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 To our spouses and children,
Marilyn, Mary, Sharyn, and Mark,

and to our parents,

in loving memory, Lee, Reuben, Ruth, Francis, and William,
in honor, Mary
About the Authors

The authors of this book: Kathryn Szabat, David

Levine, and David Stephan at a Decision Sciences
Institute meeting.

David M. Levine is Professor Emeritus of Statistics and Computer Information

Systems at Baruch College (City University of New York). He received B.B.A. and M.B.A.
degrees in statistics from City College of New York and a Ph.D. from New York University
in industrial engineering and operations research. He is nationally recognized as a leading
innovator in statistics education and is the co-author of 14 books, including such best-
selling statistics textbooks as Statistics for Managers Using Microsoft Excel, Basic
Business Statistics: Concepts and Applications, Business Statistics: A First Course, and
Applied Statistics for Engineers and Scientists Using Microsoft Excel and Minitab.
He also is the co-author of Even You Can Learn Statistics: A Guide for Everyone Who Has
Ever Been Afraid of Statistics, currently in its second edition, Six Sigma for Green Belts
and Champions and Design for Six Sigma for Green Belts and Champions, and the author
of Statistics for Six Sigma Green Belts, all published by FT Press, a Pearson imprint, and
Quality Management, third edition, McGraw-Hill/Irwin. He is also the author of Video
Review of Statistics and Video Review of Probability, both published by Video Aided
Instruction, and the statistics module of the MBA primer published by Cengage Learning.
He has published articles in various journals, including Psychometrika, The American
Statistician, Communications in Statistics, Decision Sciences Journal of Innovative
Education, Multivariate Behavioral Research, Journal of Systems Management, Quality
Progress, and The American Anthropologist, and he has given numerous talks at the
Decision Sciences Institute (DSI), American Statistical Association (ASA), and Making
Statistics More Effective in Schools and Business (MSMESB) conferences. Levine has
also received several awards for outstanding teaching and curriculum development from
Baruch College.

David F. Stephan is an independent instructional technologist. He was an

Instructor/Lecturer of Computer Information Systems at Baruch College (City University
of New York) for over 20 years and also served as an Assistant to the Provost and to the
Dean of the School of Business & Public Administration for computing. He pioneered the
use of computer classrooms for business teaching, devised interdisciplinary multimedia
tools, and created techniques for teaching computer applications in a business context. He
also conducted the first large-scale controlled experiment to show the benefit of teaching
viii Microsoft Excel in a business case context to undergraduate students.
 About the Authors ix

An avid developer, he created multimedia courseware while serving as the Assistant

Director of a Fund for the Improvement of Postsecondary Education (FIPSE) project at
Baruch College. Stephan is also the originator of PHStat, the Pearson Education statisti-
cal add-in for Microsoft Excel and a co-author of Even You Can Learn Statistics: A Guide
for Everyone Who Has Ever Been Afraid of Statistics and Practical Statistics by Example
Using Microsoft Excel and Minitab. He is currently developing ways to extend the instruc-
tional materials that he and his co-authors develop to mobile and cloud computing plat-
forms as well as develop social-media facilitated means to support learning in introductory
business statistics courses.
Stephan received a B.A. in geology from Franklin and Marshall College and a M.S. in
computer methodology from Baruch College (City University of New York).

Kathryn A. Szabat is Associate Professor and Chair of Business Systems

and Analytics at LaSalle University. She teaches undergraduate and graduate courses in
business statistics and operations management. She also teaches as Visiting Professor at
the Ecole Superieure de Commerce et de Management (ESCEM) in France.
Szabat’s research has been published in International Journal of Applied Decision Sciences,
Accounting Education, Journal of Applied Business and Economics, Journal of Healthcare
Management, and Journal of Management Studies. Scholarly chapters have appeared
in Managing Adaptability, Intervention, and People in Enterprise Information Systems;
Managing, Trade, Economies and International Business; Encyclopedia of Statistics in
Behavioral Science; and Statistical Methods in Longitudinal Research.
Szabat has provided statistical advice to numerous business, non-business, and academic
communities. Her more recent involvement has been in the areas of education, medicine,
and nonprofit capacity building.
Szabat received a B.S. in mathematics from State University of New York at Albany
and M.S. and Ph.D. degrees in statistics, with a cognate in operations research, from the
Wharton School of the University of Pennsylvania.
This page intentionally left blank
Brief Contents
Preface xxiii
Let’s Get Started: Big Things to Learn First 2
1 Defining and Collecting Data 16
2 Organizing and Visualizing Data 38
3 Numerical Descriptive Measures 104
4 Basic Probability 154
5 Discrete Probability Distributions 184
6 The Normal Distribution and Other Continuous Distributions 218
7 Sampling Distributions 248
8 Confidence Interval Estimation 268
9 Fundamentals of Hypothesis Testing: One Sample Tests 304
10 Two-Sample Tests 342
11 Analysis of Variance 388
12 Chi-Square and Nonparametric Tests 428
13 Simple Linear Regression 470
14 Introduction to Multiple Regression 524
15 Multiple Regression Model Building 572
16 Time-Series Forecasting 608
17 A Roadmap for Analyzing Data 654
18 Statistical Applications in Quality Management (online)
19 Decision Making (online)
Appendices A–G 665
Self-Test Solutions and Answers to Selected Even-Numbered Problems 717
Index 749

xi
This page intentionally left blank
Contents
Preface xxiii Measurement Error 28
Ethical Issues About Surveys 29
Think About This: New Media Surveys/Old Sampling
Let’s Get Started: Big Problems 29
Using Statistics: Beginning … Revisited 30
Things to Learn First 2 Summary 31
References 31
Using Statistics: “You Cannot Escape from Data” 3
Key Terms  31
LGS.1 A Way of Thinking 4
CHECKING YOUR UNDERSTANDING 32
LGS.2 Define Your Terms! 5
Chapter Review Problems  32
LGS.3  Business Analytics: The Changing Face of Statistics 6
Cases for Chapter 1
“Big Data” 7
  Statistics: An Important Part of Your Business Managing Ashland MultiComm Services 33
Education 7 CardioGood Fitness 33
LGS.4 How to Use This Book 8 Clear Mountain State Student Surveys 34
References 9 Learning with the Digital Cases 34
Key Terms  9 Chapter 1 Excel Guide 36
Excel Guide 10 EG1.1 Establishing the Variable Type 36
EG1. What Is Microsoft Excel? 10 EG1.2 Measurement Scales for Variables 37
EG2. How Can I Use Excel with This Book? 10 EG1.3 Collecting Data 36
EG3. What Excel Skills Does This Book Require? 10 EG1.4 Types of Sampling Methods 37
EG4. Getting Ready to Use Excel with This Book 12 EG1.5 Types of Survey Errors 37
EG5. Entering Data 13
EG6. Opening and Saving Workbooks 13
EG7. Creating and Copying Worksheets 14
EG8. Printing Worksheets 14 2 Organizing and
Visualizing Data 38
1 Defining and Using Statistics: The Choice Is Yours 39
Collecting Data 16 How to Proceed with This Chapter 40
2.1 Organizing Categorical Data 41
Using Statistics: Beginning of the End … Or the End of The Summary Table 41
the Beginning? 17 The Contingency Table 42
1.1 Establishing the Variable Type 18 2.2 Organizing Numerical Data 45
1.2 Measurement Scales for Variables 19 Stacked and Unstacked Data 45
Nominal and Ordinal Scales 19 The Ordered Array 45
Interval and Ratio Scales 20 The Frequency Distribution 46
1.3 Collecting Data 22 Classes and Excel Bins 48
Data Sources 22 The Relative Frequency Distribution and the Percentage
Populations and Samples 23 Distribution 49
Data Cleaning 23 The Cumulative Distribution 51
Recoded Variables 23 2.3 Visualizing Categorical Data 55
1.4 Types of Sampling Methods 24 The Bar Chart 55
Simple Random Sample 25 The Pie Chart 56
Systematic Sample 26 The Pareto Chart 57
Stratified Sample 26 The Side-by-Side Bar Chart 59
Cluster Sample 26 2.4 Visualizing Numerical Data 62
1.5 Types of Survey Errors 27 The Stem-and-Leaf Display 62
Coverage Error 28 The Histogram 63
Nonresponse Error 28 The Percentage Polygon 64
Sampling Error 28 The Cumulative Percentage Polygon (Ogive) 66

xiii
xiv contents

2.5 Visualizing Two Numerical Variables 69 3.4 Numerical Descriptive Measures for a Population 130
The Scatter Plot 69 The Population Mean 131
The Time-Series Plot 70 The Population Variance and Standard Deviation 132
2.6 Challenges in Visualizing Data 73 The Empirical Rule 133
Chartjunk 74 The Chebyshev Rule 134
Guidelines for Developing Visualizations 76 3.5 The Covariance and the Coefficient of Correlation 136
2.7 Organizing and Visualizing Many Variables 77 The Covariance 136
Multidimensional Contingency Tables 78 The Coefficient of Correlation 137
Adding Numerical Variables 79 3.6 Descriptive Statistics: Pitfalls and Ethical Issues 142
Drill-down 79 Using Statistics: More Descriptive Choices, Revisited 142
2.8 PivotTables and Business Analytics 80 Summary 143
Real-World Business Analytics and Microsoft Excel 82 References 143
Using Statistics: The Choice Is Yours, Revisited 83 Key Equations  143
Summary 83 Key Terms  144
References 84 CHECKING YOUR UNDERSTANDING 145
Key Equations  84 Chapter Review Problems  145
Key Terms  85 Cases for Chapter 3
CHECKING YOUR UNDERSTANdING 85
Managing Ashland MultiComm Services 148
Chapter Review Problems  85
Digital Case 148
Cases for Chapter 2 CardioGood Fitness 149
Managing Ashland MultiComm Services 90 More Descriptive Choices Follow-up 149
Digital Case 91 Clear Mountain State Student Surveys 149
CardioGood Fitness 91 Chapter 3 Excel Guide 150
The Choice Is Yours Follow-up 91 EG3.1 Central Tendency 150
Clear Mountain State Student Surveys 91 EG3.2 Variation and Shape 151
Chapter 2 Excel Guide 92 EG3.3 Exploring Numerical Data 151
EG2.1 Organizing Categorical Data 92  EG3.4 Numerical Descriptive Measures for a Population 152
EG2.2 Organizing Numerical Data 94  EG3.5 The Covariance and the Coefficient of Correlation 153
EG2.3 Visualizing Categorical Data 96
EG2.4 Visualizing Numerical Data 98
EG2.5 Visualizing Two Numerical Variables 101 4 Basic Probability 154
EG2.6 Challenges in Visualizing Data 102
Using Statistics: Possibilities at M&R Electronics World 155
EG2.7 Organizing and Visualizing Many Variables 102
EG2.8 PivotTables and Business Analytics 103 4.1 Basic Probability Concepts 156
Events and Sample Spaces 157
Contingency Tables 158
3 Numerical Descriptive Simple Probability 158
Joint Probability 159
Measures 104 Marginal Probability 160
General Addition Rule 161
Using Statistics: More Descriptive Choices 105 4.2 Conditional Probability 164
3.1 Central Tendency 106 Computing Conditional Probabilities 164
The Mean 106 Decision Trees 166
The Median 108 Independence 167
The Mode 109 Multiplication Rules 168
The Geometric Mean 110 Marginal Probability Using the General
3.2 Variation and Shape 111 Multiplication Rule 168
The Range 111 4.3 Bayes’ Theorem 172
The Variance and the Standard Deviation 112 Think About This: Divine Providence and Spam 175
The Coefficient of Variation 116
4.4 Ethical Issues and Probability 176
Z Scores 117
Shape: Skewness and Kurtosis 118 4.5 Counting Rules (online) 177
Visual Explorations: Exploring Descriptive Statistics 120 Using Statistics: Possibilities at M&R Electronics World,
Revisited 177
3.3 Exploring Numerical Data 124
Summary 178
Quartiles 124
The Interquartile Range 125 References 178
The Five-Number Summary 126 Key Equations 178
The Boxplot 128 Key Terms 179
 contents xv

CHECKING YOUR UNDERSTANDING 179 6.2 The Normal Distribution 220

Chapter Review Problems 179 Computing Normal Probabilities 222
Finding X Values 227
Cases for Chapter 4
Visual Explorations: Exploring the Normal Distribution 230
Digital Case 181
Think About This: What Is Normal? 231
CardioGood Fitness 181
The Choice Is Yours Follow-up 181 6.3 Evaluating Normality 233
Comparing Data Characteristics to Theoretical
Clear Mountain State Student Surveys 181 Properties 233
Chapter 4 Excel Guide 183 Constructing the Normal Probability Plot 234
EG4.1 Basic Probability Concepts 183 6.4 The Uniform Distribution 236
EG4.2 Conditional Probability 183
6.5 The Exponential Distribution 239
EG4.3 Bayes’ Theorem 183
6.6 The Normal Approximation to the Binomial Distribution

5 Discrete Probability (online) 241

Using Statistics: Normal Downloading at MyTVLab,
Distributions 184 Revisited 241
Summary 241
Using Statistics: Events of Interest at Ricknel Home References 242
Centers 185 Key Equations  242
5.1 The Probability Distribution for a Discrete Variable 186 Key Terms  242
Expected Value of a Discrete Variable 186 CHECKING YOUR UNDERSTANdING 243
Variance and Standard Deviation of a Discrete Variable 187
Chapter Review Problems  243
5.2 Covariance of a Probability Distribution and Its
Cases for Chapter 6
Application in Finance 189
Covariance 189 Managing Ashland MultiComm Services 244
Expected Value, Variance, and Standard Deviation of the Digital Case 245
Sum of Two Variables 191 CardioGood Fitness 245
Portfolio Expected Return and Portfolio Risk 191 More Descriptive Choices Follow-up 245
5.3 Binomial Distribution 195 Clear Mountain State Student Surveys 245
5.4 Poisson Distribution 202 Chapter 6 Excel Guide 246
5.5 Hypergeometric Distribution 206 EG6.1 Continuous Probability Distributions 246
EG6.2 The Normal Distribution 246
Using Statistics: Events of Interest at Ricknel Home
EG6.3 Evaluating Normality 246
Centers, Revisited 209
EG6.4 The Uniform Distribution 247
Summary 209 EG6.5 The Exponential Distribution 247
References 209
Key Equations  210
Key Terms  210
CHECKING YOUR UNDERSTANdING 211
7 Sampling Distributions 248
Chapter Review Problems  211 Using Statistics: Sampling Oxford Cereals 249
Cases for Chapter 5 7.1 Sampling Distributions 250
Managing Ashland MultiComm Services 213 7.2 Sampling Distribution of the Mean 250
Digital Case 214 The Unbiased Property of the Sample Mean 250
Standard Error of the Mean 252
Chapter 5 Excel Guide 215 Sampling from Normally Distributed Populations 253
EG5.1 The Probability Distribution for a Discrete Variable 215 Sampling from Non-normally Distributed Populations—
 EG5.2 Covariance of a Probability Distribution and Its Application The Central Limit Theorem 256
in Finance 215
EG5.3 Binomial Distribution 216 Visual Explorations: Exploring Sampling
Distributions 258
EG5.4 Poisson Distribution 216
EG5.5 Hypergeometric Distribution 217 7.3 Sampling Distribution of the Proportion 259
7.4 Sampling from Finite Populations (online) 262
6 The Normal Distribution Using Statistics: Sampling Oxford Cereals, Revisited 262
Summary 263
and Other Continuous References 263

Distributions 218 Key Equations  263

Key Terms  263
Using Statistics: Normal Downloading at MyTVLab 219 CHECKING YOUR UNDERSTANDING 263
6.1 Continuous Probability Distributions 220 Chapter Review Problems  264
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xvi contents

Cases for Chapter 7 EG8.3 Confidence Interval Estimate for the Proportion 303
Managing Ashland MultiComm Services 265 EG8.4 Determining Sample Size 303
Digital Case 266
Chapter 7 Excel Guide 267 9 Fundamentals of Hypothesis
EG7.1 Sampling Distributions 267
EG7.2 Sampling Distribution of the Mean 267 Testing: One-Sample Tests 304
EG7.3 Sampling Distribution of the Proportion 267
Using Statistics: Significant Testing at Oxford
Cereals 305

8 Confidence Interval 9.1 Fundamentals of Hypothesis-Testing

Methodology 306
Estimation 268 The Null and Alternative Hypotheses 306
The Critical Value of the Test Statistic 307
Using Statistics: Getting Estimates at Ricknel Home Regions of Rejection and Nonrejection 308
Centers 269 Risks in Decision Making Using Hypothesis Testing 308
Z Test for the Mean (σ Known) 310
8.1 Confidence Interval Estimate for the Mean
(σ Known) 270 Hypothesis Testing Using the Critical Value Approach 311
Can You Ever Know the Population Standard Hypothesis Testing Using the p-Value Approach 313
Deviation? 275 A Connection Between Confidence Interval Estimation and
Hypothesis Testing 316
8.2 Confidence Interval Estimate for the Mean Can You Ever Know the Population Standard
(σ Unknown) 276 Deviation? 316
Student’s t Distribution 276
9.2 t Test of Hypothesis for the Mean (σ Unknown) 318
Properties of the t Distribution 277
The Critical Value Approach 318
The Concept of Degrees of Freedom 278
The p-Value Approach 320
The Confidence Interval Statement 279
Checking the Normality Assumption 320
8.3 Confidence Interval Estimate for the
Proportion 284 9.3 One-Tail Tests 324
The Critical Value Approach 324
8.4 Determining Sample Size 287 The p-Value Approach 325
Sample Size Determination for the Mean 287
Sample Size Determination for the Proportion 289
9.4 Z Test of Hypothesis for the Proportion 328
The Critical Value Approach 329
8.5 Confidence Interval Estimation and Ethical The p-Value Approach 330
Issues 293
9.5 Potential Hypothesis-Testing Pitfalls and Ethical Issues 332
8.6 Application of Confidence Interval Estimation in Statistical Significance Versus Practical
Auditing (online) 293 Significance 332
8.7 Estimation and Sample Size Estimation for Finite Statistical Insignificance Versus Importance 333
Populations (online) 294 Reporting of Findings 333
Using Statistics: Getting Estimates at Ricknel Home Ethical Issues 333
Centers, Revisited 294 9.6 Power of the Test (online) 333
Summary 294 Using Statistics: Significant Testing at Oxford Cereals,
References 295 Revisited 334
Key Equations  295 Summary 334
Key Terms  295 References 334
CHECKING YOUR UNDERSTANDING 295 Key Equations  335
Chapter Review Problems  296 Key Terms  335
Cases for Chapter 8 CHECKING YOUR UNDERSTANDING 335
Managing Ashland MultiComm Services 299 Chapter Review Problems  335
Digital Case 300 Cases for Chapter 9
Sure Value Convenience Stores 301 Managing Ashland MultiComm Services 338
CardioGood Fitness 301 Digital Case 338
More Descriptive Choices Follow-up 301 Sure Value Convenience Stores 338
Clear Mountain State Student Surveys 301 Chapter 9 Excel Guide 339
Chapter 8 Excel Guide 302 EG9.1 Fundamentals of Hypothesis-Testing Methodology 339
 EG8.1 Confidence Interval Estimate for the Mean (σ Known) 302 EG9.2 t Test of Hypothesis for the Mean (σ Unknown) 339
 EG8.2 Confidence Interval Estimate for the Mean EG9.3 One-Tail Tests 340
(σ Unknown) 302 EG9.4 Z Test of Hypothesis for the Proportion 340
 contents xvii

10 Two-Sample Tests 342

11.2 The Factorial Design: Two-Way Analysis of
Variance 403
Factor and Interaction Effects 404
Using Statistics: For North Fork, Are There Different Testing for Factor and Interaction Effects 406
Means to the Ends? 343 Multiple Comparisons: The Tukey Procedure 410
10.1 Comparing the Means of Two Independent Visualizing Interaction Effects: The Cell Means Plot 411
Populations 344 Interpreting Interaction Effects 411
Pooled-Variance t Test for the Difference Between Two
11.3 The Randomized Block Design (online) 416
Means 344
Confidence Interval Estimate for the Difference Between 11.4 Fixed Effects, Random Effects, and Mixed Effects
Two Means 349 Models (online) 416
t Test for the Difference Between Two Means, Assuming Using Statistics: Are There Looming Differences at Perfect
Unequal Variances 350 Parachutes? Revisited 416
Think About This: “This Call May Be Monitored …” 352 Summary 416
10.2 Comparing the Means of Two Related Populations 355 References 417
Paired t Test 356 Key Equations  417
Confidence Interval Estimate for the Mean Difference 361
Key Terms  418
10.3 Comparing the Proportions of Two Independent CHECKING YOUR UNDERSTANdING 418
Populations 363
Chapter Review Problems  418
Z Test for the Difference Between Two Proportions 363
Confidence Interval Estimate for the Difference Between Cases for Chapter 11
Two Proportions 367 Managing Ashland MultiComm Services 421
10.4 F Test for the Ratio of Two Variances 369 Digital Case 422
Using Statistics: For North Fork, Are There Different Sure Value Convenience Stores 422
Means to the Ends? Revisited 374 CardioGood Fitness 423
Summary 374 More Descriptive Choices Follow-up 423
References 376 Clear Mountain State Student Surveys 423
Key Equations  376 Chapter 11 Excel Guide 424
Key Terms  376  EG11.1 The Completely Randomized Design: One-Way Analysis
CHECKING YOUR UNDERSTANDING 377
of Variance 424
EG11.2 The Factorial Design: Two-Way Analysis of Variance 426
Chapter Review Problems  377
Cases for Chapter 10
Managing Ashland MultiComm Services 379 12 Chi-Square and
Digital Case 380
Sure Value Convenience Stores 380
Nonparametric Tests 428
CardioGood Fitness 380 Using Statistics: Not Resorting to Guesswork About Resort
More Descriptive Choices Follow-up 381 Guests 429
Clear Mountain State Student Surveys 381 12.1 Chi-Square Test for the Difference Between Two
Chapter 10 Excel Guide 382 Proportions 430
 EG10.1 Comparing the Means of Two Independent 12.2 Chi-Square Test for Differences Among More Than Two
Populations 382 Proportions 437
EG10.2 Comparing the Means of Two Related Populations 384 The Marascuilo Procedure 440
 EG10.3 Comparing the Proportions of Two Independent The Analysis of Proportions (ANOP) (online) 442
Populations 385
EG10.4 F Test for the Ratio of Two Variances 386 12.3 Chi-Square Test of Independence 443
12.4 Wilcoxon Rank Sum Test: A Nonparametric Method for
Two Independent Populations 448
11 Analysis of Variance 388 12.5 Kruskal-Wallis Rank Test: A Nonparametric Method for
the One-Way ANOVA 454
Using Statistics: Are There Looming Differences at Perfect Assumptions 457
Parachutes? 389 12.6 McNemar Test for the Difference Between Two
11.1 The Completely Randomized Design: One-Way Proportions (Related Samples) (online) 458
Analysis of Variance 390 12.7 Chi-Square Test for the Variance or Standard Deviation
One-Way ANOVA F Test for Differences Among More (online) 459
Than Two Means 390
Multiple Comparisons: The Tukey-Kramer Procedure 396 Using Statistics: Not Resorting to Guesswork About Resort
The Analysis of Means (ANOM) (online) 398 Guests, Revisited 459
ANOVA Assumptions 398 Summary 459
Levene Test for Homogeneity of Variance 399 References 460
xviii contents

Key Equations  460 The Prediction Interval for an Individual Response 505
Key Terms  461 13.9 Pitfalls in Regression 507
CHECKING YOUR UNDERSTANdING 461 Strategy for Avoiding the Pitfalls 509
Chapter Review Problems  461 Think About This: By Any Other Name 510
Cases for Chapter 12 Using Statistics: Knowing Customers at Sunflowers
Managing Ashland MultiComm Services 463 Apparel, Revisited 510
Digital Case 464 Summary 511
Sure Value Convenience Stores 464 References 512
CardioGood Fitness 465 Key Equations  512
More Descriptive Choices Follow-up 465 Key Terms  513
Clear Mountain State Student Surveys 465 CHECKING YOUR UNDERSTANdING 513
Chapter 12 Excel Guide 467 Chapter Review Problems  514
 EG12.1 Chi-Square Test for the Difference Between Two Cases for Chapter 13
Proportions 467
Managing Ashland MultiComm Services 518
 EG12.2 Chi-Square Test for Differences Among More Than Two
Proportions 467 Digital Case 518
EG12.3 Chi-Square Test of Independence 468 Brynne Packaging 518
 EG12.4 Wilcoxon Rank Sum Test: A Nonparametric Method for Chapter 13 Excel Guide 520
Two Independent Populations 468 EG13.1 Types of Regression Models 520
 EG12.5 Kruskal-Wallis Rank Test: A Nonparametric Method for EG13.2 Determining the Simple Linear Regression Equation 520
the One-Way ANOVA 469 EG13.3 Measures of Variation 521
EG13.4 Assumptions 521

13 Simple Linear EG13.5 Residual Analysis 521

 EG13.6 Measuring Autocorrelation: The Durbin-Watson
Statistic 522
Regression 470  EG13.7 Inferences About the Slope and Correlation
Coefficient 522
Using Statistics: Knowing Customers at Sunflowers  EG13.8 Estimation of Mean Values and Prediction of Individual
Apparel 471 Values 522
13.1 Types of Regression Models 472
13.2 Determining the Simple Linear Regression
Equation 474
The Least-Squares Method 475 14 Introduction to Multiple
Predictions in Regression Analysis: Interpolation Versus
Extrapolation 477
Regression 524
Computing the Y Intercept, b0, and the Slope, b1 478 Using Statistics: The Multiple Effects of OmniPower
Visual Explorations: Exploring Simple Linear Regression Bars 525
Coefficients 480
14.1 Developing a Multiple Regression Model 526
13.3 Measures of Variation 483 Interpreting the Regression Coefficients 526
Computing the Sum of Squares 483 Predicting the Dependent Variable Y 529
The Coefficient of Determination 484
14.2 r2, Adjusted r2, and the Overall F Test 531
Standard Error of the Estimate 486
Coefficient of Multiple Determination 531
13.4 Assumptions of Regression 488 Adjusted r2 532
13.5 Residual Analysis 488 Test for the Significance of the Overall Multiple Regression
Evaluating the Assumptions 488 Model 532
13.6 Measuring Autocorrelation: The Durbin-Watson 14.3 Residual Analysis for the Multiple Regression
Statistic 492 Model 535
Residual Plots to Detect Autocorrelation 492 14.4 Inferences Concerning the Population Regression
The Durbin-Watson Statistic 493 Coefficients 537
13.7 Inferences About the Slope and Correlation Tests of Hypothesis 537
Coefficient 496 Confidence Interval Estimation 538
t Test for the Slope 496 14.5 Testing Portions of the Multiple Regression Model 540
F Test for the Slope 497 Coefficients of Partial Determination 544
Confidence Interval Estimate for the Slope 498
14.6 Using Dummy Variables and Interaction Terms in
t Test for the Correlation Coefficient 499 Regression Models 545
13.8 Estimation of Mean Values and Prediction of Individual Dummy Variables 546
Values 503 Interactions 548
The Confidence Interval Estimate for The Mean Response 504
14.7 Logistic Regression 556
 contents xix

Using Statistics: The Multiple Effects of OmniPower Bars, Cases for Chapter 15
Revisited 560 The Mountain States Potato Company 603
Summary 560 Sure Value Convenience Stores 603
References 562 Digital Case 604
Key Equations  562 The Craybill Instrumentation Company Case 604
Key Terms  563 More Descriptive Choices Follow-up 605
CHECKING YOUR UNDERSTANdING 563 Chapter 15 Excel Guide 606
Chapter Review Problems  563 EG15.1 The Quadratic Regression Model 606
Cases for Chapter 14 EG15.2 Using Transformations in Regression Models 606
EG15.3 Collinearity 606
Managing Ashland MultiComm Services 567 EG15.4 Model Building 607
Digital Case 567
Chapter 14 Excel Guide 568
EG14.1 Developing a Multiple Regression Model 568
EG14.2 r2, Adjusted r2, and the Overall F Test 569
16 Time-Series Forecasting 608
EG14.3 Residual Analysis for the Multiple Regression Model 569 Using Statistics: Principled Forecasting 609
 EG14.4 Inferences Concerning the Population Regression 16.1 The Importance of Business Forecasting 610
Coefficients 570
16.2 Component Factors of Time-Series Models 610
EG14.5 Testing Portions of the Multiple Regression Model 570
 EG14.6 Using Dummy Variables and Interaction Terms in 16.3 Smoothing an Annual Time Series 611
Regression Models 570 Moving Averages 612
EG14.7 Logistic Regression 571 Exponential Smoothing 614
16.4 Least-Squares Trend Fitting and Forecasting 617
The Linear Trend Model 617
15 Multiple Regression The Quadratic Trend Model 619
The Exponential Trend Model 620
Model Building 572 Model Selection Using First, Second, and Percentage
Differences 622
Using Statistics: Valuing Parsimony at WHIT-DT 573 16.5 Autoregressive Modeling for Trend Fitting
15.1 The Quadratic Regression Model 574 and Forecasting 627
Finding the Regression Coefficients and Predicting Y 575 Selecting an Appropriate Autoregressive Model 628
Testing for the Significance of the Quadratic Model 577 Determining the Appropriateness of a
Testing the Quadratic Effect 577 Selected Model 630
The Coefficient of Multiple Determination 579 16.6 Choosing an Appropriate Forecasting Model 635
15.2 Using Transformations in Regression Models 582 Performing a Residual Analysis 635
The Square-Root Transformation 582 Measuring the Magnitude of the Residuals Through Squared
The Log Transformation 583 or Absolute Differences 636
Using the Principle of Parsimony 636
15.3 Collinearity 585
A Comparison of Four Forecasting Methods 636
15.4 Model Building 586
16.7 Time-Series Forecasting of Seasonal Data 638
The Stepwise Regression Approach to Model Building 588
Least-Squares Forecasting with Monthly or Quarterly Data 639
The Best-Subsets Approach to Model Building 589
Model Validation 593 16.8 Index Numbers (online) 644
Think About This: Let The Model User Beware 645
15.5 Pitfalls in Multiple Regression and Ethical Issues 594
Pitfalls in Multiple Regression 594 Using Statistics: Principled Forecasting, Revisited 645
Ethical Issues 595 Summary 645
15.6 Predictive Analytics and Data Mining 595 References 646
Data Mining 595 Key Equations  646
Data Mining Examples 596 Key Terms  647
Statistical Methods in Business Analytics 596 CHECKING YOUR UNDERSTANdING 647
Data Mining Using Excel Add-ins 597
Chapter Review Problems  648
Using Statistics: Valuing Parsimony at WHIT-DT,
Cases for Chapter 16
Revisited 598
Summary 598
Managing Ashland MultiComm Services 649
Digital Case 649
References 600
Key Equations  600 Chapter 16 Excel Guide 650
EG16.1 The Importance of Business Forecasting 650
Key Terms  600
EG16.2 Component Factors of Time-Series Models 650
CHECKING YOUR UNDERSTANdING 601
EG16.3 Smoothing an Annual Time Series 650
Chapter Review Problems  601 EG16.4 Least-Squares Trend Fitting and Forecasting 651
xx contents

 EG16.5 Autoregressive Modeling for Trend Fitting and 18.8 Six Sigma
Forecasting 652 The DMAIC Model
EG16.6 Choosing an Appropriate Forecasting Model 652 Roles in a Six Sigma Organization
EG16.7 Time-Series Forecasting of Seasonal Data 653
Using Statistics: Improving Guest Satisfaction, Revisited
Summary
17 A Roadmap for References

Analyzing Data 654

Key Equations
Key Terms
CHECKING YOUR UNDERSTANdING
Using Statistics: Mounting Future Analyses 655
Chapter Review Problems
17.1 Analyzing Numerical Variables 658
Describing the Characteristics of a Numerical Cases for Chapter 18
Variable 658 The Harnswell Sewing Machine Company Case
Reaching Conclusions About the Population Mean and/or Managing Ashland Multicomm Services
Standard Deviation 658
Chapter 18 Excel Guide
Determining Whether the Mean and/or Standard Deviation
Differs Depending on the Group 658 EG18.1 The Theory of Control Charts
Determining Which Factors Affect the Value of a EG18.2 Control Chart for the Proportion: The p Chart
Variable 659  EG18.3 The Red Bead Experiment: Understanding Process
Predicting the Value of a Variable Based on the Values of Variability
Other Variables 659  EG18.4 Control Chart for an Area of Opportunity: The c Chart
Determining Whether the Values of a Variable Are Stable EG18.5 Control Charts for the Range and the Mean
over Time 659 EG18.6 Process Capability
17.2 Analyzing Categorical Variables 660
Describing the Proportion of Items of Interest in Each
Category 660
Reaching Conclusions About the Proportion of Items of
19 Decision Making
Interest 660
Determining Whether the Proportion of Items of Interest
(online)
Differs Depending on the Group 660
Using Statistics: Reliable Decision Making
Predicting the Proportion of Items of Interest Based on the
Values of Other Variables 661 19.1 Payoff Tables and Decision Trees
Determining Whether the Proportion of Items of Interest Is 19.2 Criteria for Decision Making
Stable over Time 661 Maximax Payoff
Using Statistics: Mounting Future Analyses, Revisited 661 Maximin Payoff
Chapter Review Problems  662 Expected Monetary Value
Expected Opportunity Loss
Return-to-Risk Ratio
18 Statistical Applications 19.3 Decision Making with Sample Information
in Quality Management 19.4 Utility
Think About This: Risky Business
(online) Using Statistics: Reliable Decision-Making, Revisited
Summary
Using Statistics: Improving Guest Satisfaction at the
References
Beachcomber
Key Equations
18.1 The Theory of Control Charts
Key Terms
18.2 Control Chart for the Proportion: The p Chart
Chapter Review Problems
18.3 The Red Bead Experiment: Understanding Process
Chapter 19 Excel Guide
Variability
EG19.1 Payoff Tables and Decision Trees
18.4 Control Chart for an Area of Opportunity: EG19.2 Criteria for Decision Making
The c Chart
18.5 Control Charts for the Range and the Mean Appendices 665
The R
_ Chart A. Basic Math Concepts and Symbols 666
The X Chart
A.1  Rules for Arithmetic Operations 666
18.6 Process Capability
Customer Satisfaction and Specification Limits A.2   Rules for Algebra: Exponents and Square
Capability Indices Roots 666
CPL, CPU, and Cpk A.3  Rules for Logarithms 667
18.7 Total Quality Management A.4  Summation Notation 668
 contents xxi

A.5  Statistical Symbols 671 E.2   The Cumulative Standardized Normal

A.6  Greek Alphabet 671 Distribution 694
B. Required Excel Skills 672 E.3  Critical Values of t 696
E.4  Critical Values of χ 698
2
B.1   Worksheet Entries and References 672
B.2   Absolute and Relative Cell References 673 E.5   Critical values of F 699
B.3  Entering Formulas into Worksheets 673 E.6   Lower and Upper Critical Values T1, of the
Wilcoxon Rank Sum Test 703
B.4   Pasting with Paste Special 674
E.7   Critical Values of the Studentized Range, Q 704
B.5  Basic Worksheet Formatting 674
E.8  Critical Values, dL and dU, of the Durbin-Watson
B.6  Chart Formatting 676 Statistic, D 706
B.7   Selecting Cell Ranges for Charts 677 E.9  Control Chart Factors 707
B.8   Deleting the “Extra” Bar From a Histogram 677 E.10   The Standardized Normal Distribution 708
B.9   Creating Histograms for Discrete Probability F. Useful Excel Knowledge 709
Distributions 678
F.1  Useful Keyboard Shortcuts 709
C. Online Resources 679
F.2   Verifying Formulas and Worksheets 710
C.1   About the Online Resources for This Book 679
F.3  New Function Names 710
C.2   Accessing the MyStatLab Course Online 679
F.4   Understanding the Non-statistical Functions 712
C.3   Details of Downloadable Files 680
G. PHStat and Microsoft Excel FAQs 714
D. Configuring Software 688
G.1  PHStat FAQs 714
D.1   Getting Microsoft Excel Ready for Use (ALL) 688
G.2  Microsoft Excel FAQs 715
D.2   Getting PHStat Ready for Use 689
G.3   FAQs for New Microsoft Excel 2013 Users 716
D.3   Configuring Excel Security for Add-In Usage
(WIN) 689
D.4  Opening PHStat (ALL) 690
Self-Test Solutions and Answers to Selected
D.5   Using a Visual Explorations Add-in Workbook
(ALL) 691
Even-Numbered Problems 717
D.6   Checking for the Presence of the Analysis ToolPak
or Solver Add-Ins (ALL) 691 Index 749
E. Tables 692
E.1   Table of Random Numbers 692
This page intentionally left blank
Preface
Over a generation ago, advances in “data processing” led to new business opportunities as first
centralized and then desktop computing proliferated. The Information Age was born. Computer sci-
ence became much more than just an adjunct to a mathematics curriculum, and whole new fields of
studies, such as computer information systems, emerged.
More recently, further advances in information technologies have combined with data analysis
techniques to create new opportunities in what is more data science than data processing or com-
puter science. The world of business statistics has grown larger, bumping into other disciplines.
And, in a reprise of something that occurred a generation ago, new fields of study, this time with
names such as informatics, data analytics, and decision science, have emerged.
This time of change makes what is taught in business statistics and how it is taught all the
more critical. These new fields of study all share statistics as a foundation for further learning. We
are accustomed to thinking about change, as seeking ways to continuously improve the teaching
of business statistics have always guided our efforts. We actively participate in Decision Sciences
Institute (DSI), American Statistical Association (ASA), and Making Statistics More Effective in
Schools and Business (MSMESB) conferences. We use the ASA’s Guidelines for Assessment and
Instruction (GAISE) reports and combine them with our experiences teaching business statistics to
a diverse student body at several large universities.
What to teach and how to teach it are particularly significant questions to ask during a time of
change. As an author team, we bring a unique collection of experiences that we believe helps us find the
proper perspective in balancing the old and the new. Our lead author, David M. Levine, was the first edu-
cator, along with Mark L. Berenson, to create a business statistics textbook that discussed using statistical
software and incorporated “computer output” as illustrations—just the first of many teaching and curric-
ular innovations in his many years of teaching business statistics. Our second author, David F. Stephan,
developed courses and teaching methods in computer information systems and digital media during the
information revolution, creating, and then teaching in, one of the first personal computer classrooms in
a large school of business along the way. Early in his career, he introduced spreadsheet applications to a
business statistics faculty audience that included David Levine, an introduction that eventually led to the
first edition of this textbook. Our newest co-author, Kathryn A. Szabat, has provided statistical advice to
various business and non-business communities. Her background in statistics and operations research
and her experiences interacting with professionals in practice have guided her, as departmental chair, in
developing a new, interdisciplinary academic department, Business Systems and Analytics, in response
to the technology- and data-driven changes in business today.
All three of us benefit from our many years teaching undergraduate business subjects and the
diversity of interests and efforts of our past co-authors, Mark Berenson and Timothy Krehbiel. We
are pleased to offer the innovations and new content that are itemized starting on the next page. As
in prior editions, we are guided by these key learning principles:
• Help students see the relevance of statistics to their own careers by providing examples
drawn from the functional areas in which they may be specializing.
• Emphasize interpretation of statistical results over mathematical computation.
• Give students ample practice in understanding how to apply statistics to business.
• Familiarize students with how to use statistical software to assist business decision making.
• Provide clear instructions to students for using statistical applications.
Read more about these principles on page xxvii.

What’s New and Innovative in This Edition?

This seventh edition of Statistics for Managers Using Microsoft Excel contains both new and inno-
vative features and content, while refining and extending the use of the DCOVA (Define, Collect,
Organize, Visualize, and Analyze) framework, first introduced in the sixth edition as an integrated
approach for applying statistics to help solve business problems.
xxiii
xxiv preface

Innovations
Let’s Get Started: Big Things to Learn First—In a time of change, you can never know exactly what
knowledge and background students bring into an introductory business statistics classroom. Add
that to the need to curb the fear factor about learning statistics that so many students begin with, and
there’s a lot to cover even before you teach your first statistical concept.
We created “Let’s Get Started: Big Things to Learn First” to meet this challenge. This
unit sets the context for explaining what statistics is (not what students may think!) while
ensuring that all students share an understanding of the forces that make learning business
statistics critically important today. Especially designed for instructors teaching with course
management tools, including those teaching hybrid or online courses, “Let’s Get Started”
has been developed to be posted online or otherwise distributed before the first class section
begins and is available from the download page for this book that is discussed in Appendix
Section C.1.
Complete Microsoft Windows and OS X Excel-Based Solutions for Learning Business
Statistics—Expanding on the contents of previous editions, this book features revised Excel
Guides that address differences in current versions and features a new version of PHStat,
the Pearson Education statistics add-in, that is simpler to set up and is compatible with both
Microsoft Windows and OS X versions of Microsoft Excel. Using PHStat or the expanded
set of Excel Guide workbooks that serve as models and templates for solutions gives students
two distinct ways of incorporating Excel in their study of statistics. (See Section EG.2 on
page 10 in the Excel Guide for “Let’s Get Started: Big Things to Learn First” for complete
details.)
Student Tips—In-margin notes reinforce hard-to-master concepts and provide quick study tips for
mastering important details.
Discussion of Business Analytics—“Let’s Get Started: Big Things to Learn First” quickly defines
business analytics and big data and explains how these things are changing the face of statistics.
Section 2.8, “PivotTables and Business Analytics,” uses standard Microsoft Excel features to
explain and illustrate descriptive analytics techniques. Section 14.7, “Logistic Regression,” and
Section 15.6, “Predictive Analytics and Data Mining,” explain and illustrate predictive analytics
concepts and techniques.
Digital Cases—In the Digital Cases, learners must examine interactive PDF documents to sift
through various claims and information in order to discover the data most relevant to a business
case scenario. Learners then determine whether the conclusions and claims are supported by
the data. In doing so, learners discover and learn how to identify common misuses of statistical
information. Many Digital Cases extend a chapter’s Using Statistics scenario by posing additional
questions and raising issues about the scenario.
Digital Cases appear at the end of all chapters and are the successors to the Web Cases found
in previous editions. (Instructional tips for using the Digital Cases and solutions to the Digital
Cases are included in the Instructor’s Solutions Manual.)
Chapter—Short Takes Online electronic documents that are available for viewing or download
supply additional insights or explanations to important statistical concepts or details about the
worksheet-based solutions presented in this book.

Revised and Enhanced Content

New Continuing End-of-Chapter Cases—This seventh edition features several new end-of-chapter
cases. Managing Ashland MultiComm Services is a new integrated case about a consumer-
oriented telecommunications provider that appears throughout the book, replacing the Springville
Herald case in the previous edition. New and recurring throughout the book is a case that con-
cerns analysis of sales and marketing data for home fitness equipment (CardioGood Fitness), a
case that concerns pricing decisions made by a retailer (Sure Value Convenience Stores), and
the More Descriptive Choices Follow-Up case, which extends the use of the retirement funds
sample first introduced in Chapter 2. Also recurring is the Clear Mountain State Student Surveys
case, which uses data collected from surveys of undergraduate and graduate students to practice
and reinforce statistical methods learned in various chapters. This case replaces end-of-chapter
Other documents randomly have
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