Outline

❑ Introduction
❑ Frequency Distribution
❑ Measures of Central Tendency
❑ Measures of Dispersion
❑ Skewness and kurtosis
❑ Regression and correlation analysis
❑ Time series Analysis
❑ Index Number
❑ Normal distribution
❑ Sampling distribution
❑ Estimation
❑ Testing hypothesis

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-1

 Statistics

• Boddington defined as: Statistics is the science of estimates and probabilities.

• W.I. King has defined Statistics in a wider context, the science of Statistics is the method of
judging collective, natural or social phenomena from the results obtained by the analysis or
enumeration or collection of estimates

• Seligman explored that statistics is a science that deals with the methods of collecting,
classifying, presenting, comparing and interpreting numerical / quantitative data collected to
throw some light on any sphere of enquiry.

• Spiegal define: statistics is concerned with scientific method for collecting, organizing, summa
rizing, presenting and analyzing data as well as drawing valid conclusions and making
reasonable decisions on the basis of such analysis.

• According to Prof. Horace Secrist, Statistics is the aggregate of facts, affected to a marked
extent by multiplicity of causes, numerically expressed, enumerated or estimated according to
reasonable standards of accuracy, collected in a systematic manner for a pre-determined
purpose, and placed in relation to each other.

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-2

 Definition

■ A collection of quantitative data or numerical information pertaining to a subject or group.

Examples are blood pressure statistics etc.
■ The science that deals with the collection, tabulation, analysis, interpretation, and presentation of
quantitative data.

Major characteristics of statistics as follows:

(i) Statistics are the aggregates of facts. It means a single figure is not statistics.
For example, national income of a country for a single year is not statistics but the same for
two or more years is statistics.

(ii) Statistics are affected by a number of factors. For example, sale of a product
depends on a number of factors such as its price, quality, competition, the income of the consumers,
and so on.

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-3

 Characteristics of statistics

(iii) Statistics must be reasonably accurate. Wrong figures, if analyzed, will lead to erroneous
conclusions. Hence, it is necessary that conclusions must be based on accurate figures.

(iv) Statistics must be collected in a systematic manner. If data are collected in a haphazard manner,
they will not be reliable and will lead to misleading conclusions.

(v) Collected in a systematic manner for a pre-determined purpose

(vi) Lastly, Statistics should be placed in relation to each other. If one collects data unrelated to each
other, then such data will be confusing and will not lead to
any logical conclusions. Data should be comparable over time and over space.

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-4

 Types of Statistics

Descriptive Statistics - methods of organizing, summarizing, and presenting data in an

informative way. For example, tables or graphs are used to organize data, and
descriptive values such as the average score are used to summarize data. These include
measures of central tendency, dispersion, skewness, and kurtosis, which constitute the
essential scope of descriptive statistics.

EXAMPLE 1: A Gallup poll found that 49% of the people in a survey knew the name of the first
book of the Bible. The statistic 49 describes the number out of every 100 persons who knew the
answer.

EXAMPLE 2: According to Consumer Reports, General Electric washing machine owners

reported 9 problems per 100 machines during 2001. The statistic 9 describes the number of
problems out of every 100 machines.

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-5

 Descriptive Statistics

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

and other publications consists of data that are summarized and presented in a form
that is easy for the reader to understand. Such summaries of data, which may be
tabular, graphical or numerical, are referred to as “descriptive statistics”. The
purpose of these types of tabular and graphical summaries is to make the data easier
to interpret.

■ In addition to tabular and graphical displays, numerical descriptive statistics are

used to summarize data. Numerical descriptive statistics are analyzed under the
heading of Central tendency and Measures of Dispersion.

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-6

 Inferential Statistics

Inferential Statistics: also known as inductive statistics, goes beyond describing a given
problem situation by means of collecting, summarizing, and meaningfully presenting the related
data. Instead, it consists of methods that are used for drawing inferences, or making broad
generalizations, about a totality of observations on the basis of knowledge about a part of that
totality. The totality of observations about which an inference may be drawn, or a generalization
made, is called a population or a universe. The part of totality, which is observed for data
collection and analysis to gain knowledge about the population, is called a sample.

• Decision, estimate, prediction, or generalization about a population, based on a sample.

• These are methods for using sample data to make general conclusions (inferences) about
populations. Because a sample is typically only a part of the whole population, sample data
provide only limited information about the population. As a result, sample statistics are generally
imperfect representatives of the corresponding population parameters.
 Use of statistics in business

■ Accounting
Public accounting firms use statistical sampling procedures when
conducting audits for their clients.
■ Finance
Financial analysts use a variety of statistical information, including
price-earnings ratios and dividend yields, to guide their investment
recommendations.
■ Marketing
Electronic point-of-sale scanners at retail checkout counters are being
used to collect data for a variety of marketing research applications.

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-8

 Use of statistics in business

■ Production
A variety of statistical quality control charts are used to monitor the output
of a production process.
■ Economics
Economists use statistical information in making forecasts about the future
of the economy or some aspect of it.

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-9

 Data
• Data are whole set of numbers that represent the facts and figure that
are collected, summarized, analyzed, and interpreted.

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

• The statistical analysis that is appropriate depends on whether the data

for the variable are qualitative or quantitative.

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

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-10

 Data sources

■ Data sources could be seen as of two types, viz., secondary and primary. The two
can be defined as under:

(i) Secondary data: They already exist in some form: published or unpublished -
in an identifiable secondary source. They are, generally, available from published
source(s), though not necessarily in the form actually required.

(ii) Primary data: Those data which do not already exist in any form, and thus
have to be collected for the first time from the primary source(s). By their very
nature, these data require fresh and first-time collection covering the whole
population or a sample drawn from it.

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-11

 Qualitative data
■ Qualitative data refer to qualitative characteristics of a subject or an object. A
characteristic is qualitative in nature when its observations are defined and noted in terms
of the presence or absence of a certain attribute in discrete numbers. These data are
further classified as nominal and rank data.

■ Qualitative data are labels or names used to identify an attribute of each element.

■ Qualitative data use either the nominal or ordinal scale of measurement.

■ Qualitative data can be either numeric or nonnumeric.

■ The statistical analysis for qualitative data are rather limited.

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-12

 Quantitative data

■ Quantitative data indicate either how many or how much.

■ Quantitative data that measure how many are discrete.

■ Quantitative data that measure how much are continuous, because
there is no separation between the possible values for the data.

■ Quantitative data are always numeric.

■ Ordinary arithmetic operations are meaningful only with quantitative
data.

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-13

 population and sample

■ The population is the set of all elements of interest in a particular study.

■ A sample is a subset of the population.

■ A variable is a characteristic or condition that can change or take on

different values.

■ Types of variable :Qualitative and quantitative variable

■ Types of quantitative variable :discrete and continuous

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-14

 population and sample

Population

Sample

Populations and Samples

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc.
15 Chap 2-15
 Measuring variables

To establish relationships between variables, researchers must observe the

variables and record their observations. This requires that the variables be
measured.

■ The process of measuring a variable requires a set of categories called a

scale of measurement and a process that classifies each individual into
one category.

1. Nominal
2. Ordinal
3. Interval
4. Ratio

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc.

16 Chap 2-16
 Types of Measurement scale

1. A nominal scale is an unordered set of categories identified only by name. Nominal

measurements only permit you to determine whether two individuals are the same or
different. ex , Religion, color, Gender

2. An ordinal scale is an ordered set of categories. Ordinal measurements tell you the
direction of difference between two individuals. Ex, Economic status

3. An interval scale is an ordered series of equal-sized categories. Interval measurements

identify the direction and magnitude of a difference. The concept of zero point is not
included. Temperature, I.Q score

4. A ratio scale is an interval scale where a value of zero indicates none of the variable. Ratio
measurements identify the direction and magnitude of differences and allow ratio
comparisons of measurements. Zero point is the absence of the characteristic. Ex, height

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc.

17 Chap 2-17
 Four Levels of Measurement

Nominal level - data that is classified into categories and cannot be arranged in any particular order.
EXAMPLES: eye color, gender, religious affiliation.

Ordinal level – involves data arranged in some order, but the differences between data values cannot
be determined or are meaningless.
EXAMPLE: During a taste test of 4 soft drinks, Mellow Yellow was ranked number 1,
Sprite number 2, Seven-up number 3, and Orange Crush number 4.

Interval level - similar to the ordinal level, with the additional property that meaningful amounts of
differences between data values can be determined. There is no natural zero point.
EXAMPLE: Temperature on the Fahrenheit scale.

Ratio level - the interval level with an inherent zero starting point. Differences and ratios are
meaningful for this level of measurement.
EXAMPLES: Monthly income of surgeons, or distance traveled by manufacturer’s
representatives per month.

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-18

 Summary of Types of Variables

19Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-19

 Types of Variables - Classifications

A. Qualitative or Attribute variable - the characteristic being studied is nonnumeric.

EXAMPLES: Gender, religious affiliation, type of automobile owned, state of birth, eye
color are examples.

B. Quantitative variable - information is reported numerically.

EXAMPLES: balance in your checking account, minutes remaining in class, or number
of children in a family.

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc.

20 Chap 2-20
 Quantitative Variables - Classifications

Quantitative variables can be classified as either discrete or continuous.

A. Discrete variables: can only assume certain values and there are usually “gaps” between
values.

EXAMPLE: the number of bedrooms in a house, or the number of hammers sold at the
local Home Depot (1,2,3,…,etc).

B. Continuous variable can assume any value within a specified range.

EXAMPLE: The pressure in a tire, the weight of a pork chop, or the height of students in
a class.

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-21

 Organizing and Presenting
Data Graphically

■ Data in raw form are usually not easy to use for decision making
■ Some type of organization is needed
■ Table
■ Graph
■ Techniques reviewed here:
■ Bar charts and pie charts
■ Pareto diagram
■ Ordered array
■ Stem-and-leaf display
■ Frequency distributions, histograms and polygons
■ Cumulative distributions and ogives
■ Contingency tables
■ Scatter diagrams

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-22

 Tables and Charts for Categorical Data

Categorical Data

Tabulating Data Graphing Data

Frequency/ Bar Pie Pareto

Relative Charts Charts Diagram
frequency Table

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-23

 The Summary Table

Summarize data by category

Example: Current Investment Portfolio

Investment Amount Percentage

Type (in thousands $) (%)
Stocks 46.5 42.27
Bonds 32.0 29.09
CD 15.5 14.09
Savings 16.0 14.55

(Variables are Total 110.0 100.0

Categorical)

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-24

 Tabular Methods
Relative & Percent Frequency Table of Soft Drink Purchase
Soft Drink Frequency Relative Frequency Percent Frequency

Coke 19 0.38 38%

Sprite 13 0.26 26%
7up 5 0.10 10%
RC 5 0.10 10%
Mountain Dew 8 0.16 16%
Total 50 1.00 100%

In the table we see that the relative frequency for coke is 19/50 = 0.38, the relative frequency for
sprite is 13/50 = 0.26 and so on. From the percent frequency distribution, we see that 38% of the
purchases were coke, 26% of the purchases were Sprite and so on. We can also note that
38%+26%+16% = 80% of the purchases were of the top three soft drinks.

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-25

 Bar and Pie Charts

■ Bar charts and Pie charts are often used for qualitative data (categories or nominal scale)

■ Height of bar or size of pie slice shows the frequency or percentage for each category

■ A bar graph is a graphical device for depicting data that have been summarized in a frequency,
relative frequency or percent frequency distribution.

■ On one axis of the graphs (usually the horizontal axis) we specify the labels that are used for
the classes (categories of data).

■ A frequency, relative frequency or percent frequency scale can be used for the other axis of the
graph (usually the vertical axis).

■ Then using a bar of fixed width drawn above each class label, we extend the length of the bar
until we reach the frequency, relative frequency or percent frequency of the class. For,
qualitative data the bars should be separated to emphasize the fact that each class (category) is
separate.
Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-26
 Bar Chart Example

Current Investment Portfolio

Investment Amount Percentage
Type (in thousands $) (%)

Stocks 46.5 42.27

Bonds 32.0 29.09
CD 15.5 14.09
Savings 16.0 14.55
Total 110.0 100.0

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-27

 Pie chart

■ The pie chart is another graphical device for presenting relative frequency and percent
frequency distributions.

■ To construct a pie chart, we first draw a circle to represent all of the data.

■ Then we use the relative frequencies to subdivide the circles into sectors or parts that
correspond to the relative frequency for each class.

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-28

 Pie Chart Example

Current Investment Portfolio

Investment Amount Percentage
Type (in thousands $) (%)

Stocks 46.5 42.27

Bonds 32.0 29.09
CD 15.5 14.09 Savings
Savings 16.0 14.55 15%
Total 110.0 100.0 Stocks
42%
CD
14%

Percentages
are rounded to
Bonds the nearest
29% percent

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-29

 Pareto Diagram

■ Used to portray categorical data (nominal scale)

■ A bar chart, where categories are shown in descending order of frequency
■ A cumulative polygon is often shown in the same graph
■ Used to separate the “vital few” from the “trivial many”

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-30

 Pareto Diagram Example

Current Investment Portfolio

% invested in each category (bar

cumulative % invested
(line graph)
graph)

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-31

 Tables and Charts for
Numerical Data

Numerical Data

Frequency Distributions and

Ordered Array Cumulative Distributions

Stem-and-Leaf
Display Histogram Polygon Ogive

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-32

 The Ordered Array

A sequence of data in rank order:

▪ Shows range (min to max)
▪ Provides some signals about variability
within the range
▪ May help identify outliers (unusual observations)
▪ If the data set is large, the ordered array is
less useful

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-33

 The Ordered Array
(continued)

■ Data in raw form (as collected):

24, 26, 24, 21, 27, 27, 30, 41, 32, 38

■ Data in ordered array from smallest to largest:

21, 24, 24, 26, 27, 27, 30, 32, 38, 41

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-34

 Stem-and-Leaf Diagram

■ A simple way to see distribution details in a data set

METHOD: Separate the sorted data series

into leading digits (the stem) and
the trailing digits (the leaves)

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-35

 Example
Data in ordered array:
21, 24, 24, 26, 27, 27, 30, 32, 38, 41

■ Here, use the 10’s digit for the stem unit:

Stem Leaf
■ 21 is shown as 2 1
■ 38 is shown as 3 8

■ 41 is shown as 4 1

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-36

 Example
(continued)
Data in ordered array:
21, 24, 24, 26, 27, 27, 30, 32, 38, 41

■ Completed stem-and-leaf diagram:

Stem Leaves
2 1 4 4 6 7 7
3 0 2 8
4 1

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-37

 Using other stem units
■ Using the 100’s digit as the stem:
■ Round off the 10’s digit to form the leaves

Stem Leaf
■ 613 would become 6 1
■ 776 would become 7 8
■ ...
■ 1224 becomes 12 2

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-38

 Using other stem units
(continued)

■ Using the 100’s digit as the stem:

■ The completed stem-and-leaf display:

Data:
Stem Leaves
613, 632, 658, 717, 6 136
722, 750, 776, 827, 7 2258
841, 859, 863, 891, 8 346699
894, 906, 928, 933, 9 13368
955, 982, 1034,
1047,1056, 1140, 10 356
1169, 1224 11 47
12 2
Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-39
 Tabulating Numerical Data: Frequency
Distributions

What is a Frequency Distribution?

■ A frequency distribution is a list or a table …
■ containing class groupings (ranges within which the data fall)
...
■ and the corresponding frequencies with which data fall within
each grouping or category

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-40

 Why Use a Frequency Distribution?

■ It is a way to summarize numerical data

■ It condenses the raw data into a more useful form...
■ It allows for a quick visual interpretation of the data

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-41

 Class Intervals and Class Boundaries

■ Each class grouping has the same width

■ Determine the width of each interval by

■ Usually at least 5 but no more than 25 groupings

■ Class boundaries never overlap
■ Round up the interval width to get desirable endpoints

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-42

 Frequency Distribution Example

Example: A manufacturer of insulation randomly selects 20

winter days and records the daily high temperature

24, 35, 17, 21, 24, 37, 26, 46, 58, 30,
32, 13, 12, 38, 41, 43, 44, 27, 53, 27

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-43

 Frequency Distribution Example
(continued)

■ Sort raw data in ascending order:

12, 13, 17, 21, 24, 24, 26, 27, 27, 30, 32, 35, 37, 38, 41, 43, 44, 46,
53, 58
■ Find range: 58 - 12 = 46
■ Select number of classes: 5 (usually between 5 and 15)
■ Compute class interval (width): 10 (46/5 then round up)
■ Determine class boundaries (limits): 10, 20, 30, 40, 50, 60
■ Compute class midpoints: 15, 25, 35, 45, 55
■ Count observations & assign to classes

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-44

 Frequency Distribution Example
(continued)
Data in ordered array:
12, 13, 17, 21, 24, 24, 26, 27, 27, 30, 32, 35, 37, 38, 41, 43, 44, 46, 53, 58

Relative
Class Frequency Frequency Percentage

10 but less than 20 3 .15 15

20 but less than 30 6 .30 30
30 but less than 40 5 .25 25
40 but less than 50 4 .20 20
50 but less than 60 2 .10 10
Total 20 1.00 100

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-45

 Tabulating Numerical Data:
Cumulative Frequency
Data in ordered array:
12, 13, 17, 21, 24, 24, 26, 27, 27, 30, 32, 35, 37, 38, 41, 43, 44, 46, 53, 58

Cumulative Cumulative
Class Frequency Percentage
Frequency Percentage

10 but less than 20 3 15 3 15

20 but less than 30 6 30 9 45
30 but less than 40 5 25 14 70
40 but less than 50 4 20 18 90
50 but less than 60 2 10 20 100
Total 20 100

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-46

 Graphing Numerical Data: The
Histogram

■ A graph of the data in a frequency distribution is called a

histogram
■ The class boundaries (or class midpoints) are shown on the
horizontal axis
■ the vertical axis is either frequency, relative frequency, or
percentage
■ Bars of the appropriate heights are used to represent the
number of observations within each class

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-47

 ❑ Histogram:

▪ Constructed based on a frequency distribution

▪ Class boundaries in the horizontal axis and the corresponding frequencies on

vertical axis.

▪ Each class is shown on the graph by drawing a rectangle whose base is the class
boundary and height is the corresponding class frequency.

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-48

 Histogram Example

Class
Class Midpoint Frequency
10 but less than 20 15 3
20 but less than 30 25 6
30 but less than 40 35 5
40 but less than 50 45 4
50 but less than 60 55 2

(No gaps
between
bars)
Class Midpoints
Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-49
 Graphing Numerical Data:
The Frequency Polygon
Class
Class Midpoint Frequency
10 but less than 20 15 3
20 but less than 30 25 6
30 but less than 40 35 5
40 but less than 50 45 4
50 but less than 60 55 2

(In a percentage
polygon the vertical axis
would be defined to
show the percentage of
observations per class) Class Midpoints

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-50

 Graphing Cumulative Frequencies:
The Ogive (Cumulative % Polygon)
Lower
class Cumulative
Class boundary Percentage
Less than 10 0 0
10 but less than 20 10 15
20 but less than 30 20 45
30 but less than 40 30 70
40 but less than 50 40 90
50 but less than 60 50 100

10 20 30 40 50 60
Class Boundaries (Not Midpoints)
Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-51
 Side-by-Side Chart Example

■ Sales by quarter for three sales territories:

Basic Business Statistics, 10e © 2006 Prentice-Hall, Inc. Chap 2-52