Chapter 6

Measures of Dispersion

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc.. Chap 3-1

 Measures of Variation
Variation

Range Interquartile Variance Standard Coefficient

Range Deviation of Variation

 Measures of variation give

information on the spread
or variability of the data
values.

Same center,
different variation
Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 3-2
 Range

 Simplest measure of variation

 Difference between the largest and the smallest
values in a set of data:

Range = Xlargest – Xsmallest

Example:

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Range = 14 - 1 = 13

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 3-3

 Range

Example 3.1: Find the range for the following three

sets of data:
Set 1: 05 15 15 05 15 05 15 15 15 15
Set 2: 8 7 15 11 12 5 13 11 15 9
Set 3: 5 5 5 5 5 5 5 5 5 5

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 3-4

 Disadvantages of the Range
 Ignores the way in which data are distributed

7 8 9 10 11 12 7 8 9 10 11 12
Range = 12 - 7 = 5 Range = 12 - 7 = 5

 Sensitive to outliers
1,1,1,1,1,1,1,1,1,1,1,2,2,2,2,2,2,2,2,3,3,3,3,4,5
Range = 5 - 1 = 4

1,1,1,1,1,1,1,1,1,1,1,2,2,2,2,2,2,2,2,3,3,3,3,4,120
Range = 120 - 1 = 119

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 3-5

 Interquartile Range

 Can eliminate some outlier problems by using

the interquartile range

 Eliminate some high- and low-valued

observations and calculate the range from the
remaining values

 Interquartile range = 3rd quartile – 1st quartile

= Q3 – Q1

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 3-6

 Quartiles
 Quartiles split the ranked data into 4 segments with
an equal number of values per segment

25% 25% 25% 25%

Q1 Q2 Q3

 The first quartile, Q1, is the value for which 25% of the
observations are smaller and 75% are larger
 Q2 is the same as the median (50% are smaller, 50% are
larger)
 Only 25% of the observations are greater than the third
quartile

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 3-7

 Quartile Formulas

Find a quartile by determining the value in the

appropriate position in the ranked data, where

First quartile position: Q1 = (n+1)/4

Second quartile position: Q2 = (n+1)/2 (the median position)

Third quartile position: Q3 = 3(n+1)/4

where n is the number of observed values

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 3-8

 Quartiles

 Example: Find the first quartile

Sample Data in Ordered Array: 11 12 13 16 16 17 18 21 22

(n = 9)
Q1 is in the (9+1)/4 = 2.5 position of the ranked data

so use the value half way between the 2nd and 3rd values,

so Q1 = 12.5

Q1 and Q3 are measures of noncentral location

Q2 = median, a measure of central tendency
Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 3-9
 Quartiles
(continued)
 Example:
Sample Data in Ordered Array: 11 12 13 16 16 17 18 21 22

(n = 9)
Q1 is in the (9+1)/4 = 2.5 position of the ranked data,
so Q1 = 12.5

Q2 is in the (9+1)/2 = 5th position of the ranked data,

so Q2 = median = 16

Q3 is in the 3(9+1)/4 = 7.5 position of the ranked data,

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 3-10
 Standard Deviation
 Most commonly used measure of variation
 Shows variation about the mean
 Is the square root of the variance
 Has the same units as the original data

n
 Sample standard deviation:
 (X i
X) 2

S  i 1

n -1

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 3-11

 Standard Deviation

While looking at the earlier measures of dispersion all of

them suffer from one or the other demerit i.e.
•Range –it suffer from a serious drawback considers only 2
values and neglects all the other values of the series.
•Quartile deviation considers only 50% of theitem and
ignores the other 50% of items in the series.
•Mean deviation no doubt an improved measure but
ignores negative signs without any basis.

3
 Standard Deviation
• The concept of standard deviation was first introduced by Karl
Pearson in 1893.
• Karl Pearson after observing all these things has given us a
more scientific formula for calculating or measuring
dispersion. While calculating SD we take deviations of
individual observations from their AM and then each squares.
The sum of the squares is divided by the Total number of
observations. The square root of this sum is knows as standard
deviation.
• The standard deviation is the most useful and the most
popular measure of dispersion.
• It is always calculated from the arithmetic mean, median and
mode is not considered. 4
 Standard Deviation

USES OF THE STANDARD DEVIATION

The standard deviation is a frequently used measure of dispersion. It
enables us to determine as to how far individual items in a distribution
deviate from its mean. In a symmetrical, bell-shaped curve:
If the standard deviation is small, the values are close together.
If the standard deviation is large, the values are spread out.

Why do I need both the mean and standard deviation?

 Although the standard deviation tells you about how spread out the

values are, it doesn't actually tell you about the size of them.

 For example, the data 1,2,3,4,5 have the same standard deviation as the
data 298,299, 300,301,302

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 3-14

 Variance

 Average (approximately) of squared deviations

of values from the mean
n
 Sample variance:
 (X i
X) 2

S
2
 i 1

n -1
Where X = mean

n = sample size
Xi = ith value of the variable X
Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 3-15
 Calculation Example:
Sample Standard Deviation
Sample
Data (Xi) : 10 12 14 15 17 18 18 24
n=8 Mean = X = 16

(1 0  X ) 2  (1 2  X ) 2  (1 4  X ) 2    (2 4  X ) 2
S 
n 1

(1 0  1 6 ) 2  (1 2  1 6 ) 2  (1 4  1 6 ) 2    (2 4  1 6 ) 2

8 1

130 A measure of the “average”

  4 .3 0 9 5
7 scatter around the mean
Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 3-16
 Example

Income of 6 families is given = 20 15 19 24 16 14

n

 (X i
X) 2

Variance = S
2
 i 1

n -1

Standard Deviation =  (X i
X) 2

S  i 1

n -1
Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 3-17
 Its your turn
Talent, Ltd a Hollywood casting company is selecting
a group of extras for a movie. The ages of the first
20 men to be interviewed are :
50, 56, 55 49 52 57 56 59 54 55 61 60 51 59 62 52
54 49
The director of the movie wants men whose ages are
fairly tightly grouped around 55 years. Being a
statistics buff of sorts the director suggests that a
standard deviation of 3 years would be acceptable.
Does this group of extras qualify?

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 3-18

 Its your turn
These data are a sample of the daily production rate
of fiberglass boats from Hydrosport, Ltd, a miami
Manufacturer:
17 21 18 27 17 21 20 22 18 23
The company production manager feels that a
standard deviation of more than three boats a day
indicates unacceptable production rate variations.
should she be concerned about plant production
rates?

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 3-19

 Periods: 10 11 12 13 14 15 16
Exam No. of 2 7 11
M n=1 𝐴4 𝑑1
Soluti ple: patients: 15 0𝑥 = + �
ea �
= 13+
on:
Peri No. of 𝒅 = 𝒙 − 𝑨, 𝒇𝒅 𝒇𝒅𝟐 (−10)
50
𝒅𝟐 = 12.8
od patients(𝒇) 𝐀 = 𝟏𝟑
s:(x) 𝑥 = 12.8 is a
fraction.
2
10 2 -3 -6 9 18 𝜎 𝑓𝑑2 − 𝑓𝑑
11 7 -2 -14 4 28 = 𝑛 𝑛
12 11 -1 -11 1 11 9 2
=2 − −10
13 15 0 0 0 0
5 50
14 10 1 10 1 10 = 1.84
0 −
15 4 2 8 4 16 0.04
16 1 3 3 9 9
= 1.80
Tota
l N= 𝑓=50
𝒇𝒅=-10 𝐟𝐝𝟐=92 = 1.342
 ple:
B.P. 102 106 110 114 118 122 126
Soluti (mmHg):

on: No. of
days:
3 9 25 35 17 10 1
A. M= 𝑥= 𝑓𝑑 ×
�
B.P. No. of days 𝒅𝟒 = 𝒙−𝟏𝟏𝟒 𝒇𝒅 𝒇𝒅𝟐 𝐴+ (−1� 𝑖
(mmHg) (𝒇) = 114 2) ×
10
102 3 -3 -9 27 + 4
= 114 0−
106 9 -2 -18 36
-25 25
0.48
110 25 -1
114 35 0 0 0
=
2
𝜎 = −𝑓𝑑113.52
2 𝑓𝑑
𝑛
×
118 17 1 17 17 𝑛
122 10 2 20 40
154mm Hg𝑖
−1 2
= 10 × 4
2
100−
126 1 3 3 9 0
= 154 − −0.12 2
Total N=100 × 154
4 −
𝒇𝒅=-12
𝒇𝒅𝟐=154 ==1.235×
0.0144 × 4
4
=4.94
Exam I.Q. 10-2 20-3 30-4 40-5050-60 60-7 70-8
0 0 0 0 0
ple: No. of
students:
5 12 15 20 10 4 2

Soluti
I.Q. No. of
students:(𝒇)
Mid-value (𝐱) 𝒅𝟏𝟎= 𝒙−𝟒𝟓 𝒇𝒅 𝑓𝒅𝟐

on:
10-20 5 15 -3 -15 45
-2 -24
Standard
20-30 12 25 48
deviation=𝜎
𝑓𝑑 2 2
30-40 15 35 -1 -15 15 =𝑖 − 𝑓𝑑
𝑛
𝑛
40-50 20 45 0 0 0 × 152
−3 2
50-60 10 55 1 10 10 = 10 06
8 × −8 8
6
60-70 4 65 2 16 =4−
70-80 2 75 3 6 18 (−0.12)
Tot
al 𝑓=N=68 𝑓𝑑=-30 𝑓𝒅𝟐=152
 Measuring variation

Small standard deviation

Large standard deviation

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 3-23

 Comparing Standard Deviations

Data A
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 S = 3.338

Data B
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 S = 0.926
Data C
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 S = 4.567

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 3-24

 Advantages of Variance and
Standard Deviation

 Each value in the data set is used in the

calculation

 Values far from the mean are given extra

weight
(because deviations from the mean are squared)

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 3-25

 Coefficient of Variation

 Measures relative variation

 Always in percentage (%)
 Shows variation relative to mean
 Can be used to compare two or more sets of
data measured in different units

 S 
C V    1 0 0 %

 X 
Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 3-26
 Comparing Coefficient
of Variation
 Stock A:
 Average price last year = $50

 Standard deviation = $5

S  $5
C VA    1 0 0 % 
 1 0 0 %  1 0 %
X  $50 Both stocks
 Stock B: have the same
standard
 Average price last year = $100 deviation, but
stock B is less
 Standard deviation = $5 variable relative
to its price
S  $5
C VB    1 0 0 % 
 1 0 0 %  5 %
X  $100

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 3-27