BUSINESS STATISTICS

By
Dr. Anugamini Srivastava
 Lecture 4

Lesson focus Material needed Learning objectives Activities Assessment

Measures of Simple calculator To Understand the steps to Group discussion Quiz 2

Dispersion Excel commands calculate Standard deviation
and variance and use it for
decision making
Measures of dispersion
Measures of dispersion

• The extent of variability.

• The measures of dispersion help to
interpret the variability of data i.e. to know
how much homogenous or heterogeneous
the data is.
• In simple terms, it shows how squeezed or
scattered the variable is.
Characteristics of Measures of Dispersion

•A measure of dispersion should be

rigidly defined
•It must be easy to calculate and
understand
•Not affected much by the
fluctuations of observations
•Based on all observations
Classification of Measures of Dispersion

An absolute measure of dispersion:

• An absolute measure of dispersion contains the same unit as the original
data set.
• The measures which express the scattering of observation in terms of
distances i.e., range, quartile deviation.
• The measure which expresses the variations in terms of the average of
deviations of observations like mean deviation and standard deviation.
• It includes range, standard deviation, quartiles, quartile deviation, mean &
mean deviation etc.
Classification of Measures of Dispersion

A relative measure of dispersion:

• We use a relative measure of dispersion for comparing distributions of
two or more data set and for unit free comparison.
• This measure compares values without units.
 Common relative dispersion methods include:
 Co-efficient of Range
 Co-efficient of Variation
 Co-efficient of Standard Deviation
 Co-efficient of Quartile Deviation
 Co-efficient of Mean Deviation
Main discussion
Difference
Range between maximum
and minimum

dispersion of
Measures of
Standard deviation values in the data
Dispersion
to the mean.

– square of
Variance
standard deviation
Range

• A range is the most common and easily

understandable measure of dispersion.
• It is the difference between two extreme
observations of the data set
Inter-quartile range (Quartile Deviation)

• Interquartile range is defined as the difference

between the 25th and 75th percentile (also
called the first and third quartile).
Quartiles
The quartiles divide a data set into
quarters.
• The first quartile, (Q1) - middle
number between the smallest
number and the median of the
data.
• The third quartile, (Q3) - middle
number between the median
and the largest number.
Inter-quartile range (Quartile Deviation)

• Interquartile range is defined as the difference

between the 25th and 75th percentile (also
called the first and third quartile).
• Hence the interquartile range describes the
middle 50% of observations.
• A measure of variability that overcomes the
dependency on extreme values
Inter-quartile range
• If the interquartile range is large it means
that the middle 50% of observations are
spaced wide apart.
• The important advantage of interquartile
range is that it can be used as a measure of
variability if the extreme values are not
being recorded exactly (as in case of open-
ended class intervals in the frequency
distribution).
Range and inter-quartile range
 Illustration
Students Marks Sorted
attained Max = 49
A 47 21
B 43 25
Min = 21
C 49 32
D 21 43
E 32 47 Range = 49-21 = 28
F 25 49
 Illustratio
Students Marks Sorted
attained
A 47 21
B 43 25 Q1 = ?
C 49 32 Q3 = ?
D 21 43
E 32 47
F 25 49
 Illustration
Students Marks Sorted
attained Q1 = (N+1)/4 = 1.75th
A 47 21
B 43 25 = 21+25/2
C 49 32 = 46/2 = 23
D 21 43
E 32 47
Q3 = 3(N+1)/4
F 25 49
= 5.25th
= 47+49/2 = 48
 Illustration
Students Marks Sorted
attained
A 47 21
Q1 = 23
B 43 25 Q3 = 48
C 49 32
D 21 43
E 32 47 Inter quartile range =
F 25 49 48- 23 = 25
 Variance
• The variance is a measure of variability that utilizes all
the data.
• The square of the standard deviation is the variance..
• The variance is based on the difference between the
value of each observation (xi) and the mean.
• The difference between each xi and the mean (for a
sample, μ for a population) is called a deviation about
the mean.
 𝑛
Variance = ∑ ( 𝑥𝑖 − 𝑥 ) 2

𝑖 =1
𝑛− 1
n= number of data points
 𝑛
Variance = ∑ ( 𝑥𝑖 − μ ) 2

𝑖 =1
𝑛 −1
n= number of data points
 Simplified

( ∑ 𝑥)
2
2
𝛴𝑥 −
Variance = 𝑛
𝑛 −1
n= number of data points
 Illustration
Students Marks = 84/6 = 14
attained
A 11
B 12
C 11
D 20
E 17
F 13
TOTAL 84
 Illustration
Students Marks = 84/6 = 14
attained
A 11 -3
B 12 -2
C 11 -3
D 20 6
E 17 3
F 13 -1
TOTAL 84
 Illustration
Students Marks
attained = 84/6 = 14
A 11 -3 9
𝑛
B 12 -2 4 ∑ ( 𝑥𝑖 − 𝑥 )2
𝑖 =1
C 11 -3 9
𝑛− 1
D 20 6 36
E 17 3 9
F 13 -1 1 VARIANCE () =
TOTAL 84 68
=
= 13.6
 Standard deviation
• Standard deviation (SD) is the most commonly used measure of
dispersion.
• It is a measure of spread of data about the mean.
• SD is the square root of sum of squared deviation from the mean
divided by the number of observations.
• A low standard deviation indicates that the values tend to be close to
the mean of the set, while,
• A high standard deviation indicates that the values are spread out over
a wider range
 √
𝑛

SD = ∑ ( 𝑥𝑖 − 𝑥 ) 2

𝑖=1
𝑛 −1
n= number of data points
 √
𝑛

SD = ∑ ( 𝑥𝑖 − 𝜇 ) 2

𝑖=1
𝑛 −1
n= number of data points
 √
Simplified

(∑ 𝑥 )
2

SD = 2
𝛴𝑥 −
𝑛
𝑛 −1
n= number of data points
 Standard deviation
• In both these formulas n - 1 is used instead of n in the
denominator, as this produces a more accurate estimate of
population SD.
• The reason why SD is a very useful measure of dispersion is
that, if the observations are from a normal distribution, then
68% of observations lie between mean ± 1 SD 95% of
observations lie between mean ± 2 SD and 99.7% of
observations lie between mean ± 3 SD
 Illustration
Students Marks
attained = 84/6 = 14
A 11 -3 9 Standard
𝑛
B 12 -2 4 ∑ ( 𝑥𝑖 − 𝑥 )2 deviation
𝑖 =1
C 11 -3 9
𝑛− 1
D 20 6 36 =
E 17 3 9
F 13 -1 1 VARIANCE () = = 3.68
TOTAL 84 68
=
= 13.6
Square root

Square
 𝑛
Variance = ∑ 𝑓 ( 𝑥𝑖 − 𝑥 ) 2

𝑖 =1
𝑛 −1
n= number of data points

f=frequency
 √
GROUPED
DATA
𝑛

SD = ∑ 𝑓 ( 𝑥𝑖 − 𝑥 ) 2

𝑖=1
𝑛 −1
n= number of data points

f=frequency
 DISCRETE DATA

AGE (X) FREQUENCY

25 2
45 6
35 4
20 1
30 5
AGE (X) FREQUENCY fx
25 2 50
45 6 270
35 4 140
20 1 20
30 5 150
15 630

MEAN= 630/15
= 42
AGE (X) FREQUENCY fx

25 2 50 -10 100 200

45 6 270 10 100 600
35 4 140 0 0 0
20 1 20 -15 225 225
30 5 150 -5 25 125
18 630 1150

𝑛
MEAN= 630/18 =
35 ∑ 𝑓 ( 𝑥 𝑖 − 𝑥 )2 Variance =
𝑖 =1 1150/18-1 = 67.64
𝑛 −1
Sd = 8.22
AGE (X) FREQUENCY fx
25 2 50 -17 289 578
45 6 270 3 9 54
35 4 140 -7 49 196
20 1 20 -22 484 484
30 5 150 -12 144 720
15 630 975 2032

𝑛
MEAN= 630/15
= 42 ∑ 𝑓 ( 𝑥 𝑖 − 𝑥 )2 VARIANCE = = 145.14
𝑖 =1
𝑛 −1
AGE (X) FREQUENCY fx
25 2 50 -17 289 578
45 6 270 3 9 54
35 4 140 -7 49 196
20 1 20 -22 484 484
30 5 150 -12 144 720
15 630 975 2032

√
𝑛

MEAN= 630/15
VARIANCE = = 145.14
∑ 𝑓 ( 𝑥𝑖 − 𝑥 )
2

𝑖=1
= 42
𝑛 −1
SD = = 12.05
Class interval Frequency
0-4 5
5-9 3
10-14 2
15-19 5
20-24 3
25-29 5
30
Class interval Frequency Mid
value (x)
0-4 5 2
5-9 3 7
10-14 2 12
15-19 5 17
20-24 3 22
25-29 5 27
30
Class interval Frequency Mid fx
value (x)
0-4 5 2 10
5-9 3 7 21
10-14 2 12 24
15-19 5 17 85
20-24 3 22 220
25-29 5 27 135
30 495

Mean = 495/30
= 16.5
Class interval Frequency Mid fx
value (x)
0-4 5 2 10 -14.5
5-9 3 7 21 -9.5
10-14 2 12 24 -4.5
15-19 5 17 85 0.5
20-24 3 22 220 5.5
25-29 5 27 135 10.5
30 495

Mean = 495/30
= 16.5
Class interval Frequency Mid value fx
(x)
0-4 5 2 10 -14.5 210.25
5-9 3 7 21 -9.5 90.25
10-14 2 12 24 -4.5 20.25
15-19 5 17 85 0.5 0.25
20-24 3 22 220 5.5 30.25
25-29 5 27 135 10.5 110.25
30 495

Mean = 495/30
= 16.5
Class interval Frequency Mid value fx
(x)
0-4 5 2 10 -14.5 210.25 1051.25
5-9 3 7 21 -9.5 90.25 270.75
10-14 2 12 24 -4.5 20.25 40.5
15-19 5 17 85 0.5 0.25 1.25
20-24 3 22 220 5.5 30.25 90.75
25-29 5 27 135 10.5 110.25 551.25
30 495 2005.75

Mean = 495/30 ∑ 𝑓 ( 𝑥𝑖 − 𝑥 )
2

𝑖 =1
= 16.5
𝑛 −1

Variance =
= 69.16
Class interval Frequency Mid value fx
(x)
0-4 5 2 10 -14.5 210.25 1051.25
5-9 3 7 21 -9.5 90.25 270.75
10-14 2 12 24 -4.5 20.25 40.5
15-19 5 17 85 0.5 0.25 1.25
20-24 3 22 220 5.5 30.25 90.75
25-29 5 27 135 10.5 110.25 551.25
30 495 2005.75

√
𝑛

∑ 𝑓 ( 𝑥𝑖 − 𝑥 )
2

SD = = 8.32
𝑖=1
𝑛 −1
 Coefficients of dispersion
The coefficients of dispersion are calculated (along with the measure of dispersion) when two
series are compared, that differ widely in their averages. The dispersion coefficient is also used
when two series with different measurement units are compared. It is denoted as C.D.
The common coefficients of dispersion are:

C.D. In Terms of Coefficient of dispersion

Range C.D. = (Xmax – Xmin) ⁄ (Xmax + Xmin)
Quartile Deviation C.D. = (Q3 – Q1) ⁄ (Q3 + Q1)
Standard Deviation (S.D.) C.D. = S.D. ⁄ Mean
Mean Deviation C.D. = Mean deviation/Average
Mean deviation
• Mean deviation - the arithmetic mean of the absolute deviations of the
observations from a measure of central tendency is known as the mean
deviation (also called mean absolute deviation).