25-Oct-21

BUSINESS DECISION MAKING

Week 6:

DATA PRESENTATION BY

NUMBERS

Business Decision Making – Nguyen Minh Thu – [email protected]

Outline

▪ Measures of Location

▪ Measures of Variability

▪ Other measures

Business Decision Making – Nguyen Minh Thu – [email protected]

Measures of Location

Measures of
Location

Central
Percentiles
Tendency

Mean Median

Mode

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1. Central Tendency

A summary measure that attempts to describe a

whole set of data with a single value that
represents the middle or centre of its distribution.

▪ Mean

▪ Median

▪ Mode

Business Decision Making – Nguyen Minh Thu – [email protected]

Mean

• The most common measure of central tendency

• Apply for quantitative only
• Have the same unit as original data
• Denote for the population mean: μ, for the sample mean: xത
• Formula:
➢ Arithmetic mean
➢ Geometric mean

Business Decision Making – Nguyen Minh Thu – [email protected]

Arithmetic Mean

• Example: Student A’s grade in some courses

Course Grade Points
Algebra 3.63
Introduction to Logic 4.20
GPA???
Microeconomics 3.46
Statistics 4.00

 xi  xi
= x=
N n
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Weighted Arithmetic Mean

• Example: Any difference if know more information about

the number of credits?
Course Number of Credits Grade Points
Algebra 3 3.63
Introduction to Logic 2 4.20
Microeconomics 3 3.46
Statistics 3 4.00

Weight wi Value xi

Each data is given a weight that reflects its importance

Business Decision Making – Nguyen Minh Thu – [email protected]

Weighted Arithmetic Mean

Number Grade Grade Points

Course
of Credits Points x Credits
Algebra 3 3.63 10.89
Introduction to Logic 2 4.20 8.40
Microeconomics 3 3.46 10.38
Statistics 3 4.00 12.00
Total 11 x 41.67

In general, for weighted data:

σ xi wi where:
xത = xi = value of observation i
σ wi wi = weight for observation i

Business Decision Making – Nguyen Minh Thu – [email protected]

Arithmetic Mean with Grouped Data

σ x i fi where:
xത = xi = midpoint of class i
σ fi fi = frequency of class i

Example: SCCoast, an Internet provider in the Southeast, developed the

following frequency distribution on the age of Internet users.
Age Number of users
10 up to 20 3
20 up to 30 7
30 up to 40 18
40 up to 50 20
50 up to 60 12
Total 60

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Geometric Mean

• Measure the average growth factor of a variable

over time
• Calculate some indexes

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Growth factor vs Growth rate

• Growth factor is the factor by which a quantity multiplies

itself over time

𝑅𝑒𝑣𝑖 110
𝐺𝑟𝑜𝑤𝑡ℎ 𝑓𝑎𝑐𝑡𝑜𝑟 𝑜𝑓 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 = = = 1.1
𝑅𝑒𝑣𝑖−1 100

→ Revenue this year is 1.1 times higher than last year

• Growth factor < 1: negative growth

• Growth factor > 1: positive growth

Business Decision Making – Nguyen Minh Thu – [email protected]

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Growth factor vs Growth rate

• Growth rate is the addend by which a quantity increases (or

decreases) over time

Revi − Revi−1 110 − 100

Growth rate of Revenue = = = 0.1
Revi−1 100
Percent change = Growth rate x 100 = 0.1 x 100 = 10%

→ Revenue this year increased 10% compared to last year.

• Growth rate < 0: negative growth

• Growth rate > 0: positive growth

Business Decision Making – Nguyen Minh Thu – [email protected]

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Geometric Mean

Example:
Year Growth factor of revenue (%)
2014 105.25
2015 105.42
2016 105.98
2017 106.68
2018 106.21

Business Decision Making – Nguyen Minh Thu – [email protected]

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Geometric Mean

Year Percent change (%)

1 -22.1
2 28.7
3 10.9
4 4.9
5 15.8
6 5.5
7 -37.0
8 26.5
9 15.1
10 2.1

Business Decision Making – Nguyen Minh Thu – [email protected]

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Exercise
The annual percentage returns (%) on two stocks over a 7-year period
were as follows:
Stock A Stock B
4.01 6.51
14.31 4.41
19.01 3.81
-14.69 6.91
-26.49 8.01
8.01 5.81
5.81 5.11
Compare the average annual returns on the two stocks. Which stock
has the higher returns after 7 years?
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The Mean

• Compare the mean of following data:

– Data 1: {10, 10, 11, 12, 12}

– Data 2: {2, 3, 4, 6, 40}

• The mean is easily affected by the extreme values

or outliers → lead to biased comparison

• Use the other measure

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Exercise

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The Median

• The value of the middle position in an ordered array

of data from smallest
• Median is the ‘cutoff point’ of lower 50% - upper 50%
parts
• Denoted as Me

Lower
50%
Upper
50%

Median
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The Median

Example:

• Data: { 5, 6, 9, 5, 6}

Ordered data: { 5, 5, 6, 6, 9 }: Median = 6

• Ordered Data {6, 6, 7, 8, 9, 11} :

7+8
Median = = 7.5
2

Business Decision Making – Nguyen Minh Thu – [email protected]

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Median with Classified Data

Number of
GPA
students 6 7 7 8 8 8 9 9 9 9 9 9 9 10 10
6 1
7 2
Middle position
8 3 Me = 9
9 7
10 2
∑ 15

Business Decision Making – Nguyen Minh Thu – [email protected]

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Median with Classified Data

Odd number of observation
( fi =2m+1)
Number of Number of
GPA GPA
students students
6 1 6 1
7 2 7 2
8 3 8 3
9 7 9 7
10 2 10 2
∑ 15 ∑ 15
Middle position: m+1 Middle position: m and m+1

Me = xm+1 𝐱 𝐦 + 𝐱𝐦+𝟏
Me =
𝟐
Business Decision Making – Nguyen Minh Thu – [email protected]

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Median with Grouped Data

Age Number
Number of
of users
users Si
10 – 20 33 3
20 – 30 77 10
30 – 40 18
18 28
40 – 50 20 48
50 – 60 12
12 60
Total 60
60

• Middle position?
• Group containing middle position
• Calculate the Median

• Meaning of Median?

Business Decision Making – Nguyen Minh Thu – [email protected]

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The Median

• Compare the mean and median of following data:

Data 1: {10, 10, 11, 12, 12}
Data 2: {2, 3, 4, 6, 40}
• The median is independent from the outliers
• Depends on the position
• Apply for quantitative variable only

Business Decision Making – Nguyen Minh Thu – [email protected]

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The Mode

• Could be applied for both quantitative and qualitative variable

• Mode is the value repeated most often. Its frequency is the
largest
• Denoted as Mo
• Find the Mode:
➢ Qualitative Data
➢ Quantitative Data

Business Decision Making – Nguyen Minh Thu – [email protected]

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The Mode

• Qualitative Data
➢ Data: { Yellow, Yellow, Red, Blue, Green}
→ Mode is the category having the largest frequency
• Quantitative Data
➢ Data 1: { 5, 6, 6, 7, 7, 7, 9 }
➢ Data 2: { 5, 6, 7, 8, 9 }
➢ Data 3: { 5, 6, 9, 5, 6 }
➢ Data 4: { 5, 5, 5, 5, 5 }
→ Mode is the value having the largest frequency
There may be no mode or several modes
Business Decision Making – Nguyen Minh Thu – [email protected]

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The Mode

Number of Number of
Age
GPA users
students
10 – 20 3
6 1
20 – 30 7
7 2
30 – 40 18
8 3
9 7 40 – 50 20

10 2 50 – 60 12
∑ 15 Total 60

Meaning of the Mode?

Business Decision Making – Nguyen Minh Thu – [email protected]

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Mean, Mode, Median

Left skewed Symmetric Right skewed

Mean
Median
Mean < Median < Mode Mode Mode < Median < Mean

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Skewness

• Measures of distribution shape: symmetry or lack

of symmetry.
• Formula:
xi −μ 3
σ xi − μ 3 σ σ
➢ Population: Skewness = =
N . σ3 N

n x −തx 3
➢ Sample: Skewness = σ i
(n−1)(n−2) S

Business Decision Making – Nguyen Minh Thu – [email protected]

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Skewness

Left skewed Symmetric Right skewed

• Moderately skewed: -0.5 < Skewness < 0.5 • Moderately skewed:

-1< Skewness < -0.5 0.5< Skewness < 1
• Highly skewed: • Highly skewed:
Skewness < -1 Skewness > 1

Business Decision Making – Nguyen Minh Thu – [email protected]

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Kurtosis

• Kurtosis is the degree of peakedness of a distribution

• The data looks flatter (or less flat) compared to the
normal distribution

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Kurtosis

• Formula:
➢ Population:

n n+1 xi −തx 4 3 n−1 2

Kurtosis = σ −
(n−1)(n−2)(n−3) 𝑠 (n−2)(n−3)

➢ Sample:

1 x −μ 4
Kurtosis = σ i
n σ

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Kurtosis

Kurtosis > 0

Kurtosis = 0

Kurtosis < 0

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Percentiles
The pth percentile divides the data into two parts:
• Approximately p% of the observations are less than the p th
percentile
• Approximately (100 – p)% of the observations are greater than
the pth percentile

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Percentiles
80% of people are shorter than you and your height is 1.85m

Business Decision Making – Nguyen Minh Thu – [email protected]

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Percentiles

Find the location of the percentile:

𝐩
𝐋𝐩 = 𝐧+𝟏
𝟏𝟎𝟎
Graduate Monthly Starting Salary ($) Find the 80th percentile
1 3710 • L80 = 10.4
2 3755
3 3850 → position: 10.4
4 3880
5 3880 • Position 10: 4050
6 3890
4130 – 4050 = 80
7 3920
8 3940 4050 0.4 x 80 4130
9 3950
10 4050 → p80 = 4050 + 80 * 0.4
11 4130
12 4325 = 4082
Business Decision Making – Nguyen Minh Thu – [email protected]

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Percentiles

A total of 10,000 people visited the shopping mall over 12 hours:

Time Cumulative 0 000 eople
(hours) Freq 000
0 0 000
2 350 000
4 1100 000
6 2400 5 000

8 6500 000
000
10 8850
000
12 10000
000
ime in ours
0
0 5 0
• Estimate the 30th percentile

Business Decision Making – Nguyen Minh Thu – [email protected]

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Percentiles

A total of 10,000 people visited the shopping mall over 12 hours:

Time Cumulative 0 000 eople
(hours) Freq 000
0 0 000
2 350 000
4 1100 000
6 2400 5 000

8 6500 000
000
10 8850
000
12 10000
000
ime in ours
0
0 5 0
• Estimate the 30th percentile
• Estimate what percentile of visitors had arrived after 11 hours
Business Decision Making – Nguyen Minh Thu – [email protected]

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Quartiles

The quartiles divides the data into 4 equal parts by 3 cut-off

points

• Q1: first quartile, 25th percentile

• Q2: second quartile, 50th percentile, median
• Q3: third quartile, 75th percentile

25% 25% 25% 25%

Q1 Q2 Q3

Business Decision Making – Nguyen Minh Thu – [email protected]

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Exercise

A sample of 20 production workers in a company earned the following

net pay amounts after all deductions for a given week: $240, 240, 240,
240, 240, 240, 240, 240, 255, 255, 265, 265, 280, 280, 290, 300, 305,
325, 330, 340.
1. Calculate the (a) mean, (b) median, and (c) mode for this group of
wages.
2. Describe the distribution in terms of skewness.
3. Suppose you are the vice president in charge of collective
bargaining for the company. What measure of average net pay
would you report as being representative of all the company
workers in general?
4. Suppose you are the elected president of the employee bargaining
unit. What measure of average would you report as being
representative of workers in general?

Business Decision Making – Nguyen Minh Thu – [email protected]

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Exercise

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Exercise

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