure to adjust to changing market conditions. Along the same
lines, according to the Journal of Business Forecasting Methods & Systems, it's
important to invest in systems that will remain useful over the long term, weathering
alterations in the business climate.

One of the distinguishing characteristics of forecasting systems is the

mathematical algorithms they use to take various factors into account. For example,
most forecasting systems arrange relevant data into hierarchies, such as a consumer
hierarchy, a supply hierarchy, a geography hierarchy, and so on. To return a useful
forecast, the system can't simply allocate down each hierarchy separately, but must
account for the ways in which those dimensions interact with each other. Moreover,
the degree of this interaction varies according to the type of business in which a
company is engaged. Thus, businesses need to fine-tune their allocation algorithms
in order to receive useful forecasts.

The second forecasting model is cause-and-effect. In this model, one assumes a

cause, or driver of activity, that determines an outcome. For instance, a company
may assume that, for a particular data set, the cause is an investment in information
technology, and the effect is sales. This model requires the historical data not only
of the factor with which one is concerned (in this case, sales), but also of that
factor's determined cause (here, information technology expenditures). It is
assumed, of course, that the cause-and-effect relationship is relatively stable and
easily quantifiable.

The third primary forecasting model is known as the judgmental model. In this case,
one attempts to produce a forecast where there is no useful historical data. A
company might choose to use the judgmental model when it attempts to project
sales for a brand new product, or when market conditions have qualitatively
changed, rendering previous data obsolete. In addition, according to the Journal of
Business Forecasting Methods & Systems, this model is useful when the bulk of
sales derive only from a relative handful of customers. To proceed in the absence of
historical data, alternative data is collected by way of experts in the field,
prospective customers, trade groups, business partners, or any other relevant source
of information. Business forecasting systems often work hand-in-hand with supply
chain management systems. In such systems, all partners in the supply chain can
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electronically oversee all movement of components within that supply chain and
gear the chain toward maximum efficiency.

The Internet has proven to be a panacea in this field, and business forecasting
systems allow partners to project the optimal flow of components into the future so
that companies can try to meet optimal levels rather than continually catch up to
them.

Time series methods:

Time series methods use historical data as the basis of estimating future outcomes.

• Rolling forecast is a projection into the future based on past performances,

routinely updated on a regular schedule to incorporate data.[1]
• Moving average
• Exponential smoothing
• Extrapolation
• Linear prediction
• Trend estimation
• Growth curve
• Topics

Causal / Econometric methods:

Some forecasting methods use the assumption that it is possible to identify the
underlying factors that might influence the variable that is being forecast. For
example, sales of umbrellas might be associated with weather conditions. If the
causes are understood, projections of the influencing variables can be made and used
in the forecast.

• Regression analysis using linear regression or non-linear regression

• Autoregressive moving average (ARMA)
• Autoregressive integrated moving average (ARIMA) e.g. Box-Jenkins
• Econometrics

Judgmental methods:
Judgmental forecasting methods incorporate intuitive judgments, opinions and
subjective probability estimates.

• Composite forecasts
• Surveys

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• Delphi method
• Scenario building
• Technology forecasting
• Forecast by analogy

Other methods:
• Simulation
• Prediction market
• Probabilistic forecasting and Ensemble forecasting
• Reference class forecasting

Forecasting accuracy:
The forecast error is the difference between the actual value and the forecast value
for the corresponding period.

Where E is the forecast error at period t, Y is the actual value at period t, and F is the
forecast for period t.

Measures of aggregate error:

Mean Absolute Error (MAE)

Mean Absolute Percentage Error (MAPE)

Percent Mean Absolute Deviation (PMAD)

Mean squared error (MSE)

Root Mean squared error (RMSE)

Forecast skill (SS)

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Time-Critical Decision Modeling and

Analysis:
The ability to model and perform decision modeling and analysis is an essential
feature of many real-world applications ranging from emergency medical treatment
in intensive care units to military command and control systems. Existing
formalisms and methods of inference have not been effective in real-time
applications where tradeoffs between decision quality and computational tractability
are essential. In practice, an effective approach to time-critical dynamic decision
modeling should provide explicit support for the modeling of temporal processes
and for dealing with time-critical situations.

One of the most essential elements of being a high-performing manager is the ability
to lead effectively one's own life, then to model those leadership skills for
employees in the organization. This site comprehensively covers theory and practice
of most topics in forecasting and economics. I believe such a comprehensive
approach is necessary to fully understand the subject. A central objective of the site
is to unify the various forms of business topics to link them closely to each other and
to the supporting fields of statistics and economics. Nevertheless, the topics and
coverage do reflect choices about what is important to understand for business
decision making. Almost all managerial decisions are based on forecasts. Every
decision becomes operational at some point in the future, so it should be based on
forecasts of future conditions. Forecasts are needed throughout an organization --
and they should certainly not be produced by an isolated group of forecasters.
Neither is forecasting ever "finished". Forecasts are needed continually, and as time
moves on, the impact of the forecasts on actual performance is measured; original
forecasts are updated; and decisions are modified, and so on.

For example, many inventory systems cater for uncertain demand. The inventory
parameters in these systems require estimates of the demand and forecast error
distributions. The two stages of these systems, forecasting and inventory control, are
often examined independently. Most studies tend to look at demand forecasting as if
this were an end in itself or at stock control models as if there were no preceding
stages of computation. Nevertheless, it is important to understand the interaction
between demand forecasting and inventory control since this influences the
performance of the inventory system. This integrated process is shown in the
following figure:

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The decision-maker uses forecasting models to assist him or her in decision-making

process. The decision-making often uses the modeling process to investigate the
impact of different courses of action retrospectively; that is, "as if" the decision has
already been made under a course of action. That is why the sequence of steps in the
modeling process, in the above figure must be considered in reverse order. For
example, the output (which is the result of the action) must be considered first.

It is helpful to break the components of decision making into three groups:

Uncontrollable, Controllable, and Resources (that defines the problem situation). As
indicated in the above activity chart, the decision-making process has the following
components:

1. Performance measure (or indicator, or objective): Measuring business

performance is the top priority for managers. Management by objective
works if you know the objectives. Unfortunately, most business managers do
not know explicitly what it is. The development of effective performance
measures is seen as increasingly important in almost all organizations.
However, the challenges of achieving this in the public and for non-profit
sectors are arguably considerable. Performance measure provides the
desirable level of outcome, i.e., objective of your decision. Objective is
important in identifying the forecasting activity. The following table
provides a few examples of performance measures for different levels of
management:
Level Performance Measure
Return of Investment, Growth, and
Strategic
Innovations
Cost, Quantity, and Customer
Tactical
satisfaction

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Target setting, and Conformance with

Operational
standard
2. Clearly, if you are seeking to improve a system's performance, an
operational view is really what you are after. Such a view gets at how a
forecasting system really works; for example, by what correlation its past
output behaviors have generated. It is essential to understand how a forecast
system currently is working if you want to change how it will work in the
future. Forecasting activity is an iterative process. It starts with effective and
efficient planning and ends in compensation of other forecasts for their
performance
3. What is a System? Systems are formed with parts put together in a particular
manner in order to pursue an objective. The relationship between the parts
determines what the system does and how it functions as a whole. Therefore,
the relationships in a system are often more important than the individual
parts. In general, systems that are building blocks for other systems are
called subsystems
4. The Dynamics of a System: A system that does not change is a static system.
Many of the business systems are dynamic systems, which mean their states
change over time. We refer to the way a system changes over time as the
system's behavior. And when the system's development follows a typical
pattern, we say the system has a behavior pattern. Whether a system is static
or dynamic depends on which time horizon you choose and on which
variables you concentrate. The time horizon is the time period within which
you study the system. The variables are changeable values on the system.
5. Resources: Resources are the constant elements that do not change during
the time horizon of the forecast. Resources are the factors that define the
decision problem. Strategic decisions usually have longer time horizons than
both the Tactical and the Operational decisions.
6. Forecasts: Forecasts input come from the decision maker's environment.
Uncontrollable inputs must be forecasted or predicted.
7. Decisions: Decisions inputs ate the known collection of all possible courses
of action you might take.
8. Interaction: Interactions among the above decision components are the
logical, mathematical functions representing the cause-and-effect
relationships among inputs, resources, forecasts, and the outcome.

Interactions are the most important type of relationship involved in the

decision-making process. When the outcome of a decision depends on the
course of action, we change one or more aspects of the problematic situation
with the intention of bringing about a desirable change in some other aspect
of it. We succeed if we have knowledge about the interaction among the
components of the problem.

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There may have also sets of constraints which apply to each of these
components. Therefore, they do not need to be treated separately.

9. Actions: Action is the ultimate decision and is the best course of strategy to
achieve the desirable goal.

 Simple Moving Averages:

The best-known forecasting methods is the moving averages or simply takes a
certain number of past periods and add them together; then divide by the number of
periods. Simple Moving Averages (MA) is effective and efficient approach provided
the time series is stationary in both mean and variance. The following formula is
used in finding the moving average of order n, MA(n) for a period t+1,

MAt+1 = [Dt + Dt-1 + ... +Dt-n+1] / n

Where n is the number of observations used in the calculation.

The forecast for time period t + 1 is the forecast for all future time periods.
However, this forecast is revised only when new data becomes available. You may
like using Forecasting by Smoothing JavaScript, and then performing some
numerical experimentation for a deeper understanding of these concepts.

 Weighted Moving Average:

Very powerful and economical. They are widely used where repeated forecasts
required-uses methods like sum-of-the-digits and trend adjustment methods. As an
example, a Weighted Moving Averages is:

Weighted MA (3) = w1.Dt + w2.Dt-1 + w3.Dt-2

Where the weights are any positive numbers such that: w1 + w2 + w3 = 1. A typical
weights for this example is, w1 = 3/ (1 + 2 + 3) = 3/6, w2 = 2/6, and w3 = 1/6.

You may like using Forecasting by Smoothing JavaScript, and then performing
some numerical experimentation for a deeper understanding of the concepts.

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An illustrative numerical example: The moving average and weighted moving

average of order five are calculated in the following table.

Week Sales ($1000) MA(5) WMA(5)

1 105 - -
2 100 - -
3 105 - -
4 95 - -
5 100 101 100
6 95 99 98
7 105 100 100
8 120 103 107
9 115 107 111
10 125 117 116
11 120 120 119
12 120 120 119

Moving Averages with Trends: Any method of time series analysis involves a
different degree of model complexity and presumes a different level of
comprehension about the underlying trend of the time series. In many business time
series, the trend in the smoothed series using the usual moving average method
indicates evolving changes in the series level to be highly nonlinear.

In order to capture the trend, we may use the Moving-Average with Trend (MAT)
method. The MAT method uses an adaptive linearization of the trend by means of
incorporating a combination of the local slopes of both the original and the
smoothed time series.

In making a forecast, it is also important to provide a measure of how accurate one

can expect the forecast to be. The statistical analysis of the error terms known as
residual time-series provides measure tool and decision process for modeling
selection process. In applying MAT method sensitivity analysis is needed to
determine the optimal value of the moving average parameter n, i.e., the optimal
number of period m. The error time series allows us to study many of its statistical
properties for goodness-of-fit decision. Therefore it is important to evaluate the
nature of the forecast error by using the appropriate statistical tests. The forecast
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error must be a random variable distributed normally with mean close to zero and a
constant variance across time.

For computer implementation of the Moving Average with Trend (MAT) method
one may use the forecasting (FC) module of WinQSB which is commercial grade
stand-alone software. WinQSB’s approach is to first select the model and then enter
the parameters and the data. With the Help features in WinQSB there is no learning-
curve one just needs a few minutes to master its useful features.

Exponential Smoothing Techniques: One of the most successful forecasting

methods is the exponential smoothing (ES) techniques. Moreover, it can be
modified efficiently to use effectively for time series with seasonal patterns. It is
also easy to adjust for past errors-easy to prepare follow-on forecasts, ideal for
situations where many forecasts must be prepared, several different forms are used
depending on presence of trend or cyclical variations. In short, an ES is an averaging
technique that uses unequal weights; however, the weights applied to past
observations decline in an exponential manner.

Question 4: What is definition of Statistics? What

are the different characteristics of statistics? What
are the different functions of Statistics? What are
the limitations of Statistics?
Answer

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Introduction:
Statistics is considered by some to be a mathematical science pertaining to the
collection, analysis, interpretation or explanation, and presentation of data, while
others consider it to be a branch of mathematics concerned with collecting and
interpreting data. Statisticians improve the quality of data with the design of
experiments and survey sampling. Statistics also provides tools for prediction and
forecasting using data and statistical models. Statistics is applicable to a wide variety
of academic disciplines, including natural and social sciences, government, and
business.

Statistical methods can be used to summarize or describe a collection of data;

this is called descriptive statistics. This is useful in research, when communicating
the results of experiments. In addition, patterns in the data may be modeled in a way
that accounts for randomness and uncertainty in the observations, and are then used
to draw inferences about the process or population being studied; this is called
inferential statistics. Inference is a vital element of scientific advance, since it
provides a prediction (based in data) for where a theory logically leads. To further
prove the guiding theory, these predictions are tested as well, as part of the scientific
method. If the inference holds true, then the descriptive statistics of the new data
increase the soundness of that hypothesis. Descriptive statistics and inferential
statistics (a.k.a., predictive statistics) together comprise applied statistics. There is
also a discipline called mathematical statistics, which is concerned with the
theoretical basis of the subject. The word statistics can either be singular or plural.
In its singular form, statistics refers to the mathematical science discussed in this
article. In its plural form, statistics is the plural of the word statistic, which refers to
a quantity (such as a mean) calculated from a set of data.

Experimental and observational

studies:
A common goal for a statistical research project is to investigate causality, and
in particular to draw a conclusion on the effect of changes in the values of predictors
or independent variables on dependent variables or response. There are two major
types of causal statistical studies: experimental studies and observational studies. In
both types of studies, the effect of differences of an independent variable (or
variables) on the behavior of the dependent variable are observed. The difference
between the two types lies in how the study is actually conducted. Each can be very
effective.

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An experimental study involves taking measurements of the system under

study, manipulating the system, and then taking additional measurements using the
same procedure to determine if the manipulation has modified the values of the
measurements. In contrast, an observational study does not involve experimental
manipulation. Instead, data are gathered and correlations between predictors and
response are investigated. An example of an observational study is one that explores
the correlation between smoking and lung cancer. This type of study typically uses a
survey to collect observations about the area of interest and then performs statistical
analysis. In this case, the researchers would collect observations of both smokers
and non-smokers, perhaps through a case-control study, and then look for the
number of cases of lung cancer in each group.

The basic steps of an experiment are:

1. Planning the research, including determining information sources, research

subject selection, and ethical considerations for the proposed research and
method.
2. Design of experiments, concentrating on the system model and the
interaction of independent and dependent variables.
3. Summarizing a collection of observations to feature their commonality by
suppressing details. (Descriptive statistics)
4. Reaching consensus about what the observations tell about the world being
observed. (Statistical inference)
5. Documenting / presenting the results of the study.

Levels of measurement:
There are four types of measurements or levels of measurement or measurement
scales used in statistics:

• Nominal.
• Ordinal.
• Interval.
• Ratio.

 Characteristics of Statistics:
Some of its important characteristics are given below:

• Statistics are aggregates of facts.

• Statistics are numerically expressed.
• Statistics are affected to a marked extent by multiplicity of causes.

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• Statistics are enumerated or estimated according to a reasonable standard of

accuracy.
• Statistics are collected for a predetermine purpose.
• Statistics are collected in a systemic manner.
• Statistics must be comparable to each other.
 Functions of Statistics:
1) Statistics helps in providing a better understanding and exact description of a
phenomenon of nature.

(2) Statistical helps in proper and efficient planning of a statistical inquiry in any
field of study.

(3) Statistical helps in collecting an appropriate quantitative data.

(4) Statistics helps in presenting complex data in a suitable tabular, diagrammatic

and graphic form for an easy and clear comprehension of the data.

(5) Statistics helps in understanding the nature and pattern of variability of a

phenomenon through quantitative observations.

(6) Statistics helps in drawing valid inference, along with a measure of their
reliability about the population parameters from the sample data.

 Limitations of Statistics:
The important limitations of statistics are:

(1) Statistics laws are true on average. Statistics are aggregates of facts. So single
observation is not a statistics, it deals with groups and aggregates only.

(2) Statistical methods are best applicable on quantitative data.

(3) Statistical cannot be applied to heterogeneous data.

(4) It sufficient care is not exercised in collecting, analyzing and interpretation the
data, statistical results might be misleading.

(5) Only a person who has an expert knowledge of statistics can handle statistical
data efficiently.

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(6) Some errors are possible in statistical decisions. Particularly the inferential
statistics involves certain errors. We do not know whether an error has been
committed or not.

Question 5: What are the different stages of

planning a statistical survey? Describe the various
methods for collecting data in a statistical survey?
Answer

Introduction:
Statistical surveys are used to collect quantitative information about items in a
population. Surveys of human populations and institutions are common in political
polling and government, health, social science and marketing research. A survey
may focus on opinions or factual information depending on its purpose, and many
surveys involve administering questions to individuals. When the questions are
administered by a researcher, the survey is called a structured interview or a
researcher-administered survey. When the questions are administered by the
respondent, the survey is referred to as a questionnaire or a self-administered survey.

Structure and standardization:

The questions are usually structured and standardized. The structure is intended to
reduce bias; (see questionnaire construction). For example, questions should be
ordered in such a way that a question does not influence the response to subsequent
questions. Surveys are standardized to ensure reliability, generalizability, and
validity (see quantitative marketing research). Every respondent should be presented
with the same questions and in the same order as other respondents. In
organizational development (OD), carefully constructed survey instruments are
often used as the basis for data gathering, organizational diagnosis, and subsequent
action planning. Some OD practitioners (e.g. Fred Nickols) even consider survey
guided development as the sine qua non of OD.

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Serial surveys:

Serial surveys are those which repeat the same questions at different points in time,
producing time-series data. They typically fall into two types:

• Cross-sectional surveys which draw a new sample each time. In a sense any
one-off survey will also be cross-sectional.
• Longitudinal surveys where the sample from the initial survey is re-
contacted at a later date to be asked the same questions.

Advantages:
• It is an efficient way of collecting information from a large number of
respondents. Very large samples are possible. Statistical techniques can be
used to determine validity, reliability, and statistical significance.
• Surveys are flexible in the sense that a wide range of information can be
collected. They can be used to study attitudes, values, beliefs, and past
behaviors.
• Because they are standardized, they are relatively free from several types of
errors.
• They are relatively easy to administer.
• There is an economy in data collection due to the focus provided by
standardized questions. Only questions of interest to the researcher are
asked, recorded, codified, and analyzed. Time and money is not spent on
tangential questions.
• Cheaper to run.

 Disadvantages:
• They depend on subjects’ motivation, honesty, memory, and ability to
respond. Subjects may not be aware of their reasons for any given action.
They may have forgotten their reasons. They may not be motivated to give
accurate answers; in fact, they may be motivated to give answers that present
themselves in a favorable light.
• Structured surveys, particularly those with closed ended questions, may have
low validity when researching affective variables.
• Although the chosen survey individuals are often a random sample, errors
due to no response may exist. That is, people who choose to respond on the

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survey may be different from those who do not respond, thus biasing the
estimates.
• Survey question answer-choices could lead to vague data sets because at
times they are relative only to a personal abstract notion concerning
"strength of choice". For instance the choice "moderately agree" may mean
different things to different subjects, and to anyone interpreting the data for
correlation. Even yes or no answers are problematic because subjects may
for instance put "no" if the choice "only once" is not available.

 Stages of Planning a statistical

survey:
1. Nature of the problem to be investigated should be clearly defined in an un-
ambiguous manner.

2. Objectives of investigation should be stated at the outset. Objectives could be to

obtain certain estimates or to establish a theory or to verify an existing statement to
find relationship between characteristics etc.

3. The scope of investigation has to be made clear. It refers to area to be covered,

identification of units to be studied, nature of characteristics to be observed,
accuracy of measurements, analytical methods, time, cost and other resources
required.

4. Whether to use data collected from primary or secondary source should be

determined in advance.

5. The organization of investigation is the final step in the process. It encompasses

the determination of number of investigators required their training, supervision
work needed, funds required.

Modes of Data Collection:

There are several ways of administering a survey, including:

Telephone:
• Use of interviewers encourages sample persons to respond, leading to higher
response rates.

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• Interviewers can increase comprehension of questions by answering

respondents' questions.
• Fairly cost efficient, depending on local call charge structure.
• Good for large national (or international) sampling frames.
• Some potential for interviewer bias (e.g. some people may be more willing
to discuss a sensitive issue with a female interviewer than with a male one).
• Cannot be used for non-audio information (graphics, demonstrations,
taste/smell samples).
• Unreliable for consumer surveys in rural areas where telephone penetration
is low.
• Three types:
o traditional telephone interviews
o computer assisted telephone dialing
o computer assisted telephone interviewing (CATI)

Mail:
• The questionnaire may be handed to the respondents or mailed to them, but
in all cases they are returned to the researcher via mail.
• Cost is very low, since bulk postage is cheap in most countries.
• Long time delays, often several months, before the surveys are returned and
statistical analysis can begin.
• Not suitable for issues that may require clarification.
• Respondents can answer at their own convenience (allowing them to break
up long surveys; also useful if they need to check records to answer a
question).
• No interviewer bias introduced.
• Large amount of information can be obtained: some mail surveys are as long
as 50 pages.
• Response rates can be improved by using mail panels:
o Members of the panel have agreed to participate.
o Panels can be used in longitudinal designs where the same
respondents are surveyed several.

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Online surveys:
• Can use web or e-mail.
• Web is preferred over e-mail because interactive HTML forms can be used.
• Often inexpensive to administer.
• Very fast results.
• Easy to modify.
• Response rates can be improved by using online panels - members of the
panel have agreed to participate.
• If not password-protected, easy to manipulate by completing multiple times
to skew results.
• Data creation, manipulation and reporting can be automated and/or easily
exported. into a format which can be read by PSPP, DAP or other statistical
analysis software.
• Data sets created in real time.
• Some are incentive based (such as Survey Vault or Yoga).
• May skew sample towards a younger demographic compared with CATI.
• Often difficult to determine/control selection probabilities, hindering
quantitative analysis of data.
• Use in large scale industries.

Personal in-home survey:

• Respondents are interviewed in person, in their homes (or at the front door).
• Very high cost.
• Suitable when graphic representations, smells, or demonstrations are
involved.
• Often suitable for long surveys (but some respondents object to allowing
strangers into their home for extended periods).
• Suitable for locations where telephone or mail are not developed.
• Skilled interviewers can persuade respondents to cooperate, improving
response rates.
• Potential for interviewer bias.

Personal mall intercept survey:

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 Shoppers at malls are intercepted - they are interviewed on the spot, taken to
a room and interviewed, or taken to a room and given a self-administered
questionnaire.

• Socially acceptable - people feel that a mall is a more appropriate place to do

research than their home.
• Potential for interviewer bias.
• Fast.
• Easy to manipulate by completing multiple times to skew results.

Methods used to increase response

rates:
• Brevity - single page if possible.
• Financial incentives
o Paid in advance.
o Paid at completion.
• Non-monetary incentives
o Commodity giveaways (pens, notepads).
o Entry into a lottery, draw or contest.
o Discount coupons.
o Promise of contribution to charity.
• Preliminary notification.
• Foot-in-the-door techniques - start with a small inconsequential request.
• Personalization of the request - address specific individuals.
• Follow-up requests - multiple requests.
• Claimed affiliation with universities, research institutions, or charities.
• Emotional appeals.
• Bids for sympathy.
• Convince respondent that they can make a difference.
• Guarantee anonymity.
• Legal compulsion (certain government-run surveys).

Question 6: What are the functions of classification?

What are the requisites of a good classification?
What is Table and describe the usefulness of a table
in mode of presentation of data?
Answer

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Collected data in the raw form would be voluminous and no comprehensible.

Therefore it should be condensed and simplified for better understanding and
usefulness. Classification is first stage in simplification. It can be defined as a
systematic grouping of the units according to their common characteristics. Each of
the group is called class. For example in survey of Industrial workers of a particular
industry, workers can be classified as unskilled, semiskilled and skilled each of
which form a class.

Types of classification:
The very important types are:

1) Geographical classification: Data are classified according to region.

2) Chronological classification: Data are classified according to the time of its
occurrence.
3) Conditional classification: Data are classified according to certain
conditions.
4) Qualitative classification: Classification of data that is no measurable. E.g.
Sex of a person, marital status, color etc.
5) Quantitative classification: Classification of data that is measurable either in
discrete or continuous form.
6) Statistical Series: Data arranged logically according to size or time of
occurrence or some other measurable or no measurable characteristics.

Methods of Classification:
 Classification is done according to a single attribute or variable, is known as
one way classification.
 Classification done according to two attributes or variables is known as two-
way
Classification.
Classification done according to more than two attributes or variables is
known as
Manifold classification.

 Examples:

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• One-way classification: No. of students who secured more than 60 % in

various sections of same course.
• Two – way classification: Classification of students according to sex who
secured more than 60 %.
• Manifold classification: Classification of employees according to skill, sex
and education.

Statistical classification is a supervised machine learning procedure in which

individual items are placed into groups based on quantitative information on one or
more characteristics inherent in the items (referred to as traits, variables, characters,
etc) and based on a training set of previously labeled items.

Formally, the problem can be stated as follows: given training data

produce a classifier that maps any object
to its true classification label defined by some unknown mapping
(ground truth). For example, if the problem is filtering spam, then is
some representation of an email and y is either "Spam" or "Non-Spam".

• The second problem is to consider classification as an estimation problem,

where the goal is to estimate a function of the form

Where the feature vector input is , and the function f is typically parameterized by
some parameters . In the Bayesian approach to this problem, instead of choosing a
single parameter vector , the result is integrated over all possible thetas, with the
thetas weighted by how likely they are given the training data D:

• The third problem is related to the second, but the problem is to estimate the
class-conditional probabilities and then use Bayes' rule to
produce the class probability as in the second problem.

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Table:
In relational databases and flat file databases, a table is a set of data elements
(values) that is organized using a model of vertical columns (which are identified by
their name) and horizontal rows. A table has a specified number of columns, but can
have any number of rows. Each row is identified by the values appearing in a
particular column subset which has been identified as a candidate key. Table is
another term for relations; although there is the difference in that a table is usually a
multi-set (bag) of rows whereas a relation is a set and does not allow duplicates.
Besides the actual data rows, tables generally have associated with them some meta-
information, such as constraints on the table or on the values within particular
columns. The data in a table does not have to be physically stored in the database.
Views are also relational tables, but their data are calculated at query time. Another
example is nicknames, which represent a pointer to a table in another database.

Comparisons with other data structures

In non-relational systems, hierarchical databases, the distant counterpart of a table is
a structured file, representing the rows of a table in each record of the file and each
column in a record.

Unlike a spreadsheet, the data type of field is ordinarily defined by the schema
describing the table. Some relational systems are less strict about field data type
definitions.

Tabulation:
Tabulation follows classification. It is a logical listing of related data in rows and
columns. Objectives of tabulation are:
 To simplify complex data.
 To highlight important characteristics.
 To present data in minimum space.
 To facilitate comparison.
 To bring out trends and tendencies.
 To facilitate further analysis.

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