MTH213: Business Statistics

Chapter 1: Defining and Collecting Data

Zayed University

College of Natural and Health Sciences

Department of Mathematics and Statistics

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1 Introduction to Business Statistics

2 Defining Data
Populations and Samples

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Objectives

In this chapter, you learn:

What statistics is.
How statistics is fundamental to business.
The basic concepts and vocabulary of statistics.
To understand issues that arise when defining variables.
How to define variables.

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What is Statistics?
The term statistics can refer to numerical facts such as averages,
medians, percents, and index numbers that help us understand a
variety of business and economic situations.
Statistics is the science of collecting, analyzing, presenting, and
interpreting data to make decisions; i.e., the methods that help
transform data into useful information for decision makers.
The DCOVA Framework
1 Define the data that you want to study in order to solve a problem
or meet an objective.
2 Collect the data from appropriate sources.
3 Organize the data collected by developing tables.
4 Visualize the data collected by developing charts.
5 Analyze the data collected to reach conclusions and present those
results.
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Branches of Statistics
1 Descriptive statistics: statistical methods that summarize and de-
scribe the prominent features of data.
I Collect data
e.g., Survey, Experiment
I Summarize, visualize, present data
e.g., Tables and graphs
I Analyze data
e.g., Mean, Frequencies, Percentages
2 Inferential statistics: statistical methods that generalize results
from a sample to a population.
I Estimation
e.g., Estimate the mean starting salary of ZU business graduates
using the sample mean salary.
I Hypothesis testing
e.g., Test the claim that the mean starting salary of ZU business
graduates is at least 25,000 Dhs.
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Statistics in Business
Using the DCOVA framework helps to apply statistics in business
activities:
Visualizing and summarizing business data.
I Descriptive methods used to create charts and tables in addition
to producing numerical summaries (Percentages, averages, etc.).
Drawing conclusions from business data.
I Inferential methods used to reach conclusions about a large group
based on data from a smaller group.
Making reliable forecasts about business activities.
I Inferential methods utilizing statistical models based on business
data.
Improving business processes.
I Involves managerial approaches like Statistical Quality Control
and Six Sigma.
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Applications in Business and Economics

Accounting Public accounting firms use statistical sampling proce-

dures when conducting audits for their clients.
Production A variety of statistical quality control charts are used to
monitor the output of a production process.
Marketing Electronic point-of-sale scanners at retail checkout coun-
ters are being used to collect data for a variety of mar-
keting research applications.
Economics Economists use statistical information in making forecasts
about the future of the economy or some aspect of it.
Finance Financial advisors use a variety of statistical information,
including price-earnings ratios and dividend yields, to guide
their investment recommendations.

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Data and Variables
Data are the facts and figures collected, analyzed, and summarized
for presentation and interpretation.
Elements are the entities on which data are collected.
I Examples: people, companies, countries, homes, etc.
A variable is a characteristic of interest for the elements.
I Examples: age, salary, gender, price, etc.
All the data collected in a particular study are referred to as the
dataset.
The set of measurements obtained for a particular element is called
an observation.
I A data set with n elements contains n observations.
Note: For each variable of interest, there should be an oper-
ational definition, a universally accepted meaning that should
clearly identify the values of the variable necessary to ensure that
collected data are acceptable and appropriate for analysis.
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Data and Variables

Elements

Variables

Data Set

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Types of Variables
1 Qualitative (Categorical) Variables:
I Labels or names used to identify attributes of the elements.
I The labels can be numbers with no real numerical meaning.
I Examples: College (Business, Engineering, Science, etc.), Stu-
dent status (Full-time, Part-time), education level (less than high
school, high school, etc.).
2 Quantitative (Numerical) Variables:
I Numbers (with real meaning), representing measurements, ob-
tained from the sample elements.
I Can be classified as either:
Discrete variables arise from a counting process (measuring how
many).
Continuous variables arise from a measuring process (measuring
how much).
I Examples: Student GPA, Number of employees, Household size,
Profitability.
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Measurement Scales

1 Nominal (Nominative) Scale:

I Data are labels or names used to identify an attribute of the
element.
I A nonnumeric label or numeric code may be used.
I Examples: marital status, gender, work sector (public, private),
get promoted (yes, no), etc.
2 Ordinal Scale:
I The data have the properties of nominal data and the order or
rank of the data is meaningful.
I A nonnumeric label or numeric code may be used.
I Examples: job performance (excellent, good, fair, poor), in-
come level (low, medium, high), educational level (less than high
school, high school, college), etc.

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Measurement Scales
3 Interval Scale:
I The data have the properties of ordinal data, but only difference
between two observations is meaningful.
I The zero point is arbitrary and does not mean the absence of the
quantity that we are trying to measure.
I Examples: 0◦ F means “cold,” not “no heat”; 80◦ F is not twice
as warm as 40◦ F.
4 Ratio Scale:
I The data have all the properties of interval data and the ratio of
two values is meaningful.
I This scale must contain a meaningful zero value that indicates
that nothing exists for the variable at the zero point.
I Examples: In business and finance, most quantitative variables
are ratio variables (salary, profit, age, distance, price, etc.)

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Example: Pelican Stores

Pelican Stores, a division of National Clothing, is a chain of women’s

apparel stores operating throughout the country. The chain recently
ran a promotion in which discount coupons were sent to customers
of other National Clothing stores. Data collected for a sample of 100
in-store credit card transactions at Pelican Stores during one day while
the promotion was running. Customers who made a purchase using
a discount coupon are referred to as promotional customers and cus-
tomers who made a purchase but did not use a discount coupon are
referred to as regular customers. Because the promotional coupons
were not sent to regular Pelican Stores customers, management con-
siders the sales made to people presenting the promotional coupons as
sales it would not otherwise make. Of course, Pelican also hopes that
the promotional customers will continue to shop at its stores.

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Example: Pelican Stores

Type of customer, Method of payment, Marital status and Gender

are qualitative variables on nominal scale.
Age, Number of items purchased and Net sales are quantitative
variables on ratio scale.
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Exercises
1 The table below shows information for a sample of 10 automobiles
as reported by the US Department of Energy.
a How many elements are in this dataset?
b How many variables are in this dataset?
c Which variables are qualitative and which are quantitative?
d What type of measurement scale is used for each of the variables?

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Exercises
2 For each of the following variables, determine whether the variable
is categorical or numerical. If the variable is numerical, determine
whether the variable is discrete or continuous. In addition, deter-
mine the measurement scale.
a Amount of time spent shopping in the bookstore.
b Number of customers waiting in the service line.
c Employment Status (employed, unemployed).
d The price of a laptop.
e Favorite soccer team.
f Quality of an item (low, medium, high).
g Number of cars in the household
h Monthly data usage (in MB)
i Number of resignations in a company per year.
j Time needed to conduct an interview (in minutes).
k Starting salary of a ZU Accounting graduate.
l The major of a randomly selected ZU Business student.
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Populations and Samples
The objective of an investigation is to find out something about a
certain population. It is generally impossible or impractical to find out
something about the entire population, but we may examine a part of
it to make inferences regarding the entire population.
A population consists of all the items or individuals about which
you want to draw a conclusion. The population is the “large
group”.
A sample is the portion of a population selected for analysis. The
sample is the ”small group”.
A parameter is a numerical characteristic of a population, which
is usually unknown.
A statistic is computed from the sample and varies from sample to
sample and used as an estimate of the corresponding population
parameter.
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Populations and Samples

Population Sample
Population Sample

All the items or individuals about A portion of the population of

which you want to draw conclusion(s) items or individuals

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Exercise
1 The Household Expenditure and Income survey 2014-2015 indi-
cated that the annual average of household income of Emirati
families is 866,890 Dhs. Interestingly, 59% of this income is from
salaries and benefits. The results are based on a survey of 1,800
families selected from a list of 141,000 families in Dubai.
a Describe the population of interest.
b Describe the sample that was collected.
c Is 866,890 a parameter or a statistic? Explain.
d Is 59% a parameter or a statistic?
2 A manufacturer of children toys claims that less than 5% of his
products are defective. When 500 toys were drawn from a large
production run, 8% were found to be defective.
a What is the population of interest?
b What is the sample?
c Does the value 5% refer to the parameter or the statistic?
d Is the value 8% a parameter or a statistics?
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