Introduction to Managerial

Statistics
§ Define statistics
§ Become aware of a wide range of
applications of statistics in business
§ Differentiate between descriptive and
inferential statistics
§ Classify numbers by level of data and
understand why doing so is important
§ A branch of mathematics taking and
transforming numbers into useful information
for decision makers

§ Methods for processing & analyzing numbers

§ Methods for helping reduce the uncertainty

inherent in decision making
Decision Makers Use Statistics To:
§ Present
and describe business data and information
properly
§ Draw conclusions about large groups of individuals
or items, using information collected from subsets of
the individuals or items.
§ Make reliable forecasts about a business activity
§ Improve business processes
§ Social policy, medical practice, and business decision
all rely on the proper use of statistics.
§ Misuse of statistics can produce subtle, but serious
errors in description and interpretation of data, which
leads to wrong decision.
§ Even when statistics are correctly applied, the results
can be difficult to interpret for those lacking expertise.
§ The set of basic statistical skills (and skepticism) that
people need to deal with information in their everyday
lives properly is referred to as statistical literacy.
§ Accounting
Public accounting firms use statistical sampling
procedures when conducting audits for their clients.
§ Finance
Financial analysts use a variety of statistical
information, including price-earnings ratios and
dividend yields, to guide their investment
recommendations.
§ Marketing
Electronic point-of-sale scanners at retail checkout
counters are being used to collect data for a variety
of marketing research applications.
§ Production
A variety of statistical quality control charts are used
to monitor the output of a production process.
§ Economics
Economists use statistical information in making
forecasts about the future of the economy or some
aspect of it.
VARIABLE
A variable is a characteristic of an item or individual.

DATA
Data are the different values associated with a
variable.

OPERATIONAL DEFINITIONS
Data values are meaningless unless their variables
have operational definitions, universally accepted
meanings that are clear to all associated with an
analysis.
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.
POPULATION VS. SAMPLE
Population Sample

Measures used to describe Measures computed from

the population are called sample data are called
parameters statistics
Identifier Color MPG

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

RD2 Red 10

RD5 Red 13

GR1 Green 35

GY2 Gray 18
§ Data are the facts and figures collected,
summarized, analyzed, and interpreted.
§ The data collected in a particular study
are referred to as the data set.
§ OPERATIONAL DEFINITIONS
§ Data values are meaningless unless their
variables have operational definitions,
universally accepted meanings that are
clear to all associated with an analysis.
§ The elements are the entities on which data are
collected.
§ A variable is a characteristic of interest for the
elements.
§ The set
of measurements collected for a particular
element is called an observation.
§ A data set with n elements contains n observations.
§ The total number of datavalues in a complete data
set is the number of elements multiplied by the
number of variables.
 Observation
Variables
Stock Annual Earn/
Company Exchange Sales($M) Sh.($)
Dataram AMEX 73.10 0.86
EnergySouth OTC 74.00 1.67
Keystone NYSE 365.70 0.86
LandCare NYSE 111.40 0.33
Psychemedics AMEX 17.60 0.13

Elements Data Set Datum

§ 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

§ 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.
 Statistics
§ The branchof 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
§ Collect data
§ e.g., Survey

§ Present data
§ e.g., Tables and graphs

§ Characterize data åX i

n
§ e.g., Sample mean =
Descriptive Statistics organizing,
summarizing, and presenting data in an
informative way.

EXAMPLE 1: EXAMPLE 2:
The average test score for According to Consumer
the students in a class, to Reports, there were 2.5
give a descriptive sense of problems per one
the typical scores and their copying machines
variation. reported during 2006.

TYPES OF STATISTICS
§ Descriptive statistics summarize/
characterize the population data by
describing what was observed in the sample
numerically (tabular) or graphically.
§ Numerical descriptors include mean and
standard deviation for continuous data types
(like heights or weights), while frequency
and percentage are more useful in terms of
describing categorical data (like race).
§ 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.
§ Inferential statistics (or inductive statistics)
uses patterns in the sample data to draw
inferences about the population
represented.
§ These inferences may take the form of:
§ answering yes/no questions about the data
(hypothesis testing);
§ estimating numerical characteristics of the
data (estimation);
§ describing associations within the data
(correlation); and,
§ modeling relationships within the data
(regression).
 Example 2:
Example 1:
The accounting
In each year, 1000
department of a large firm
families were
will select a sample of the
chosen at random.
invoices to check for
accuracy for all the
An popular index of invoices of the company.
TV channel are
computed base
from the data
obtained in these #1
family.
§ Descriptive statistics are distinguished from
inferential statistics in that descriptive statistics
aim to quantitatively summarize a data set,
rather than being used to support inferential
statements about the population that the data
are thought to represent.
§ Descriptive statistics- get a “feel”
(characterization) for the data
§ Inferential statistics- draw conclusions from the
data
1. The population or sample of interest.
2. One or more variables (characteristics of
the population or sample units) that are to
be investigated.
3. Tables, graphs, or numerical summary
tools.
4. Identification of patterns in the data.
1. The population of interest.
2. One or more variables (characteristics of the
population units) that are to be investigated.
3. The sample of population units.
4. The inference about the population based on
information contained in the sample.
5. A measure of reliability for the inference.
• A measure of reliability is a statement (usually quantified)
about the degree of uncertainty associated with a statistical
inference.
§ 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.
For a Qualitative or Attribute Variable the
characteristic being studied is nonnumeric.
Gender
Eye
Color

State of
Type of car Birth
 Types of Variables
In a Quantitative Variable information is
reported numerically.

Balance in your checking account

Final score for the students in a class

Number of children in a
family
• For each of the following, indicate whether
the appropriate variable would be qualitative
or quantitative. If the variable is quantitative,
indicate whether it would be discrete or
continuous.
a) Whether you own a • Qualitative Variable
Panasonic television § two levels: yes/no
set § no measurement

b) Your status as a full- • Qualitative Variable

time or a part-time § two levels: full/part
student § no measurement
c) Number of people • Quantitative,
who attended your Discrete Variable
school’s graduation § a countable number
last year § only whole numbers
d) The price of your • Quantitative, Discrete
most recent Variable
§ a countable number
haircut
§ only whole numbers

• Quantitative, Continuous
e) Sam’s travel time Variable
from his dorm to § any number
§ time is measured
the student union
§ can take on any value greater
than zero
f) The number of • Quantitative, Discrete
students on Variable
campus who §a countable number
belong to a social § only whole numbers
fraternity or
sorority
Nominal level Data are Gender
classified into categories. But
the ordering of categories is
not meaningful. These are:
–Identifier or name
–Unranked categorization
•Example: gender, car color
Eye
Color
 Category of Nominal level variables must
be:
Mutually exclusive
ALL the individual (or object or
measurement) must appear in ONLY ONE
category.
Exhaustive
ALL the individual (or object or
measurement) must appear in
AT LEAST ONE of the categories.
Ordinal level: Orders are meaningful, but
differences are not meaningful.
During a taste test of
4 soft drinks, Coca
Cola was ranked 4
number 1, Dr. Pepper 2
number 2, Pepsi
number 3, and Root
Beer number 4. Can 3
we say Coca Cola is 2 1
better then Pepsi?
§ Ordinal data
§ All characteristics of nominal data plus…
§ Rank-order categories
§ Ranks are relative to each other
§ Example: Low (1), moderate (2) or high (3) risk
 Interval level
Both the orders and differences are
meaningful but the ratio is not.

Temperature on the
Fahrenheit scale.
§ All of the characteristics of ordinal data
plus…

§ Measurements are on a numerical scale with

an arbitrary zero point
§ The “zero” is assigned: it is nonphysical and not
meaningful
§ Zero does not mean the absence of the quantity
that we are trying to measure
§ Can only meaningfully compare values
by the interval between them
§ Cannot compare values by taking their
ratios
§ “Interval” is the arithmetic difference
between the values
§ Example: temperature
§ 0° F means “cold,” not “no heat”
§ 80° F is not twice as warm as 40° F
 Ratio level: Orders, Differences and ratios
are meaningful for this level of measurement.

Miles traveled by sales Monthly income

representative in a month of surgeons
§ All the characteristics of interval data plus…
§ Measurements are on a numerical scale with
a meaningful zero point
§ Zero means “none” or “nothing”

§ Values can be compared in terms of their

interval and ratio
§ $30 is
$20 more than $10
§ $0 means no money
§ In business and finance, most
quantitative variables are ratio
variables, such as anything to do with
money
§ Examples: Earnings, profit, loss, age,
distance, height, weight
•Bill scored 1200 on the Scholastic
Aptitude Test and entered college as a
physics major. As a freshman, he
changed to business because he
thought it was more interesting.
Because he made the dean’s list last
semester, his parents gave him $30 to
buy a new Casio calculator. Identify at
least one piece of information in the:
a) nominal scale of 1. Bill is going to college.
measurement 2. Bill will buy a Casio
calculator.
3. Bill was a physics
major.
4. Bill is a business major.
5. Bill was on the dean’s
list.
b) ordinal scale of • Bill is a freshman.
measurement

c) interval scale of • Bill earned a 1200

measurement on the SAT.

d) ratio scale of • Bill’s parents gave

measurement him $30.
 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