Business Statistics:

A Decision-Making Approach

Chapter 3
Describing Data Using
Numerical Measures

Chap 3-1
 Chapter Goals
After completing this chapter, you should be able to:
 Compute and interpret the mean, median, and mode for a
set of data
 Compute the range, variance, and standard deviation and
know what these values mean
 Construct and interpret a box and whisker graph
 Compute and explain the coefficient of variation and
z scores
 Use numerical measures along with graphs, charts, and
tables to describe data
Chap 3-2
 Chapter Topics
 Measures of Center and Location
 Mean, median, mode
 Other measures of Location
 Weighted mean, percentiles, quartiles
 Measures of Variation
 Range, interquartile range, variance and standard
deviation, coefficient of variation
 Using the mean and standard deviation together
 Coefficient of variation, z-scores
Chap 3-3
 Summary Measures

Describing Data Numerically

Center and Location Other Measures Variation

of Location
Mean Range
Percentiles
Median Interquartile Range
Quartiles
Mode
Variance
Weighted Mean
Standard Deviation

Coefficient of
Variation
Chap 3-4
 Measures of Center and Location
Overview
Center and Location

Mean Median Mode Weighted Mean

x i
XW 
 wx i i
x  i1
n w i
N

x i W 
 wxi i

 i1
N
w i
Chap 3-5
 Mean (Arithmetic Average)
 The Mean is the arithmetic average of data
values
 Population mean N = Population Size
N

x i
x1  x 2    x N
  i1
N N
 Sample mean n = Sample Size
n

x i
x1  x 2    x n
x i1

n n
Chap 3-6
 Mean (Arithmetic Average)
(continued)

 The most common measure of central tendency

 Mean = sum of values divided by the number of values
 Affected by extreme values (outliers)

0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10

Mean = 3 Mean = 4

1  2  3  4  5 15 1  2  3  4  10 20
 3  4
5 5 5 5
Chap 3-7
 Median

 In an ordered array, the median is the “middle”

number, i.e., the number that splits the
distribution in half
 The median is not affected by extreme values

0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10

Median = 3 Median = 3

Chap 3-8
 Median
(continued)
 To find the median, sort the n data values
from low to high (sorted data is called a
data array)
 Find the value in the i = (1/2)n position
 The ith position is called the Median Index
Point
 If i is not an integer, round up to next highest
integer

Chap 3-9
 Median Example
(continued)
Data array:
4, 4, 5, 5, 9, 11, 12, 14, 16, 19, 22, 23, 24
 Note that n = 13
 Find the i = (1/2)n position:
i = (1/2)(13) = 6.5
 Since 6.5 is not an integer, round up to 7
 The median is the value in the 7th position:
Md = 12
Chap 3-10
 Shape of a Distribution
 Describes how data is distributed
 Symmetric or skewed

Left-Skewed Symmetric Right-Skewed

Mean < Median Mean = Median Median < Mean

(Longer tail extends to left) (Longer tail extends to right)
Chap 3-11
 Mode
 A measure of location
 The value that occurs most often
 Not affected by extreme values
 Used for either numerical or categorical data
 There may be no mode
 There may be several modes

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 0 1 2 3 4 5 6

Mode = 5 No Mode
Chap 3-12
 Weighted Mean

 Used when values are grouped by frequency or

relative importance

Example: Sample of
26 Repair Projects
Weighted Mean Days
Days to
Frequency to Complete:
Complete
5 4 XW 
 wx
i i

(4 5)  (12 6)  (8 7)  (2 8)
6 12 w i 4  12  8  2
7 8 164
  6.31 days
8 2 26

Chap 3-13
 Review Example
 Five houses on a hill by the beach
$2,000 K
House Prices:

$2,000,000
500,000 $500 K
300,000 $300 K
100,000
100,000

$100 K

$100 K

Chap 3-14
 Summary Statistics

House Prices:
 Mean: ($3,000,000/5)
$2,000,000 = $600,000
500,000
300,000
100,000
100,000
 Median: middle value of ranked data
Sum 3,000,000
= $300,000

 Mode: most frequent value

= $100,000

Chap 3-15
Which measure of location
is the “best”?

 Mean is generally used, unless

extreme values (outliers) exist
 Then Median is often used, since
the median is not sensitive to
extreme values.
 Example: Median home prices may be
reported for a region – less sensitive to
outliers

Chap 3-16
 Other Location Measures
Other Measures
of Location

Percentiles Quartiles

The pth percentile in a data array:  1st quartile = 25th percentile

 p% are less than or equal to this
value  2nd quartile = 50th percentile
 (100 – p)% are greater than or = median
equal to this value
(where 0 ≤ p ≤ 100)  3rd quartile = 75th percentile

Chap 3-17
 Percentiles
 The pth percentile in an ordered array of n values is the
value in ith position, where

p If i is not an integer,
i (n) round up to the next
100 higher integer value

 Example: Find the 60th percentile in an ordered array of

19 values.

p 60 So use value in the

i (n)  (19) 11.4
100 100 i = 12th position
Chap 3-18
 Quartiles
 Quartiles split the ranked data into 4 equal
groups:
25% 25% 25% 25%

Q1 Q2 Q3

 Note that the second quartile (the 50 th percentile)

is the median

Chap 3-19
 Quartiles

 Example: Find the first quartile

Sample Data in Ordered Array: 11 12 13 16 16 17 18 21 22
(n = 9)

25
Q1 = 25 percentile, so find i :
th
i = 100 (9) = 2.25

so round up and use the value in the 3rd position: Q1 = 13

Chap 3-20
 Box and Whisker Plot
 A graphical display of data using a central “box”
and extended “whiskers”:

Example:
25% 25% 25% 25%

* *
Outliers Lower 1st Median 3rd Upper
Limit Quartile Quartile Limit

Chap 3-21
 Constructing the
Box and Whisker Plot

* *
Outliers Lower 1st Median 3rd Upper
Limit Quartile Quartile Limit

The lower limit is Q1 The upper limit is

– 1.5 (Q3 – Q1) Q3 + 1.5 (Q3 – Q1)

 The center box extends from Q1 to Q3

 The line within the box is the median
 The whiskers extend to the smallest and largest values
within the calculated limits
 Outliers are plotted outside the calculated limits
Chap 3-22
 Shape of Box and Whisker Plots
 The Box and central line are centered between the
endpoints if data is symmetric around the median

 (A Box and Whisker plot can be shown in either

vertical or horizontal format)

Chap 3-23
 Distribution Shape and
Box and Whisker Plot

Left-Skewed Symmetric Right-Skewed

Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3

Chap 3-24
 Box-and-Whisker Plot Example
 Below is a Box-and-Whisker plot for the following data:
Min Q1 Q2 Q3 Max
0 2 2 2 3 3 4 5 6 11 27

*
0 2 3 6 12 27
Upper limit = Q3 + 1.5 (Q3 – Q1) 27 is above the
upper limit so is
= 6 + 1.5 (6 – 2) = 12 shown as an outlier
 This data is right skewed, as the plot depicts
Chap 3-25
 Measures of Variation
Variation

Range Variance Standard Deviation Coefficient of

Variation
Population Population
Interquartile
Variance Standard
Range
Deviation

Sample Sample
Variance Standard
Deviation

Chap 3-26
 Variation

 Measures of variation give information on

the spread or variability of the data
values.

Same center,
different variation

Chap 3-27
 Range
 Simplest measure of variation
 Difference between the largest and the smallest
observations:

Range = xmaximum – xminimum

Example:

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Range = 14 - 1 = 13
Chap 3-28
 Disadvantages of the Range
 Ignores the way in which data are distributed

7 8 9 10 11 7 8 9 10 11
12 Range = 12 - 7 = 5 12 Range = 12 - 7 = 5

 Sensitive to outliers
1,1,1,1,1,1,1,1,1,1,1,2,2,2,2,2,2,2,2,3,3,3,3,4,5
Range = 5 - 1 = 4

1,1,1,1,1,1,1,1,1,1,1,2,2,2,2,2,2,2,2,3,3,3,3,4,120
Range = 120 - 1 = 119
Chap 3-29
 Interquartile Range

 Can eliminate some outlier problems by using

the interquartile range

 Eliminate some high-and low-valued

observations and calculate the range from the
remaining values.

 Interquartile range = 3rd quartile – 1st quartile

Chap 3-30
 Interquartile Range Example

Example:
X Median X
minimum Q1 (Q2) Q3 maximum

25% 25% 25% 25%

12 30 45 57 70

Interquartile range
= 57 – 30 = 27

Chap 3-31
 Variance
 Average of squared deviations of values from
the mean
 Population variance: N

2
 i
(x  μ) 2

σ  i1
N

n
 Sample variance:
2
 i
(x  x ) 2

s  i1
n -1
Chap 3-32
 Standard Deviation
 Most commonly used measure of variation
 Shows variation about the mean
 Has the same units as the original data
N
 Population standard deviation:
 i
(x  μ) 2

σ i1
N

n

Sample standard deviation:
 i
(x  x ) 2

s i1
n -1
Chap 3-33
 Calculation Example:
Sample Standard Deviation
Sample
Data (Xi) : 10 12 14 15 17 18 18 24
n=8 Mean = x = 16
(10  x ) 2  (12  x ) 2  (14  x ) 2    (24  x ) 2
s
n 1

(10  16) 2  (12  16) 2  (14  16) 2    (24  16) 2


8 1

130
  4.3095
7
Chap 3-34
Comparing Standard Deviations
Same mean, but different
standard deviations:
Data A
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 s = 3.338

Data B
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 s = .9258

Data C
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 s = 4.57
Chap 3-35
 Coefficient of Variation
 Measures relative variation
 Always in percentage (%)
 Shows variation relative to mean
 Is used to compare two or more sets of data
measured in different units

Population Sample

σ  s
CV   100% CV   100%

μ  x 
Chap 3-36
 Comparing Coefficients
of Variation
 Stock A:
 Average price last year = $50

 Standard deviation = $5

s $5
 
CVA   100%  100% 10%
x $50 Both stocks
have the same
 Stock B: standard
 Average price last year = $100 deviation, but
stock B is less
 Standard deviation = $5
variable relative
to its price
s $5
CVB   100%  100% 5%
x $100
Chap 3-37
 The Empirical Rule
 If the data distribution is bell-shaped, then
the interval:
 μ 1σ contains about 68% of the values in
the population or the sample

68%

μ
μ 1σ
Chap 3-38
 The Empirical Rule

μ 2σ contains about 95% of the values in
the population or the sample
 μ 3σ contains about 99.7% of the values
in the population or the sample

95% 99.7%

μ 2σ μ 3σ

Chap 3-39
 Tchebysheff’s Theorem
 Regardless of how the data are distributed,
at least (1 - 1/k2) of the values will fall within
k standard deviations of the mean

 Examples:
At least within
(1 - 1/12) = 0% ……..... k=1 (μ ± 1σ)
(1 - 1/22) = 75% …........ k=2 (μ ± 2σ)
(1 - 1/32) = 89% ………. k=3 (μ ± 3σ)

Chap 3-40
 Standardized Data Values

 A standardized data value refers to

the number of standard deviations a
value is from the mean

 Standardized data values are

sometimes referred to as z-scores

Chap 3-41
Standardized Population Values

x μ
z
σ
where:
 x = original data value

 μ = population mean

 σ = population standard deviation

 z = standard score

(number of standard deviations x is from μ)

Chap 3-42
 Standardized Sample Values

x x
z
s
where:
 x = original data value

 x = sample mean

 s = sample standard deviation

 z = standard score

(number of standard deviations x is from μ)

Chap 3-43
 Standardized Value Example
 IQ scores in a large population have a bell-
shaped distribution with mean μ = 100 and
standard deviation σ = 15
Find the standardized score (z-score) for a
person with an IQ of 121.

Answer: x  μ 121  100

z  1.4
σ 15

Someone with an IQ of 121 is 1.4 standard deviations

above the mean
Chap 3-44
 Using Microsoft Excel

 Descriptive Statistics are easy to obtain

from Microsoft Excel

 Use menu choice:

Data / data analysis / descriptive statistics

 Enter details in dialog box

Chap 3-45
 Using Excel

 Select:
Data / data analysis / descriptive statistics
Chap 3-46
 Using Excel
(continued)

 Enter dialog box

details

 Check box for

summary statistics

 Click OK
Chap 3-47
 Excel output

Microsoft Excel
descriptive statistics output,
using the house price data:
House Prices:

$2,000,000
500,000
300,000
100,000
100,000

Chap 3-48
 Chapter Summary

 Described measures of center and location

 Mean, median, mode, weighted mean
 Discussed percentiles and quartiles
 Created Box and Whisker Plots
 Illustrated distribution shapes
 Symmetric, skewed

Chap 3-49
 Chapter Summary
(continued)

 Described measure of variation

 Range, interquartile range, variance,
standard deviation, coefficient of variation
 Discussed Tchebysheff’s Theorem
 Calculated standardized data values

Chap 3-50