Essentials of

Modern Business
Statistics, 8e
Anderson, Sweeney, Williams,
Camm, Cochran, Fry, Ohlmann

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 Chapter 1: Data and Statistics

• Statistics
• Applications in Business and Economics
• Data Sources
• Descriptive Statistics
• Statistical Inference
• Statistical Analysis Using Microsoft Excel
• Analytics
• Big Data and Data Mining
• Ethical Guidelines for Statistical Practice

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 What Is Statistics?

• The term “statistics” can refer to numerical facts such as averages, medians,
percentages, and maximums that help us understand a variety of business and
economic situations.
• Statistics can also refer to the art and science of collecting, analyzing,
presenting, and interpreting data.

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 Applications in Business and
Economics (1 of 2)
• Accounting
• Public accounting firms use statistical sampling procedures when conducting
audits for their clients.
• Economics
• Economists use statistical information in making forecasts about the future of
the economy or some aspect of it.
• Finance
• Financial advisors use price-earnings ratios and dividend yields to guide
their investment advice.

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 Applications in Business and
Economics (2 of 2)
• Marketing
• Electronic point-of-sale scanners at retail checkout counters are 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.
• Information Systems
• A variety of statistical information helps administrators assess the
performance of computer networks.

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 Data and Data Sets

• Data are the facts and figures collected, analyzed, and summarized for
presentation and interpretation.

• All the data collected in a particular study are referred to as the data set for the
study.

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 Elements, Variables, and Observations

• Elements are the entities on which data are collected.

• A variable is a characteristic of interest for the elements.

• The set of measurements obtained for a particular element is called an

observation.

• A data set with n elements contains n observations.

• The total number of data values in a complete data set is the number of
elements multiplied by the number of variables.

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Data, Data Sets, Elements, Variables, and
Observations

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 Scales of Measurement (1 of 10)

• Scales of measurement include

• Nominal
• Ordinal
• Interval
• Ratio
• The scale determines the amount of information contained in the data.
• The scale indicates the data summarization and statistical analyses that are
most appropriate.

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 Scales of Measurement (2 of 10)

• Nominal

• Data are labels or names used to identify an attribute of the element.

• A nonnumeric label or numeric code may be used.

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 Scales of Measurement (3 of 10)

• Nominal

Example:

The WTO status category for the nations in the previous example is classified
using nonnumerical labels—“member” and “observer.”

Alternatively, a numeric code could be used for the WTO status variable by
letting 1 denote a member nation and 2 denote an observer nation.

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 Scales of Measurement (4 of 10)

• Ordinal

• The data have the properties of nominal data and the order or rank of the
data is meaningful.

• A nonnumeric label or numeric code may be used.

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 Scales of Measurement (5 of 10)

• Ordinal

Example:

The nonnumeric rating labels from AAA to F used for Fitch rating. These can be
rank ordered from best credit rating AAA to poorest credit rating F.

Numerical code can also be used—Class rank of a student in school.

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 Scales of Measurement (6 of 10)

• Interval

• The data have the properties of ordinal data, and the interval between
observations is expressed in terms of a fixed unit of measure.

• Interval data are always numeric.

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 Scales of Measurement (7 of 10)

• Interval

Example:

Melissa has a SAT score of 1985, while Kevin has a SAT score of 1880. Melissa
scored 105 points more than Kevin.

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 Scales of Measurement (8 of 10)

• Ratio

• The data have all the properties of interval data, and the ratio of two values
is meaningful.

• Variables such as distance, height, weight, and time use the ratio scale.

• This scale must contain a zero value that indicates that nothing exists for the
variable at the zero point.

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 Scales of Measurement (9 of 10)

• Ratio

Example:

Melissa’s college record shows 36 credit hours earned, while Kevin’s record
shows 72 credit hours earned. Kevin has twice as many credit hours earned as
Melissa.

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 Categorical and Quantitative Data

• Data can be further classified as being categorical or quantitative.

• The statistical analysis that is appropriate depends on whether the data for the
variable is categorical or quantitative.

• In general, there are more alternatives for statistical analysis when the data are
quantitative.

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 Categorical Data

• Labels or names used to identify an attribute of each element

• Often referred to as qualitative data

• Use either the nominal or ordinal scale of measurement

• Can be either numeric or nonnumeric

• Appropriate statistical analysis is rather limited

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 Quantitative Data

• Quantitative data indicate how many or how much:

• discrete, if measuring how many

• continuous, if measuring how much

• Quantitative data are always numeric.

• Ordinary arithmetic operations are meaningful for quantitative data.

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Scales of Measurement (10 of 10)

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 Cross-Sectional Data

• Cross-sectional data are collected at the same or approximately the same point
in time.

Example:

Data detailing different variables like status, Per capita GDP, Fitch rating for 60
different WTO nations at the same point in time.

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 Time Series Data (1 of 2)

• Time series data are collected over several time periods.

Example:
U.S average price per gallon of conventional regular gasoline between 2012
and 2018
Graphs of time series help analysts understand:
• what happened in the past,
• identify any trends over time, and
• project future values for the time series.

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 Time Series Data (2 of 2)

Graph of Time
Series Data

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 Data Sources (1 of 5)

• Existing Sources
• Internal company records—almost any department
• Business database services—Dow Jones & Co.
• Government agencies—U.S. Department of Labor
• Industry associations—U.S. Travel Association
• Special-interest organizations—Graduate Management Admission Council
(GMAT)
• Internet—more and more firms
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 Data Sources (2 of 5)

• Data Available from Internal Company Records

Record Some of the Data Available

Employee records Name, address, social security number
Production records Part number, quantity produced, direct labor cost, material cost
Inventory records Part number, quantity in stock, reorder level, economic order quantity
Sales records Product number, sales volume, sales volume by region
Credit records Customer name, credit limit, accounts receivable balance
Customer profile Age, gender, income, household size

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 Data Sources (3 of 5)

• Data Available from Selected Government Agencies

Government Agency Some of the Data Available

Census Bureau Population data, number of households, household income
Federal Reserve Board Data on money supply, exchange rates, discount rates
Office of Mgmt. & Budget Data on revenue, expenditures, debt of federal government
Department of Commerce Data on business activity, value of shipments, profit by industry
Bureau of Labor Statistics Customer spending, unemployment rate, hourly earnings, safety
record
DATA.GOV More than 150,000 data sets including agriculture, consumer
education, health, and manufacturing data

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 Data Sources (4 of 5)

• Statistical Studies—Observational

• In observational studies, no attempt is made to control or influence the

variables of interest.
• A survey is a good example.
• An example of an observational study is researchers observing a randomly
selected group of customers that enter a Walmart Supercenter to collect
data on variables such as time spent in the store, gender of the customer,
and the amount spent.

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 Data Sources (5 of 5)

• Statistical Studies—Experimental

• In experimental studies, the variable of interest is first identified. Then one or

more variables are identified and controlled so that data can be obtained
about how they influence the variable of interest.
• The largest experimental study ever conducted is believed to be the 1954
Public Health Service experiment for the Salk polio vaccine. Nearly two
million U.S. children (grades 1 through 3) were selected.

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 Data Acquisition Considerations

• Time Requirement
• Searching for information can be time consuming.
• Information may no longer be useful by the time it is available.
• Cost of Acquisition
• Organizations often charge for information even when it is not their primary
business activity.
• Data Errors
• Using any data that happen to be available or were acquired with little care
can lead to misleading information.

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 Descriptive Statistics

• Most of the statistical information in newspapers, magazines, company reports,

and other publications consist of data that are summarized and presented in a
form that is easy to understand.

• Such summaries of data, which may be tabular, graphical, or numerical, are

referred to as descriptive statistics.

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 Example: Hudson Auto Repair (1 of 2)

• The manager of Hudson Auto would like to have a better understanding of the
cost of parts used in the engine tune-ups performed in her shop. She examines
50 customer invoices for tune-ups. The costs of parts, rounded to the nearest
dollar, are listed on the next slide.

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 Example: Hudson Auto Repair (2 of 2)

• Sample of Parts Cost ($) for 50 Tune-ups

91 78 93 57 75 52 99 80 97 62
71 69 72 89 66 75 79 75 72 76
104 74 62 68 97 105 77 65 80 109
85 97 88 68 83 68 71 69 67 74
62 82 98 101 79 105 79 69 62 73

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 Tabular Summary:
Frequency and Percent Frequency
Parts Cost ($) Frequency Percent Frequency
50 to 59 2 4%
60 to 69 13 26%
70 to 79 16 32%
80 to 89 7 14%
90 to 99 7 14%
100 to 109 5 10%
TOTAL 50 100%

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 Graphical Summary: Bar Chart

Example:
Hudson Auto

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 Numerical Descriptive Statistics

• The most common numerical descriptive statistic is the mean (or average).

• The mean demonstrates a measure of the central tendency, or central location,

of the data for a variable.

• Hudson’s mean cost of parts, based on the 50 tune-ups studied, is $79 (found
by summing up the 50 cost values and then dividing by 50).

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 Statistical Inference

• Population: The set of all elements of interest in a particular study.

• Sample: A subset of the population.

• Statistical inference: The process of using data obtained from a sample to make
estimates and test hypotheses about the characteristics of a population.

• Census: Collecting data for the entire population.

• Sample survey: Collecting data for a sample.

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 Process of Statistical Inference

Example: Hudson Auto

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 Statistical Analysis Using Microsoft Excel
(1 of 5)
• Statisticians often use computer software to perform the statistical computations
required with large amounts of data.

• Many of the data sets in this book are available on the website that
accompanies the book.

• The data sets are in Microsoft Excel format.

• The Excel add-in, StatTools, can be downloaded from the website.

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Statistical Analysis Using Microsoft Excel
(2 of 5)

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 Statistical Analysis Using Microsoft Excel
(3 of 5)
• Excel Worksheet (showing data)

• Note: Rows 10 to 51 are not shown.

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 Statistical Analysis Using Microsoft Excel
(4 of 5)
• Excel Formula Worksheet

• Note: Rows 10 to 51 are not shown.

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 Statistical Analysis Using Microsoft Excel
(5 of 5)
• Excel Value Worksheet

• Note: Rows 10 to 51 are not shown.

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 Analytics

• Scientific process of transforming data into insight for making better decisions.
• Descriptive analysis—Analytical techniques that describe what happened in
the past.
• Predictive analysis
• Analytical techniques that use models constructed from past data to
predict future.
• Helps assess the impact the impact of one variable on another
• Prescriptive analysis—Analytical techniques that yield a best course of
action to take.
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 Big Data and Data Warehousing

• Organizations obtain large amounts of data on a daily basis by means of

magnetic card readers, bar code scanners, point-of-sale terminals, and
touchscreen monitors. Large and complex data sets are known as big data.

• Walmart captures data on 20 to 30 million transactions per day.

• Visa processes 6,800 payment transactions per second.

• Capturing, storing, and maintaining the data, referred to as data warehousing, is

a significant undertaking.

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 Data Mining

• Analysis of the data in the warehouse might aid in decisions that will lead to new
strategies and higher profits for the organization.

• Using a combination of procedures from statistics, mathematics, and computer

science, analysts “mine the data” to convert it into useful information.

• The most effective data mining systems use automated procedures to extract
information from the data prompted by only general or even vague queries by
the user.

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 Data Mining Applications

• The major applications of data mining have been made by companies with a
strong consumer focus such as retail, financial, and communication firms.

• Data mining is used to identify related products that customers who have
already purchased a specific product are also likely to purchase (and then pop-
ups are used to draw attention to those related products).

• As another example, data mining is used to identify customers who should

receive special discount offers based on their past purchasing volumes.

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 Data Mining Requirements

• Statistical methodology such as multiple regression, logistic regression, and

correlation are heavily used.

• Also needed are computer science technologies involving artificial intelligence

and machine learning.

• A significant investment in time and money is required as well.

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 Data Mining Model Reliability

• Finding a statistical model that works well for a particular sample of data does
not necessarily mean that it can be reliably applied to other data.

• With the enormous amount of data available, the data set can be partitioned into
a training set (for model development) and a test set (for validating the model).

• There is, however, a danger of over fitting the model to the point that misleading
associations and conclusions appear to exist.

• Careful interpretation of results and extensive testing is important.

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 Ethical Guidelines for Statistical Practice
(1 of 2)
• In a statistical study, unethical behavior can take a variety of forms including:
• Improper sampling
• Inappropriate analysis of the data
• Development of misleading graphs
• Use of inappropriate summary statistics
• Biased interpretation of the statistical results
• You should strive to be fair, thorough, objective, and neutral as you collect,
analyze, and present data.
• As a consumer of statistics, you should also be aware of the possibility of
unethical behavior by others.

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 Ethical Guidelines for Statistical Practice
(2 of 2)
• The American Statistical Association developed the report “Ethical Guidelines for
Statistical Practice.”
• It contains 52 guidelines organized into 8 topic areas:
• Professional integrity and Accountability
• Integrity of Data and Methods
• Responsibilities to Science/Public/Funder/Client
• Responsibilities to Research Subjects
• Responsibilities to Research Team Colleagues
• Responsibilities to Other Statisticians or Statistics Practitioners
• Responsibilities Regarding Allegations of Misconduct
• Responsibilities of Employers Including Organizations, Individuals, Attorneys, or Other
Clients Employing Statistical Practitioners

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 End of Chapter 1

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