Introduction to

Quantitative Methods
in Statistics for
Business
Lecture:
Welcome to the world of Statistics. You are probably
wondering “why should I learn statistics?”
Statistics helps us make better sense of the world
and make better business decisions.
• For example, by understanding statistics we are
able to understand internet article and reports,
magazine articles, newspaper articles.
• Also, we are able to use the data provided to us in
business memos, business research, technical
journals, and reports to make better business
decisions.
In business, statistics has several critical
uses. We use statistics to:
 summarize business data
 draw conclusions from business data
 make reliable forecasts about
activities
 improve business processes
 Today's good decisions are driven by
data. In all aspects of our lives, and
importantly in the business context, an
amazing diversity of data is available
for inspection and analytical insight.
Business managers and professionals
are increasingly required to justify
decisions on the basis of data. They
need statistical model-based decision
support systems.
 Statisticalskills enable them to
intelligently collect, analyze and
interpret data relevant to their decision-
making. Statistical concepts and
statistical thinking enable them to:
 solveproblems in a diversity of
contexts
 add substance to decisions
 reduce guesswork
 In competitive environment, business
managers must design quality into products,
and into the processes of making the
products. They must facilitate a process of
never-ending improvement at all stages of
manufacturing and service. This is a strategy
that employs statistical methods,
particularly statistically designed
experiments, and produces processes that
provide high yield and products that seldom
fail.
Moreover, it facilitates development of robust
products that are insensitive to changes in the
environment and internal component variation.
Carefully planned statistical studies remove
hindrances to high quality and productivity at
every stage of production. This saves time and
money. It is well recognized that quality must
be engineered into products as early as
possible in the design process. One must know
how to use carefully planned, cost-
effective statistical experiments to improve,
optimize and make robust products and
processes.
Business Statistics is a science assisting
you to make business decisions under
uncertainties based on some numerical and
measurable scales.
 Decisionmaking processes must be based
on data, not on personal opinion nor on
belief.
A course in appreciation of statistical
thinking gives business professionals an
edge.
 Professionals with strong quantitative
skills are in demand.
To get started in this course, it is
important to learn the basic
terminology. These include:
Statistics

• is the branch of mathematics that transforms

data into useful information for decision
makers.
Descriptive Statistics

• is the process of collecting, summarizing,

presenting and analyzing data. Inferential
statistics uses data collected from a small
group to draw conclusions about a larger
group.
Descriptive Methods

• are used to create charts and

tables, to draw conclusions
about business data.
• We collect data (like in a
survey), present data (in tables
and charts), and characterize
data (by giving the sample
mean).
Inferential Methods

• are used to make reliable forecasts

about business activities, to
develop, quantify, and improve
accuracy of predictive models.
• For example, we estimate the
population mean weight using the
same mean weight. Or, we may test
the claim that the population mean
weight is 180 pounds.
Variables

• are a characteristics of an item or individual

and are what you analyze when you use a
statistical method.
• For example, sales, expenses, and net
profile.
• When used in every day speech, variable
suggests that something changes or varies,
and you would expect sales, expenses, and
net profit to have different value from year
to year.
Data

• are the different values

associated with a variable.
• Data values are meaningless
unless their variables have
operational definitions,
universally accepted meanings
that are clear to all associated
with an analysis.
Population

• consists of all the items or individuals about

which you want to draw a conclusion.
• The population is the “large group”.
• All registered voters in Bohol is an example of a
population.

Sample

• is the portion of a population selected for

analysis.
• The sample is the “small group”.
• Using the population of all registered voters in
Bohol, you could create a sample of 500
registered voters to survey.
Parameter

• is a numerical measure that describes a

characteristic of a population.
• The average amount of money spent by all
customers at a store this weekend is an
example because this amount refers to
the amount spent in the entire population.

Statistic

• is a numerical measure that describes a

characteristic of a sample.
• The average amount spent by 30
customers completing the customer
satisfaction survey is an example of a
statistic.
Before we start looking at graphing,
let’s review some basic terminology in
organizing data.
Categorical (qualitative) variables

• have values that can only be placed into

categories, such as “yes” and “no”
• Examples include marital status, political
party, eye color (defined categories)
Numerical (quantitative)
variables
• have values that represent quantities.
• Discrete variables
• arise from a counting process
• Examples: number of children or defects
per hour
• Continuous variables
• arise from a measuring process
• Examples: weight, voltage
Nominal Scale

• classifies data into distinct

categories in which no
ranking is implied.
• For example, the response
to who is your internet
provider results in answers
that are not ranked in value.
They are all equal.
Ordinal Scale

• classifies data into distinct

categories in which ranking is
implied.
• For example:
• the results to what is your faculty
rank could be lecturer, instructor,
assistant professor, associate
professor, and professor.
• Or, what is your grade?
• Each answer has a value that is
ranked higher or lower on a scale.
Surveying and Sampling
Establishing A Business
Objective Focuses Data
Collection
Examples of Business Objectives:
A marketing research analyst needs to
assess the effectiveness of a new
television advertisement.
A pharmaceutical manufacturer needs to
determine whether a new drug is more
effective than those currently in use.
Examples of Business Objectives:
 An operations manager wants to
monitor a manufacturing process to
find out whether the quality of the
product being manufactured is
conforming to company standards.
 An auditor wants to review the
financial transactions of a company
in order to determine whether the
company is in compliance with
generally accepted accounting
principles.
 Sources of Data
Primary Sources
 The data collector is the one using the data
for analysis
 Data from a political survey
 Data collected from an experiment
 Observed data
Secondary Sources
 Theperson performing data analysis is not the
data collector
 Analyzing census data
 Examining data from print journals or data
published on the internet.
Five Categories of Sources of
Data
Data distributed by an organization or
an individual

A designed experiment

A survey

An observational study

Data collected by ongoing business

activities
 Examples of Data
Distributed By Organizations
or Individuals
Financial data on a company
provided by investment services.

Industry or market data from market

research firms and trade
associations.

Stock prices, weather conditions,

and sports statistics in daily
newspapers.
Examples of Data from a
Designed Experiment
Consumer testing of different
versions of a product to help
determine which product should be
pursued further.

Material testing to determine which

supplier’s material should be used in
a product.

Market testing on alternative product

promotions to determine which
promotion to use more broadly.
Examples of Survey
Data
Political polls of registered
voters during political
campaigns.

People being surveyed to

determine their satisfaction with
a recent product or service
experience.
Examples of Data Collected
from Observational Studies
Market researchers utilizing focus groups
to elicit unstructured responses to open-
ended questions.

Measuring the time it takes for customers

to be served in a fast food establishment.

Measuring the volume of traffic through

an intersection to determine if some form
of advertising at the intersection is
justified.
Examples of Data Collected
from Ongoing Business
Activities
A bank studies years of financial
transactions to help them identify
patterns of fraud.

Economists utilize data on searches

done via Google to help forecast
future economic conditions.

Marketing companies use tracking

data to evaluate the effectiveness
of a web site.
Data Cleaning is Often a
Necessary Activity When
Collecting
 Datain the data
Often find “irregularities”
 Typographical or data entry errors
 Values that are impossible or undefined
 Missing values
 Outliers
 When found these irregularities should be reviewed
 Many statistical software packages will handle irregularities
in an automated fashion (Excel does not)
Why Sample?

 Selecting
a sample is less time-
consuming than selecting every item in
the population (census).
 Ananalysis of a sample is less
cumbersome and more practical than an
analysis of the entire population.
A Sampling Process Begins with a
Sampling Frame
 The sampling frame is a listing of items that make up the
population
 Frames are data sources such as population lists, directories, or
maps
 Inaccurate or biased results can result if a frame excludes certain
portions of the population
 Using different frames to generate data can lead to dissimilar
conclusions
Types of Samples

 In convenience sampling, items are selected based only on the

fact that they are easy, inexpensive, or convenient to sample.
 In a judgment sample, you get the opinions of pre-selected
experts in the subject matter.
 In a simple random, every individual or item from the frame
has an equal chance of being selected
Types of Samples
 Systematic Sample: Decide on sample size, divide into a
set number of groups, and randomly select one individual
from each group.
 Stratified Sample: Divide population into two or more
subgroups (called strata) according to some common
characteristic.
 Cluster Sample: Population is divided into several
“clusters,” each representative of the population (exit polls
after elections).
Types of Survey Error
1) Coverage error or selection bias
 Exists if some groups are excluded from
the frame and have no chance of being
selected.
 Ifthe frame is inadequate because
certain groups of items in the population
were not properly included, any random
sample selected will provide only an
estimate of the characteristics of the
frame, not the actual population.
Types of Survey Error
2) Non response error or bias
 People who do not respond may be
different from those who do respond
 You should make several attempts to
convince individuals that may typically
not complete the survey to complete it.
Mode of response should be considered.
Types of Survey Error
3) Sampling error
 Variationfrom sample to sample will
always exist. Chance indicates some
group may always be left out.
 Example when you read polls you are
told the margin of error is +/- 4
percentage points of the actual value.
 You can reduce sampling error by using
larger sample sizes, although doing so
increases the cost of doing the survey.
Types of Survey Error
4) Measurement error
 Due to weaknesses in question design,
respondent error, and interviewer’s
effects on the respondent (“Hawthorne
effect”). Occurs when the interviewee
feels compelled to please the
interviewer.
Ethical Issues

 Coverage error can result in selection bias and becomes an

ethical issue if particular groups are purposely excluded from the
frame so that the survey results are more favorable to the
survey’s sponsor.
 Non-response error can lead to nonresponse bias and becomes
an ethical issue if the sponsor knowingly designs the survey so
that particular groups or individuals are less likely than others to
respond.
Ethical Issues
 Sampling error becomes an ethical issue if the
findings are purposely presented without
reference to the sample size and margin of error
so that the sponsor can promote a viewpoint that
might otherwise be truly insignificant.
 Measurement error becomes an ethical issue if
 the survey sponsors chooses leading
questions that guide the responses in a
particular direction,
 an interviewer, through mannerisms and tone,
purposely creates the Hawthorne effect or
a respondent willfully provides false
information.
Illustration of Random Sampling
 In this exercise we will use
random number generation
to take a random sample
from population. We begin
by entering the data into
the first column.
 Suppose this data
represents the clients in
your company. We have a
population of size 26, and
we are going to take an
individual sample of size 8.
Next, we assign random
numbers to each individual.
 First make sure that the Analysis Tool-Pak add-inn is
activated. To do this, select “Add-ins..” from the “Tools”
Menu on the menu bar. This will allow us to use a Random
Number Generator.

Then under Tools, bring up the Data Analysis menu.

Select Random Number Generation from the list.

Follow the instructions below, or view this
video on Youtube:
https://www.youtube.com/watch?v=V60-IFnih3Q

 Toconfirm whether you already have the

Analysis Toolpak installed, open the Data
tab on the Excel ribbon. If the Analysis
Toolpak is installed, you should see a
Data Analysis button on the Ribbon, like
the one shown here.
If the Analysis Toolpak is not installed,
go to the File tab and select Options
in the left column.

In the Excel Options Window, select

the Add-Ins category on the left. Near
the bottom of this window, you see
Excel Add-ins already selected in a
drop-down menu labeled Manage.

Click the Go button next to this drop-

down.
 TheAdd-Ins dialog will open.
Here, you can select the check
box next to Analysis Toolpak
(and any other add-ins you
want to install). Click OK.
 The Data Analysis button (as
shown in the first screenshot)
should now be available on the
Excel Ribbon, under the Data
tab. This button will open the
Data Analysis dialog, which
offers access to a variety of
analysis tools.
We want 26 random numbers (1 for each unit in our
frame), uniform distribution, and we want the output
range to be the cells immediately to the right of our
data “$B2:$B27”. You should put a label in the cell
above this range.
To select the output range, click
on the red arrow to the right of
the Output Range text box. This
will shrink the dialogue box and
allow you to select the
appropriate cells.

Then press the red arrow again to

return to the dialogue.
 Then click OK.
You’ll see the random
#’s fill in.
Once we have our random numbers,
how does this help us take a random
sample?
 If the numbers are random, then if we
sort the individuals by these
numbers, we should get a random
ordering of the individuals.
 You can now pick the first 8 to get
your random sample of 8, which
would be B, J, W, V, X, D, K, Q. Those
would be the people that you survey.
 Determine the appropriate sample
size was/will be discussed in other
lecture notes. In this problem, you
will give the sample size.
Sample Size Calculator
Another Example: Go to Data Analysis
Let’s say you wanted to use
this same data, but use Excel to
randomly pull 8 values from the Click Sampling
survey set.

Select the input range which

is the random numbers.

Under Sampling Method,

choose Random and select 8.

Click Okay
 You are then provided with a random
sample of 8 numbers from your list of 26

 You can then identify the corresponding

client letter these numbers are associated
with, and that is your survey sample base.