LEARNER GUIDE

78965 – Further Education & Training Certificate (FETC):

Information Technology: Systems Development: Level 4: Credits 165

Module 2: Mathematical Literacy

Unit Standard Use mathematics to investigate and NQF Level: 4 Credits: 6
monitor the financial aspects of
7468
personal, business, national and
international issues

Unit Standard Apply knowledge of statistics and NQF Level: 4 Credits: 6

probability to critically interrogate
9015
and effectively communicate
findings on life related problems

Unit Standard Represent analyse and calculate NQF Level: 4 Credits: 4

shape and motion in 2-and 3-
9016
dimensional space in different
contexts
 TABLE OF CONTENTS

Personal Information……………………………………………………………………………………………………… 2

Introduction…………………………………………………………………………………………………………………… 3

Unit Standard 7468………………………………………………………………………………………………………… 10

Unit Standard 9015………………………………………………………………………………………………………… 44

Unit Standard 9016………………………………………………………………………………………………………… 86

Page 1
 PERSONAL INFORMATION
NAME

CONTACT ADDRESS

Code

Telephone (H)

Telephone (W)

Cellular

Learner Number

Identity Number

EMPLOYER

EMPLOYER CONTACT
ADDRESS

Code

Supervisor Name

Supervisor Contact Address

Code

Telephone (H)

Telephone (W)

Cellular

Page 2
 INTRODUCTION
Welcome to the learning programme
Follow along in the guide as the training practitioner takes you through the material. Make notes
and sketches that will help you to understand and remember what you have learnt. Take notes
and share information with your colleagues. Important and relevant information and skills are
transferred by sharing!

This learning programme is divided into sections. Each section is preceded by a description of
the required outcomes and assessment criteria as contained in the unit standards specified by
the South African Qualifications Authority. These descriptions will define what you have to know
and be able to do in order to be awarded the credits attached to this learning programme. These
credits are regarded as building blocks towards achieving a National Qualification upon
successful assessment and can never be taken away from you!

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 Programme methodology

The programme methodology includes facilitator presentations, readings, individual activities,

group discussions and skill application exercises.
Know what you want to get out of the programme from the beginning and start
applying your new skills immediately. Participate as much as possible so that the
learning will be interactive and stimulating.
The following principles were applied in designing the course:
 Because the course is designed to maximise interactive learning, you are encouraged and
required to participate fully during the group exercises
 As a learner you will be presented with numerous problems and will be required to fully
apply your mind to finding solutions to problems before being presented with the course
presenter’s solutions to the problems
 Through participation and interaction the learners can learn as much from each other as
they do from the course presenter
 Although learners attending the course may have varied degrees of experience in the
subject matter, the course is designed to ensure that all delegates complete the course
with the same level of understanding
 Because reflection forms an important component of adult learning, some learning
resources will be followed by a self-assessment, which is designed so that the learner will
reflect on the material just completed.
This approach to course construction will ensure that learners first apply their minds to finding
solutions to problems before the answers are provided, which will then maximise the learning
process that is further strengthened by reflecting on the material covered by means of the self-
assessments.

Different role players in delivery process

 Learner
 Facilitator
 Assessor
 Moderator

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 What Learning Material you should have
This learning material has also been designed to provide the learner with a comprehensive
reference guide.
It is important that you take responsibility for your own learning process; this includes taking
care of your learner material. You should at all times have the following material with you:

Learner Guide This learner guide is your valuable possession:

This is your textbook and reference material, which provides
you with all the information you will require to meet the exit
level outcomes.
During contact sessions, your facilitator will use this guide
and will facilitate the learning process. During contact
sessions, a variety of activities will assist you to gain
knowledge and skills.
Follow along in the guide as the training practitioner takes
you through the material. Make notes and sketches that will
help you to understand and remember what you have
learnt. Take and share information with your colleagues.
Important and relevant information and skills are transferred
by sharing!
This learning programme is divided into sections. Each
section is preceded by a description of the required
outcomes and assessment criteria as contained in the unit
standards specified by the South African Qualifications
Authority. These descriptions will define what you have to
know and be able to do in order to be awarded the credits
attached to this learning programme. These credits are
regarded as building blocks towards achieving a National
Qualification upon successful assessment and can never be
taken away from you!

Formative Assessment The Formative Assessment Workbook supports the Learner

Workbook Guide and assists you in applying what you have learnt.
The formative assessment workbook contains classroom
activities that you have to complete in the classroom, during
contact sessions either in groups or individually.
You are required to complete all activities in the Formative
Assessment Workbook.
The facilitator will assist, lead and coach you through the
process.
These activities ensure that you understand the content of
the material and that you get an opportunity to test your
understanding.

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 Different types of activities you can expect
To accommodate your learning preferences, a variety of different types of activities are included
in the formative and summative assessments. They will assist you to achieve the outcomes
(correct results) and should guide you through the learning process, making learning a positive
and pleasant experience.

The table below provides you with more information related to the types of activities.

Types of Activities Description Purpose

Knowledge Activities You are required to These activities normally test

complete these activities your understanding and
on your own. ability to apply the
information.

Skills Application You need to complete These activities require you

Activities these activities in the to apply the knowledge and
workplace skills gained in the
workplace

Natural Occurring You need to collect These activities ensure you

Evidence information and samples get the opportunity to learn
of documents from the from experts in the industry.
workplace.
Collecting examples
demonstrates how to
implement knowledge and
skills in a practical way

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 Learner Administration

Attendance Register
You are required to sign the Attendance Register every day you attend training sessions
facilitated by a facilitator.

Programme Evaluation Form

On completion, you will be supplied with a “Learning programme Evaluation Form”. You are
required to evaluate your experience in attending the programme.
Please complete the form at the end of the programme, as this will assist us in improving our
service and programme material. Your assistance is highly appreciated.

Assessments
The only way to establish whether a learner is competent and has accomplished the specific
outcomes is through the assessment process. Assessment involves collecting and interpreting
evidence about the learners’ ability to perform a task.
To qualify and receive credits towards your qualification, a registered Assessor will
conduct an evaluation and assessment of your portfolio of evidence and competency.
This programme has been aligned to registered unit standards. You will be assessed
against the outcomes as stipulated in the unit standard by completing assessments
and by compiling a portfolio of evidence that provides proof of your ability to apply
the learning to your work situation.

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How will Assessments commence?

Formative Assessments
The assessment process is easy to follow. The Facilitator will guide you. Your responsibility is to
complete all the activities in the Formative Assessment Workbook and submit it to your
facilitator.

Summative Assessments
You will be required to complete a series of summative assessments. The Summative
Assessment Guide will assist you in identifying the evidence required for final assessment
purposes. You will be required to complete these activities on your own time, using real life
projects in your workplace or business environment in preparing evidence for your Portfolio of
Evidence. Your Facilitator will provide more details in this regard.
To qualify and receive credits towards your qualification, a registered Assessor will
conduct an evaluation and assessment of your portfolio of evidence and competency.

Learner Support
The responsibility of learning rests with you, so be proactive, ask questions, seek
assistance, and help from your facilitator, if required.

Please remember that this Skills Programme is based on outcomes based education principles,
which implies the following:
 You are responsible for your own learning – make sure you manage your study, research
and workplace time effectively.
 Learning activities are learner driven – make sure you use the Learner Guide and
Formative Assessment Workbook in the manner intended, and are familiar with the
workplace requirements.
 The Facilitator is there to reasonably assist you during contact, practical and workplace
time for this programme – make sure that you have his/her contact details.
 You are responsible for the safekeeping of your completed Formative Assessment
Workbook and Workplace Guide
 If you need assistance, please contact your facilitator who will gladly assist you.
 If you have any special needs please inform the facilitator

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 Learner Expectations
Please prepare the following information. You will then be asked to introduce yourself to the
instructor as well as your fellow learners

Your name:

The organisation you represent:

Your position in organisation:

What do you hope to achieve by attending this course / what are your course expectations?

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 UNIT STANDARD 7468

Title
Use mathematics to investigate and monitor the financial aspects of personal, business, national
and international issues

Level
4

Credits
6

Range
Range statements are provided for specific outcomes and assessment criteria as needed.

Specific outcomes and assessment criteria

Specific Outcome 1:
Use mathematics to plan and control financial instruments.
Assessment criteria
1. Plans are sufficient to ensure effective control of financial instruments.
2. Calculations are carried out using computational tools efficiently and correctly and
solutions obtained are verified in terms of the context.
3. Measures used for control purposes are appropriate to the need and are in line with
control plans.

Specific Outcome 2
Use simple and compound interest to make sense of and define a variety of situations.
Range: Mortgage loans, hire purchase, present values, annuities and sinking funds.
Assessment criteria
1. The differences between simple and compound interest are described in terms of their
common applications and effects. 2. Methods of calculation are appropriate to the
problem types.
2. Computational tools are used efficiently and correctly and solutions obtained are verified
in terms of the context or problem.
3. Solutions to calculations are used effectively to define the changes over a period of time.

Specific Outcome 3
Investigate various aspects of costs and revenue.
Range: Aspects of costs and revenue include:
• Marginal costs, marginal revenue and optimisation of profit

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Assessment criteria
1. Values are calculated correctly.
2. Mathematical tools and systems are used effectively to determine and describe the
relationships between the various aspects of cost and revenue.
3. Terminology is used in the correct context.
4. Reasonable methods are described for the control of costs and optimisation of profits in
relation to given data.

Specific Outcome 4
Use mathematics to debate aspects of the national and global economy.
Range: Aspects include:
• Exchange rates, imports, exports, comparative effectiveness of currency in relation to
remuneration, monetary policy and the control of inflation.

Assessment criteria
1. Values are calculated correctly.
2. Mathematical tools and systems are used effectively to determine, compare and describe
aspects of the national and global economy.
3. Debating points are based on well-reasoned arguments and are supported by
mathematical information.

Critical Cross-Field Outcomes

Identifying:
Identify and solve problems using critical and creative thinking:
Solving a variety of numerical and financial problems
Use mathematics:
Use mathematics to analyse, describe and represent financial situations and to solve problems.
Collecting
Collect, analyse, organise and critically evaluate information:
Gather, organise, evaluate and interpret financial information to plan and make provision for
monitoring budgets and other financial situations.
Communicating
Communicate effectively:
Use everyday language and mathematical language to describe relationships, processes and
problem solving methods.

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 USE MATHEMATICS TO PLAN AND CONTROL
FINANCIAL INSTRUMENTS.

Specific Outcome 1:
Use mathematics to plan and control financial instruments.
Assessment criteria
1. Plans are sufficient to ensure effective control of financial instruments.
2. Calculations are carried out using computational tools efficiently and correctly and
solutions obtained are verified in terms of the context.
3. Measures used for control purposes are appropriate to the need and are in line with
control plans.

What does Financial Instruments Mean?

Financial instrument means: A real or virtual document representing a legal agreement involving
some sort of monetary value. In today's financial marketplace, financial instruments can be
classified generally as equity based, representing ownership of the asset, or debt based,
representing a loan made by an investor to the owner of the asset. Foreign exchange
instruments comprise a third, unique type of instrument. Different subcategories of each
instrument type exist, such as preferred share equity and common share equity, for example.
Other types of documents are often understood to function as a financial instrument. In the
world or real estate funding, the mortgage qualifies as a financial instrument. A commercial
paper or stock index also meets the basic definition.

Bills of exchange are usually recognized as a financial instrument as well. A financial instrument
may be a hard copy document, or exist as a virtual document. Currency and checks would
represent physical documents that represent specific monetary values and are freely used for
transactions. Funds transfers between bank accounts would be an example of a virtual financial
instrument.

Financial Planning
Work the following example in your groups, with your facilitator. Using the following budgeting
sheet, complete Phillips budget for the month of August 2010, using the information you have
been given below. Now let us look at some personal financial planning:

Phillip earns R7 321, 68 per month. His medical aid contribution is R543, 12 per month, his cell
phone account is R136, 90 on average per month and the bond repayment for his house is R2 674, 34

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per month. Phillip puts R600 per month into a separate wallet for his groceries; water and electricity
costs on average R189 per month. His car has been paid off, but insurance costs him R249 per month.
Phillip also saves R300 per month for irregular expenses.

EXPENSES COST 1 COST 2 COST 3

Fixed expenses

Variable expenses

Savings for irregular expenses

Emergency expenses

Total expenses

Total income

Money available at the end of the month

Phillip did not budget for emergency expenses. Do you think this is wise? Explain your answer

Listening to what you have just said, Phillip decides to add R300 per month for emergency
expenses. Please add this expenses to the table and complete it again, using the column named
“Cost 2”.

Phillip wants to go on holiday to Cape Town at the end of the year. The cost of the tour,
excluding spending money, is R4000. Will Phillip have enough money available at the end of
November 2010 for the tour? Motivate your answer and show all your calculations.

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The interest rate went up by 1% at the end of October 2010. This means that all Phillip’s
expenses have also risen by the same amount. Re-calculate all Phillip’s expenses and complete
the information in the column, Cost 3 in the table on the previous page.

Critically analyses Phillips’ budget and make suggestions and/recommendations on

improvements where Phillip can be helped.

Interest
There are two different types of interest:

Simple interest is interest calculated on the original amount invested, every year.

Compound interest is interest calculated on the original amount in the first year.

Thereafter it is calculated on the original amount added to the previous year’s interest; in other

words, interest-on-interest. The following formulae can be used for calculating simple and

compound interest:

SIMPLE INTEREST COMPOUND INTEREST

A = P(1 + in) A = P(1 + i)n

A = total amount of money at the end of the A = total amount of money at the end of the
investment period investment period

P = initial amount originally borrowed P = initial amount originally borrowed

i = interest rate per annum as a percentage i = interest rate per annum as a percentage

n = number of years n = number of years

Now let us work an example of interest. Study the information, which has been given in the
advertisement and the table therein, and then complete the questions, which follow:

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LoanLine
This handy instalment table will help you choose the best
Fixed Repayments!!!
loan for your budget and circumstances. You can borrow as
little as R4000 and as much as R30 000. You can decide
how quickly you want to pay off your loan, from 24 months
up to 5 years. LoanLine loans are flexible and allow you to
plan your own finances on what you can afford.

Loan Amount 24 months 36 months 48 months 60 months

This table is a guide only; your loan will vary according to
your needs. Interest rates are subject to change in R 4 000 R 231 R 176 R 149 R 133
accordance with the Usury Act, but will not exceed 20%
R 6 000 R 342 R 259 R 219 R 195
per annum for loans up to R10 000.
R 8 000 R 452 R 342 R 289 R 257

These instalments quoted include a monthly premium of R 10 000 R 563 R 426 R 358 R 319
R4, 45 per R1 000 of the loan, and a monthly
R 12 000 R 656 R 491 R 409 R 361
administration fee of R9, 50 for the optional Protection
Plan. R 14 000 R 764 R 571 R 476 R 420

R 16 000 R 872 R 651 R 542 R 478

All applications are subject to approval
R 18 000 R 980 R 731 R 609 R 537

R 20 000 R 1 087 R 812 R 676 R 596

R 22 000 R 1 195 R 892 R 742 R 654

R 24 000 R 1 303 R 972 R 809 R 713

R 26 000 R 1 411 R 1 052 R 875 R 771

R 28 000 R 1 528 R 1 132 R 942 R 830

R 30 000 R 1 626 R 1 213 R 1 009 R 880

In-Class Exercise
1. You would like to take out a loan of R8 000. How much would you have to pay back after?
a. 24 months
b. 36 months
c. 48 months
d. 60 months

2. What is the percentage increase between the repayment amounts of 24 and 60 months?
Correct your answer to two decimal places.

3. If you decide to take out a loan of R14 000, how much would you have to pay back after?
a. 24 months
b. 60 months

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4. Is the percentage increase the same for R8 000 and R14 000?

5. Why do you think there is a difference in the percentage increase between the two amounts?

6. Thandi has moved into a new flat and needs new furniture. The first three items on her list
are a bed, lounge suite and a computer for her new job. Thandi has collected a few
advertisements to look at before making her final decision.
i. Dextras computers are offering two packages: Option A is R3 299 or R315 over 18
months and Option B is R3 900 or R340 over 12 months.
ii. The Lounge Factory is offering luxury lounge suites for only R5 999 or R299, 90 for
24 months
iii. Sleep Assured Company is offering a double bed with a spring mattress included
for R7 499, or R360 over 24 months
b. How much would Thandi pay for the bed and lounge suite if she bought both items on
hire purchase?

c. In your opinion, which item should Thandi buy cash if she can afford to pay off only
one of the two items? Motivate your answer.

d. Thandi needs a computer at home to supplement her income in the evenings, as she
has been contracted by a company to type letters on their behalf. Which package will
be the best value for money for Thandi?

Page 16
PROFIT
GROSS PROFIT is the profit made after the costs of the original sales are deducted. NET PROFIT is
the profit made after expenses are deducted from the gross profit.

In-Class Exercise

Let us look at the example below:

Vula and John run a small two-man business from home. The table below shows the trading
results of their business over a period of three consecutive years.

2003 2004 2005

SALES R 9 320 R 11 410 R 13 500

COST OF SALES R 2 400 R 2740 R 3 090

GROSS PROFIT

EXPENSES R 1 790 R 1 820 R 2 794

NET PROFIT

Complete the table by calculating the gross profit and net profit for each year.
1. Which year has been financially the best year for Vula and John? Motivate your answer.

2. Their business expenses included the following categories

a. Telephone
b. Petrol
c. Take-away lunches
d. Wages
What should Vula and John have done to improve their net profit in 2004?

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Let us look at the answers:

a) 2003 2004 2005

SALES R 9 320 R 11 410 R 13 500

COST OF SALES R 2 400 R 2740 R 3 090

GROSS PROFIT

EXPENSES R 1 790 R 1 820 R 2 794

NET PROFIT

b) 2005 has been the best year for Vula and John. They made R234 more net profit than in the
other years.

c) They should have reduced their expenses by making their own lunch instead of buying take-
aways.

USE SIMPLE AND COMPOUND INTEREST IN A

VARIETY OF SITUATIONS

What is simple and compound interest?

Earlier we spoke about simple and compound interest. You should have the just of how the two

of them work. However, before we continue, let us look at them, in depth, from an Interest

point of view. Interest is the cost of borrowing money. An interest rate is the cost stated as

a percent of the amount borrowed per period, usually one year. The prevailing market rate is

composed of:

1. The Real Rate of Interest that compensates lenders for postponing their own spending

during the term of the loan.

2. An Inflation Premium to offset the possibility that inflation may erode the value of the

money during the term of the loan. A unit of money (Rand, Yen, etc.) will purchase

progressively fewer goods and services during a period of inflation, so the lender must

increase the interest rate to compensate for that loss.

3. Various Risk Premiums to compensate the lender for risky loans such as those that are

unsecured made to borrowers with questionable credit ratings, or illiquid loans that the

lender may not be able to readily resell.

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The first two components of the interest rate listed above, the real rate of interest and an

inflation premium, collectively are referred to as the nominal risk-free rate. The nominal risk-

free rate can be approximated by the rate of SA Reserve bills since they are generally

considered to have a very small risk.

Simple Interest

Simple interest is calculated on the original principal only. Accumulated interest from prior

periods is not used in calculations for the following periods. Simple interest is normally used for

a single period of less than a year, such as 30 or 60 days.

Where:

p = principal (original amount borrowed or loaned) SIMPLE INTEREST = P X I X N

i = interest rate for one period

n = number of periods

Example: You borrow R10, 000 for 3 years at 5% simple annual interest.

Interest = p x i x n = 10,000 x .05 x 3 = 1,500

Example 2: You borrow R10, 000 for 60 days at 5% simple interest per year (assume a 365-

day year).

Interest = p x i x n = 10,000 x .05 x (60/365) = 82.1917

Simple interest is interest paid on the original principal only. For example, R4000 is deposited

into a bank account and the annual interest rate is 8%. How much is the interest after 4 years?

Use the following simple interest formula:

I = p× r × t

Where p is the principal or money deposited; r is the rate of interest; t is time.

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We get:

I = p× r × t

I = R4000× 8% × 4

I = R4000× 0.08 × 4

I = R1280

Compound Interest
Compound interest is calculated each period on the original principal and all interest

accumulated during past periods. Although the interest may be stated as a yearly rate, the

compounding periods can be yearly, bi-annually, quarterly, or even continuously.

You can think of compound interest as a series of back-to-back simple interest contracts. The

interest earned in each period is added to the principal of the previous period to become the

principal for the next period.

For example, you borrow R10, 000 for three years at 5% annual interest compounded annually:

 Interest year 1 = p x i x n = 10,000 x .05 x 1 = 500

 Interest year 2 = (p2 = p1 + i1) x i x n = (10,000 + 500) x .05 x 1 = 525
 Interest year 3 = (p3 = p2 + i2) x i x n = (10,500 + 525) x.05 x 1 = 551.25
 Total interest earned over the three years = 500 + 525 + 551.25 = 1,576.25.
Compare this to 1,500 earned over the same number of years using simple
interest.

Type of Interest Principal Plus Interest Earned

Simple 46,000.00

Compound Yearly 299,599.22

Compound Quarterly 347,109.87

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The power of compounding can have an astonishing effect on the accumulation of wealth. This

table shows the results of making a one-time investment of R10, 000 for 30 years using 12%

simple interest, and 12% interest compounded yearly and quarterly. Compound interest is the

interest earned not only on the original principal, but also on all interests earned previously. In

other words, at the end of each year, the interest earned is added to the original amount and

the money is reinvested. If we use compound interest for the situation above, the interest will

be computed as follow:

Interest at the end of the first year:

I = R4000× 0.08 × 1
I = R320
Your new principal per say is now R4000 + R320 = R4320

Interest at the end of the second year:

I = R4320× 0.08 × 1
I = R345.6
Your new principal is now R4320 + R345.6 = R4665.6

Interest at the end of the third year:

I = R4665.6× 0.08 × 1
I = R 373.248
Your new principal is now R 4665.6 + R 373.248 = R 5038.848

Interest at the end of the fourth year:

I = R 5038.848 × 0.08 × 1
I = R 403.10784

Your new principal is now R 5038.848 + R 403.10784 = R 5441.95584

Total interest earned = R 5441.95584 − R 4000 = R 1441.95584
The difference in money between compound interest and simple interest is
R 1441.96 - R 1280 = R 161.96.

As demonstrated Compound interest yields better result, so you make more money. Therefore,

before investing your money, you should double check with your local bank if compound interest

will be used. Having said that if you have a credit card and you owe money on it, you will pay

Page 21
less interest if the credit card company uses simple interest. However, they will never do

something so foolish!

The table below compare simple and compound growth:

Simple Growth Compound Growth

What is it? Simple growth is repeated growth by a Compound growth is repeated growth by
fixed amount. This amount is sometimes an increasing amount, determined each
given as percentage of the initial value. time by calculating a fixed percentage of
the previous value.

Give me an example A bank account initially contains R1000. It A bank account initially contains R1000. It
has a simple annual growth of 10%. This has a compound annual growth of 10%.
means that it grows by 10% of R1000 Therefore, in the first year the account
(R100) each year. So the account will grows by 10% of R1000 (R100) to R1100.
grow annually as follow: R1100, R1200, In the second year, it grows by 10% of
R1300 etc. R1100 to R1210. In the third year, it grows
by 10% of R1210 (R121) to R1331 etc.

What sorts of things can grow Simple or compound growth can apply to vary many things: money, population
this way? increase, spread of diseases etc.

What is the formula? Final amount = Initial amount + (amount Final amount = initial amount x (1+i)
of growth per period x number of growth
periods) i= and

n = number of growth periods

An important point: although compound growth involves a fixed percentage increase, the

amount of increase per growth period differs. The reason is that the percentage increase for

each growth period applies to a larger and larger amount.

INVESTIGATE VARIOUS ASPECTS OF COSTS AND REVENUE

What are Costs and Revenue?

Healthy service providers are having to carefully manage the use of scarce resources while
meeting a growing demand for services and rising expectations for quality.

Conducting cost and revenue analyses can greatly increase managers' understanding of the
factors that affect resource use, including staffing patterns, service mix, service practices, and
procurement. The information these analyses generate helps managers consider different ways
of producing services in order to reduce costs, increase revenues, or both.

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Conducting a cost and revenue analysis is particularly useful to organizations that are trying to
meet major management challenges, such as expanding existing services, integrating new
services, or working toward financial sustainability.

Understanding How Cost and Revenue Analysis Can Help Financial Sustainability

Managers today in both the public and private sectors must determine what actions to take now
to ensure the financial sustainability of their organizations in the future. Analysing the costs
involved in providing services and the sources and flow of revenues helps managers make
decisions about the best use of resources and ways to recover costs.

Conducted together, cost and revenue analyses help managers answer key management
questions, such as:

 What portion of the organization's costs is covered by service revenues?

 How can a facility or an organization provide quality services at the lowest cost?
 What are the financial implications of changing the mix of services?

In the days before the personal computer, the tools that managers used to conduct cost and
revenue analyses consisted of paper spread sheets in which data were entered and tabulated
manually. However, with the widespread availability and use of computers, electronic spread
sheet tools have made cost and revenue analyses faster and simpler.

Electronic spreadsheets re-tabulate new input data automatically, making it easy to project
future cost and revenue scenarios. They allow managers to consider the possible impact of
making changes such as adding new services, creating new facilities, or changing staff
utilization.

Managers can use electronic spreadsheets to look at both the clinical and the financial factors
that affect cost recovery and financial sustainability.

These factors include the:

 mix of services;

 staffing patterns;

 amount of time staff members spend delivering services;

 amount of time staff members spend on administrative tasks;

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  use of non-staff resources (supplies, medicine, facility, etc.)

 income of a service measured against its costs;

 achievement of established performance objectives;

 sharing of revenues among different categories of service and/or among several facilities

It is important to keep in mind that the information provided by a cost and revenue analysis is
only one aspect of strategic planning. Factors such as quality, equity, the presence of alternative
service providers, and client needs must also be taken into account. Managers should consider
the findings from a cost and revenue analysis along with other factors when making decisions.

Considering the Benefits of Cost and Revenue Analyses

Cost and revenue analyses provide you with the financial and operational information needed for
making good management decisions. These analyses help you to take a close look at the
efficiency of your existing programs and identify changes to improve cost efficiency. Cost and
revenue analyses also help you to explore the potential impact of your management decisions.
Cost and revenue analyses can help you determine:

 how to reduce costs in order to ensure the long-term viability of your organization;
 how to produce the greatest total increase in your revenues relative to your costs;
 the most cost efficient process for delivering your services

Costs, revenue and profit are basic but crucial parts of the financial analysis of a business and
it is on the comparison of these three things that success is judged.

Costs:

Costs are described as fixed or variable.

Fixed costs:

 Fixed costs are incurred and have to be paid regardless of the volume produced and sold.
They are the costs of running a business such as heating, lighting, rent, insurance,
marketing and so on.

Variable costs:

 In contrast, variable costs are directly related

to the job and so change with the level of
output. The best example of a direct cost is the
raw materials that go into making a product.

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Fixed costs plus variable costs is known as total costs:

Revenue:

This is the total amount of money coming in to a business from sales of goods or services. It is a
‘top-line’ figure that excludes deductions of tax, interest and dividend payments. It also usually
excludes discounts for early payments and customer returns.

Profit:

This is often referred to as the ‘bottom-line’ and is the result of subtracting costs from total
revenue. It can be expressed as gross profit, which is revenue minus the variable cost of goods.
It can also be expressed as net profit, which also takes off the relevant amount for fixed costs,
tax and so on. Profit is perhaps the most important indicator of how well a business doing.

Various calculations, or ratios, can be used to analyse the relationship between costs, revenue
and profit. One would be the profit margin. This is found by dividing the profit figure into the
revenue figure and allows you to see how well the company controls its costs to turn revenue
into profit. On the following page we will read an extensive case study of Cameron’s’ balloons.
Take time to study the information thoroughly.

The Breakdown of a Balloon

Cameron Balloons produce a wide range of products. They are almost certainly best known for
their conventional balloons, but even these come in a wide range. They range from a very small
single person envelope that suspends a single-seater metal frame rather than a basket, to the
huge envelopes used by commercial passenger carrying operations.

If you were thinking of buying a hot-air balloon, there are various bits you will need if you want
to fly it. The example we have taken is a balloon model - Type 'N90' - one of the standard
models which Cameron Balloons make.

This model would be suitable for sponsorship or advertising use. The total cost of the balloon is
around R21, 885 (2000 price), but there are 3 major elements to this cost. These are the
envelope, basket and burners.

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However, you need more than just these three bits to go flying. Any attempt to hang an
envelope over a basket and fire hot air into it is sure to end in an embarrassing failure. A whole
range of other miscellaneous items is needed to complete the picture. The links around the
balloon below take you to the glossary section to give you further details on that particular item.

Envelope Artwork
R10440 Price - depends what you would like!

Envelope scoop Shadow double burner

R410 R 3420

Padded covers (4) Basket

R 196 R 2440

Inflator fan Fuel cylinders (4)

R 1120 R 2348

Tether line (50m) Other equipment Cushion floor Instruments

R 126 R 264 R 176 R 945

Total Balloon Cost: R21885 (2000 price) (for a 3-4 person balloon). These prices refer to the low
season, which runs from 31 August to 1 Jan. In the high season, an envelope will cost around
R12, 220.

Explanation
The process of producing the balloons has a number of stages. Production starts with the design
team passing on the detailed design of all the panels. This will often be in the form of templates
that have been cut on the plotter.

The cutters then cut the cloth according to the templates. This is done on the cutting tables and
as the cutters pull the cloth from the reels, it is drawn in front of large lights. This is to try to
spot any imperfections in the cloth. It is much cheaper to correct these at this early stage, than
to re-build a finished balloon!

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The cut panels are then passed on to a team of sewers. A team is usually made up of around 5
machinists with a team leader. This team will usually follow through the production of the whole
envelope. They sew all the panels together and sew in the tapes that carry the loads of the
balloon down to the stainless steel frame around the basket.

The artwork will be put onto the balloon either before or after this stage. Sometimes the artwork
may be dyed into the fabric before sewing using a dye-sublimation technique (this is done by
outside contractors); though more often it is done by the artwork department at Cameron's.
Sometimes it is airbrushed on and sometimes it is stuck on.

Meanwhile, all the rest of the balloon has to be produced as well. There is the basket, the burners
and all the rigging to be done, as well as many of the ancillary items. The baskets are made by an
outside contractor but finished by Cameron's. This means putting on the padding and fitting all the
internal pieces. Finally, it is all put together by the engineering department, and passed over to the
lucky customer.

Theories
There are various theories about production that it may be helpful to know when considering the
way Cameron Balloons produce their product. Production of balloons is a very different activity
to mass production of consumer items.

Job / Batch / Flow Production

Job production - this is a method of production where companies use all their factors of
production to complete one job at a time. This will usually happen where products are all unique
or they are being produced on a very small scale.

Batch production - this is a method of production where one operation is completed on a

number of units of the product, before they are then passed on to the next stage of the process.

Flow production - this is where production takes place as a continuous process. The product
flows from one process onto the next. This will usually happen where the product is
standardised, and can be made using a production line method.

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Labour / Capital Intensive

Labour intensive - this is where the proportion of labour used in producing the product is
relatively high. Labour will usually be used instead of capital. Capital intensive - this is where
techniques are used to produce items that use relatively more capital than labour. Many
industries are now like this including the car and steel industries.

The technique that a company uses depends on several things:

 The size of the company - small companies are often not in a position to afford expensive
capital equipment. Even if they could, they are often not able to use it enough to justify
the cost.
 The cost of the factors of production - even though a machine may be available to do the
job, it may not be worthwhile if the amount of labour required costs less. Firms therefore
look carefully at the cost of labour and capital before deciding how much to use.
 The product - some products lend themselves better to being produced by capital than
others. Mass-produced everyday items are far more likely to be produced in a capital-
intensive way, whereas services

Costs

The firm incurs a variety of costs when it produces and we split these in various ways. One way
is to split them into fixed costs and variable costs:

 Fixed costs - these costs do not vary as the level of production varies. These include such
things as rent, business rates and security costs.
 Variable costs - these are costs that do vary as output varies and so will include things
like raw materials, labour costs and energy costs and so on.

Another very similar way to split costs is into direct costs and indirect costs:

 Direct costs - these are similar to variable costs, and are costs that can be directly
attributed to the production of each unit of the good. This will therefore be things like the
cost of the raw materials, the packaging, the labour time that went into the production (if
that can be clearly identified) and so on.
 Indirect costs - these are more commonly known in practice as overheads, and are
general costs that are not specifically related to the product. They may be things like
marketing and distribution costs, the cost of secretarial staff, the cost of the premises
(rent and so on) and general bills like phone bills.

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Efficiency S

It is vital to a company to ensure they are efficient. Although Cameron Balloons is the clear
leader in the hot-air balloons market, it is nevertheless a very competitive market and has
suffered in the past from 'over capacity'. They therefore have to keep a careful eye on how their
costs compare. One of the ways they may do this is to look at the level of average costs. The
average cost is calculated as follows:

Average Cost =

This gives the cost per unit of production, and so one measure of efficiency. Another measure
would be to look at how much each particular factor of production (labour / capital / land)
manages to produce. In this way, we can measure productivity. For example to calculate labour
productivity:

Labour Productivity =

This can be a useful measure but does need careful interpretation. For example, whom exactly
do you include - all employees, or just those directly involved in production? You also have to
ensure that you always calculate it consistently or it will be very difficult to draw useful
conclusions.

Once you have studied the information above, discuss the questions in your groups and then
prepare to give the rest of your class feedback on your findings.
1. Would you classify the production of balloons as capital-intensive or labour-intensive?
Give reasons for your answer.

2. What are the main factors that affect the decision of a manufacturing company about
where to locate?

Page 29
 3. Which of these might be particularly important in the case of Cameron Balloons?

4. Bloemfontein has become perhaps the ballooning capital of South Africa. Why it is
important for Cameron's to be located there?

The fabric for the balloon envelopes is currently cut on cutting tables by hand. There are now
moving-bed cutters available that will automate this process, and cut the fabric according to
computer templates. There are two main types of cutter - one uses a high-powered water jet to
cut the fabric and the other a laser.

5. What advantages might there be from using these new machines?

6. What disadvantages might there be?

The costs of making a balloon split between direct and indirect costs. For standard balloons,
there is little in the way of design costs and the production costs will be a greater share of the
price. However, for special shape balloons there is clearly a considerable amount of time goes
into the planning and design of the product.

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 7. What is meant by the term direct costs?

8. What is meant by the term indirect costs?

The cost of running a business

When you are asked about the hourly cost to run your business, the first thing you might think
is what your hourly pay rate is. Someone in retail may think this is enough. Many people who
run service businesses do not think in terms of hourly cost.

Unfortunately, to run your business you need to know this information to understand where
your break-even cost is going to be - this is the minimum charge you must have per customer
to maintain your business. There is a simple formula, which can easily determine the hourly rate
to keep the business open.

The formula below uses four parts to come up with the hourly cost to run your business:

= Your Hourly Cost

We will look at each part of the formula so you can understand why you need to know that
number. Use a weekly average for each number to get the hourly cost.

Pay

This is the hourly cost to pay yourself to run your business, or what you would pay an employee
to do your job. This number could be based on what you made at previous employment before
opening your business, or it could be based upon industry standards. This is the number needed
to pay personal expenses and bills each week.

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Overhead

This is the amount needed to keep your business running properly. To find the hourly cost of
your business overhead, you will need other numbers. Some of the numbers to include would be
cost of utilities, taxes, insurance, maintenance, fuel, Internet access, and any other expense for
items, which are used on a near daily basis to maintain your operation.

Profit Margin

Profit margins are the amount above basic operating costs to build revenue. Figuring your profit
margin is accomplished by using a percentage, which is based upon the sum of the previous two
items above. To find the hourly cost to run your business profitably you need to take your
hourly pay plus your overhead, and then divide that by a percentage to find a number for your
profit margin.

We will use a contractor job as an example. If I wanted to earn R15 per hour, and a job took me an
hour to finish, I would make R15. The supplies I used to do the job would include materials,
gas, permits, insurance, and so on. Let us use R50 to cover overhead for the job. It looks like
this: R15 + R50 = R65. If I want a 20% profit, I would take 20% of 65, which is 13 – this would
give a profit of R13 per hour.

Working Hours

To find the hourly cost to run your business you will also need your hourly pay; but you also
need to calculate an approximate number of hours of work each week. You need a best guess
for an average workweek to “be” at your business.

Let us plug in numbers to show how the formula works.

 We will go back to the contractor job at R15 per hour at 40 hours a week. This gives us
R600 per week.
 Use the overhead cost estimate from above of R50 per hour and do the same math (50 x
40 = R2,000 per week).
 Take the R13 per hour profit and do the same thing (13 x 40 = R520).
 Add the totals (600 + 2,000 + 520 = 3,120).
 Divide the total by the number of hours worked (3,120 / 40 = 78).

Page 32
  You would need R78 per hour to run a profitable business in this example. You can use
this formula for any business.

Let us look at an example:

A small superette bakes rye bread and sells it for R12 per loaf. It costs the company R7 per loaf
to produce the bread, and the company has to add an additional R1.20 in tax.

Determine the superette’s profit margin on the rye bread; correct it to one decimal place

Profit margin =

= (R12 – R7 – R1.20) = R3.80

= 31.7%

The bakery down the road from the superette sells rye bread at R10.50 per loaf. It costs the
bakery R6.30 per loaf to produce the bread plus the additional R1.20 in tax. Which company
makes more profit on their rye bread, give a reason for your answer.

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Profit margin =

= (R10.50 – R6.30 – R1.20) = R3.00

= 28.57% ≈ 28.6%

The superette makes a higher profit on its rye bread

Explain how the company with the lower profit margin can adjust its pricing to make the same
profit as it’s’ competitor.

Production costs and the tax of R1.20 cannot be changed. The bakery will have to sell its rye
bread at a higher price to increase its profit margin.

USE MATHEMATICS TO DEBATE ASPECTS OF

NATIONAL AND GLOBAL ECONOMY
2004-11-18: MONETARY POLICY AND INFLATION: THE NEXT DECADE, Address by Mr
TT Mboweni, Governor of the South African Reserve Bank at the Conference of the
Bureau for Economic Research, Stellenbosch, 18 November 2004

1. Introduction

Chairperson, ladies and gentleman, I have been asked to share my views with you today on
what will happen with monetary policy in the next ten years. Looking into the future is always a
hazardous undertaking. It requires a careful analysis of what has changed already and what
likely changes will occur in the coming years. Such an analysis cannot only concentrate on what
has happened in South Africa, but must also take into account the structural changes in the rest
of the world and how these developments could perhaps affect South Africa. This is indeed a
formidable task. In the next thirty minutes I will do my best to give you my view on these
matters.

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2. Structural changes in the world's financial sector

World War I and the great depression of the 1930's left the world with highly regulated capital
markets and a disintegrated international financial system. The highest priority was therefore
attached to restoring multilateral payments and current account convertibility towards the end
of World War II, which led to the Bretton Woods Agreement and the General Agreement on
Tariffs and Trade. In the period after the war, the emphasis shifted to the liberalisation of trade
and payments. Progress with these reforms was relatively slow and at first concentrated on the
currency convertibility of current account transactions. In the 1980's the authorities of the
industrialised countries began liberalising financial systems, which were later followed by a
number of emerging-market economies. The convertibility of the capital account of the balance
of payments gained further momentum with the negotiations in the World Trade Organisation to
liberalise transactions in financial services.

This financial liberalisation was accompanied by a process of globalisation, i.e. a growing

economic interdependence of countries became discernible through the increasing volume and
variety of cross-border transactions and through the rapid and widespread diffusion off
technology. New technological advances reduced transportation, telecommunication and
computation costs, thus greatly increasing the ease with which national markets may be
integrated at the global level.

The liberalisation and globalisation resulted in a growing interdependence of national financial

markets. Although these markets still do not form a single global market, the degree of
interdependence is already strong enough to have altered the environment in which monetary
policy is conducted. In particular, it has affected the volume of international financial
transactions. International transactions in goods and services have become considerably less
important than financial transactions. The closely linked financial markets have changed the
monetary transmission mechanism, and shocks that occur in one country can easily have an
impact on other countries.

As a transition phase of or perhaps as an alternative to globalisation, considerable emphasis has

been placed on closer international co-operation, convergence and integration since the end of
World War II. Many regional economic co-operation arrangements have been formed or are
under consideration. The aim of these regional arrangements is to free international trade and
financial transactions between groups of countries. But many of them also want to encourage
the movement of labour across domestic frontiers and the eventual attainment of political
unions. The establishment of the European Union is, of course, the best example in this regard.
This regional arrangement has created the largest government bond market in the world and led
to the development of the euro into a major international currency.

Another important structural change in the world's financial market has been the achievement
of greater price stability. Over the past twenty years the rate of inflation has declined

Page 35
dramatically in most countries of the world. The disinflation process was at first mainly
concentrated in the industrialised countries. According to the International Monetary Fund the
average annual inflation rate in the major advanced countries already started to decline from
the early 1980s from 12,3 per cent in 1980 to 1,7 per cent in 2003. By contrast, the average
inflation in emerging market and developing countries continued to increase from 25,0 per cent
in 1980 to 107,7 per cent in 1992, before declining sharply to 6,1 per cent in 2003. These
developments brought the average rate of inflation in the world as a whole down to only 3,7 per
cent in 2003.

This disinflation process has been so strong that some countries even experienced declines in
their average price indices. Consumer prices have actually been declining in Japan and Hong
Kong for quite a while, while some other countries such as China recorded decreases for a short
period. As could be expected, disinflation to low positive values has been accompanied by a
corresponding decrease in short-term interest rates to low levels.

Finally, the financial sector, just like all other activities in the world, has been severely
influenced by the revolution experienced in information technology and telecommunication. In
central banking the advances made in information technology and telecommunication has
particularly led to a more efficient payment system catering for real-time gross interbank
settlement. New developments in commercial banking include automated teller machines, credit
and debit cards, telephone and inter-net banking, intelligent cards and card reading devices. In
the 1990s a further advance in technology made it possible to store monetary value on a silicon
chip embedded in a plastic card or in a personal computer. This was the first step in the
development of electronic money or e-money. Initially it was believed that this development
would lead to a quick and dramatic change in the way that payments are made. Such a change
would have required large investments in infrastructure and the general acceptance of this new
payments method by the public. It is thus not surprising that it did not take off in the way
predicted by some analysts. However, initial setbacks to innovations are a common experience
and it is quite possible that the public could eventually be more willing to accept this new
innovation.

3. Effects on South Africa's financial structure

These changes in the rest of the world did not affect South Africa's financial sector to any great
extent during the 1980s, i.e. in a period in which the country became increasingly isolated from
the rest of the world as a result of trade boycotts, embargoes and financial sanctions. The
subsequent transition to a new political dispensation and the normalisation of the country's
international relations completely changed this situation. These circumstances forced the South
African financial sector to move from a relatively isolated position to a world that had changed in

Page 36
many ways from the time when our financial institutions were still actively involved
internationally.

To cope with the challenges faced in this new environment it was important to improve the
functioning of the domestic financial markets and to reintegrate them in the world economy in
an orderly way. Great efforts were accordingly made to bring the rules and regulations applying
to financial institutions in line with international norms and standards. The re-entry of South
Africa in an integrated financial community also made it important to reconsider the strict
exchange control rules applicable at that time. The country's limited foreign exchange reserves
prevented the immediate removal of all exchange control measures, which caused the
authorities to opt for a policy of a gradual relaxation of capital account transactions.

From 1994, South African financial institutions started operating on an increasing scale in major
international financial centres and opened branches or subsidiaries in other African countries. At
the same time foreign financial institutions were encouraged to conduct business in South Africa
by the creation of a level playing field between local and Foreign Service providers. In addition,
the regulatory authorities actively encouraged the development of appropriate clearing,
settlement, ownership-transfer and market information systems, and proper intra-market and
cross-market risk management systems.

This restructuring led to a sharp increase in the involvement of foreign banks and other non-
residents in domestic financial markets. In particular, their transactions on the Bond Exchange
and the Johannesburg Stock Exchange increased considerably. This participation of non-
residents contributed to the increase in the turnover of these two markets. It also caused more
volatility in long-term interest rates because investors quickly altered their positions with
changes in domestic and international conditions, while prices on the Johannesburg Stock
Exchange became even more susceptible to changes in the prices on the stock exchanges of
major financial centres.

Moreover, the normalisation of relations with the rest of the world led to a turnaround in the
international financial flows of South Africa from a net outflow of about R45 billion in the period
from 1985 to 1993 to a net inflow of nearly R204 billion since 1994. At the same time the
volatility in these financial flows increased.

Although the country generally experienced an inflow of capital from the rest of the world, the
magnitude of these inflows varied considerably from year to year. For example, a net financial
inflow of about R29 billion in 1998 was followed by inflows of just more than R7 billion in each of
the next two years, before these inflows increased again to about R30 billion in 2002 and R63
billion in 2003.

Most emerging-market economies now seem to experience large and volatile capital
movements. Despite considerable efforts to make South Africa a more investor friendly country,

Page 37
it can safely be assumed that fluctuations in capital movements will continue to be a feature of
our economy in the future. This volatility will not only be influenced by domestic developments,
but also by events in the rest of the world.

The volatile capital movements brought about large swings in the exchange rate of the rand not
only against individual currencies but also on a trade-weighted basis. For instance, in 2000 and
2001 the nominal effective exchange rate of the rand declined by 13 percent and 39 per cent,
respectively, before it increased again by 24 per cent in 2002 and by 44 per cent in 2003. These
fluctuations have complicated the implementation of monetary policy. In particular, monetary
policy was dominated in 2002 by inflationary pressures arising from the substantial depreciation
in the external value of the rand in late 2001, combined with a sharp rise in international oil
prices as well as in domestic food prices. These external shocks were responsible for a surge in
the twelve-month rate of increase in the CPIX from a low of 5,8 per cent in September 2001 to
a peak of 11,3 per cent in October 2002. Subsequently, the appreciation of the rand from the
beginning of 2002 again had to be carefully taken into consideration in the formulation of
monetary policy.

The fluctuations in the exchange rate of the rand clearly illustrated the need for structural
adjustments in the foreign exchange market in South Africa. The Reserve Bank accordingly
concentrated on eliminating its negative net open foreign reserve position and its oversold
forward book. With the success achieved with these objectives, the focus of the Bank has now
shifted to a gradual strengthening of the official foreign exchange reserves. Since the end of
2002 the official foreign exchange reserves of the country have increased from US$7,6 billion to
US$13,0 billion at the end of October 2004. The higher foreign exchange holdings should help to
stabilise the external value of the rand.

4. Implications for monetary policy

Taking these changes in the world and more specifically in South Africa into consideration, we
now come to the crucial question on how monetary policy will be affected or what will happen to
monetary policy in the next ten years. More in particular I want to concentrate on three
questions in this regard, namely:

(1) Will monetary policy still be effective?

(2) What should the primary objective of monetary policy be?

(3) What monetary policy framework should be applied?

Page 38
4.1 The effectiveness of monetary policy

As in the rest of the world, e-money has not really taken off in South Africa. Although several
potential products have been evaluated by the Reserve Bank, no rollout on a significant basis
has yet occurred. The failure of e-money to meet expectations can possibly be ascribed to the
fact that cash remains a trusted and very convenient payment mechanism, debit and credit
cards are widely used and money products generally do not allow for person-to-person
payments. However, it is conceivable that this could change in the future and that e-money
could to an increasing extent become a substitute for banknotes and coin. As Benjamin M.
Friedman (1999) has pointed out it is possible, albeit at present highly unlikely, that e-money
could be used as a means of payment as well as settlement and therefore erode the role of
currency and reduce banknotes and coin in circulation.

Friedman also stated that the size of base money (currency in circulation plus the balances of
banks at the central bank) could decline in future because of the declining role of banks in
advancing credit to the non-bank private sector. If bank credit extension to the private sector
decreases, less deposit is created. The reserves that banks are required to hold at the central
bank are then smaller, which reduces base money.

Securitisation and the liberalisation and globalisation of South Africa's financial markets have led
to a declining role of banks in the advancement of credit to the non-bank private sector. As
already indicated, South African organisations are now more easily able to obtain financing from
abroad than they were before 1994. Many private sector companies have also started to make
increasing use of the bond market to raise funds for development purposes. Although this
disintermediation has not led to a decline in reserve requirements of banks, it has affected the
growth of base money.

Friedman further indicated that private bank clearing mechanisms could be developed that
would further reduce base money. Mervyn King (1999) also pointed out that there is a
possibility that the demand for settlement balances could eventually be eliminated by the
development of electronic networks allowing payments to be settled without the involvement of
the central bank.

These arguments led Friedman to the conclusion that the central bank in the future will become
"an army with only a signal corps". Central banks will only be able to indicate to the private
sector how they believe monetary conditions should develop, but will be unable to do anything
about this if the private sector has a different view.

It nevertheless seems highly unlikely that the effectiveness of monetary policy will decline in
South Africa in the next ten years because of the increased use of emoney, the liberalisation
and globalisation of our financial markets or the development of private banking clearing
mechanisms. At most these factors should only have a limited impact on the effectiveness of

Page 39
monetary policy. As Woodford (2000) stated, the effectiveness of monetary policy is not
dependent "upon a mechanical connection between the monetary base and the volume of
nominal spending, which is then presumably dependent upon a need to use base money as a
means of payment". In fact, in South Africa the supply of money is endogenously determined.
The repo rate is the operational variable of the Reserve Bank and this rate is not affected by the
size of base money.

4.2 The primary objective of monetary policy

Having determined that monetary policy should remain effective in the coming ten years, what
should the primary objective of monetary policy be in South Africa?

It is now generally accepted all over the world that the central bank's responsibility is to ensure
price stability. As already indicated, considerable success has been achieved with the attainment
of this objective and in the advanced countries of the world price stability has been maintained
for a relatively long period. As a consequence, many of the central banks of these countries
seem to have become less engrossed with combating inflation and have again moved somewhat
in the direction of fine tuning economic growth. Many economists are of the opinion that this is
the right approach. For example, in a recent article of Carl Walsh (2003) he states that modern
central banks must "recognise that achieving and maintaining low inflation cannot be their only
objective. Monetary policy has important short-run effects on real economic activity and there
is, therefore, a role for monetary policy to play in conducting stabilisation policy". The danger of
such an approach is, of course, that central banks could concentrate too much on expansionary
policies at the cost of maintaining price stability.

Despite the fact that South Africa has only been able to maintain low inflation over a relatively
short period, it can be argued that the Reserve Bank should now give more attention to the
promotion of economic growth. It is true that short-term interest rates do have some effect on
long-term interest rates, which, in turn, is an important determinant of the growth in
investment and production. However, it must be realised that reductions in short-term interest
rates do not always lead to a reduction in the cost of capital. If it is generally expected that
lower levels of short-term interest rates will lead to higher inflation, long-term interest rates are
bound to rise. Monetary policy may therefore be less effective in having the desired impact on
real economic activity over the short term than generally believed. At the same time it must be
admitted that the actions of central banks do have some effect on the growth of domestic
product over the short term.

Although monetary policy measures affect real economic activity over the short term, long-term
economic growth can only be achieved if production capacity and productivity increases. Besides
increases in employment, the expansion in production capacity requires additions to capital
stock in the form of net fixed investment. Productivity refers to the efficiency with which labour,

Page 40
capital and other inputs are combined and used to produce goods and services of a specific
quality in order to satisfy the needs of the market. Technological progress, improving the quality
of the labour force and the more productive utilisation of resources are among the factors
needed to increase productivity.

Monetary policy measures cannot directly influence the factors on which long-term economic
growth depend. Monetary policy has the most control over changes in the overall price level and
therefore on the long-run impact of inflation on economic growth. But it should at least not
discourage and preferably rather encourage domestic saving, investment and the inflow of
foreign capital to promote economic growth. Monetary policy should also not stand in the way of
the optimal allocation of resources and the most efficient utilisation of these resources in
business enterprises, because this could lower the potential growth in output. Overall, monetary
policy should therefore not add to the risks that normally confront private business or dampen
technological innovations.

The South African Reserve Bank believes that the best way that monetary policy can contribute
to the important objective of sustained economic growth is to achieve and maintain price
stability. The maintenance of price stability should continue to be a major objective of monetary
policy particularly now that we have achieved some success in bringing the inflation rate down
within our inflation targets. If we are unable to do this, the credibility of monetary policy will be
questioned, which could have a severe effect on the effectiveness of monetary policy measures
in the future. As Carl Walsh (2003) has indicated, "the three most important ingredients to a
successful monetary policy are credibility, credibility and credibility".

There are many convincing arguments why price stability should be regarded as a prerequisite
for sustainable economic growth. All modern market-orientated economies are based on the
extensive use of money as a unit of account, as a means of exchange and as a store of value.
Money that deteriorates in value all the time cannot fulfil these functions effectively. High
inflation discourages savings and foreign investment, on which economic growth is highly
dependent.

Not only is the supply of funds for investment reduced by high inflation, but also the flow of
existing saving to risk capital is distorted. The finance that do become available is invested in
such a manner where they can provide the best protection against inflation, and not necessary
where they could be the most productive and lead to employment creation. In the past when we
experienced high inflation, large amounts of investment in South Africa were made in the
construction of office blocks, shopping centres and expensive housing, which cannot be
regarded as the most productive forms of investment and which probably, lowered the growth
potential of the economy. Inflation accordingly undermines the efficiency of the pricing system
and does not lead to the optimum allocation of production resources.

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4.3 The monetary policy framework

In the pursuit of price stability the South African Reserve Bank and the central banks in many
other parts of the world have found that the inflation targeting monetary policy framework has
proved to be highly effective. In particular, inflation targeting has led to a better co-ordination
between monetary policy and other economic policies than with other monetary measures
applied in the past. This is largely owing to the fact that the Government is responsible for the
determination of the inflation target in South Africa in co-operation with the Reserve Bank. This
target is therefore determined in a structured manner, and taking into consideration the other
economic objectives of government. After the determination of the target it is the Reserve
Bank's responsibility to see that it is achieved, i.e. the Reserve Bank has instrumental
independence but not goal independence. It is therefore surprising that the Bank is sometimes
criticised of being over obsessed with the attainment of the target at the detriment of economic
growth. Since the target is established in a coordinated way, it should in theory form part of the
government's objectives for economic growth and employment creation. Even more importantly,
after the target has been established, it is the Reserve Bank's task to see that it is achieved.

Inflation targeting has the further advantage that it provides a nominal anchor to inflation
expectations if monetary policy is perceived to be credible. This facilitates a reduction in inflation
and should form the basis for future price and wage setting. It is a transparent policy
framework, because the target is publicly announced. This announced target provides the basis
of accountability of the central bank. This disciplines the actions of the central bank and leads to
a better understanding among the public why monetary policy decisions are made.

In view of these advantages of inflation targeting in comparison with other monetary policy
frameworks, there seem to be little reason to start applying a new framework. The authorities
will accordingly continue to apply inflation targeting as the monetary policy framework of South
Africa in the next ten years and at most probably only refine the system further to ensure that it
continues to function efficiently.

5. Conclusion

My general conclusion is therefore that the recent major structural changes in the world and in
South Africa will have little effect on the determination and implementation off monetary policy
in the coming years. It is true that vast developments have taken place in information
technology and telecommunication and those we could probably expect further significant
changes in the next ten years, which will have a major impact on our lives. The process of
liberalisation, globalisation and integration is also bound to change our lives even further. It
seems unlikely however, that these changes will affect the efficiency of monetary policy. In this
expected changed world the South African Reserve Bank will continue in its quest for the

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achievement and maintenance of price stability by applying an inflation targeting monetary
policy framework.

Fiscal policy, virtuous circle set to sustain growth

Business Day 19 Nov 2004 STRONGER economic growth in SA was sustainable in coming years,
boosted by a more expansionary fiscal deficit and low interest rates, leading economists said
yesterday. Gross domestic product growth was set to top 4% next year, driven by strong
spending and investment , according to the University of Stellenbosch's Bureau for Economic
Research (BER). Economist Mike Schussler forecasts that growth will rise above 4% over the
next two years, with the record growth in economic activity likely to continue until 2010, when
SA hosts the Soccer World Cup. Schussler said that SA's economic upswing was sustainable
since it was not based on low or negative real interest rates or on a fiscal stimulus as in Europe.

Instead stronger growth in SA was based on a virtuous circle of higher labour productivity
leading to lower inflation, which lowered the cost of capital. This in turn led to firms investing
more in capital equipment, which improved labour productivity, he said. Although growth would
be higher next year compared with this year's expected 2,9%, exports would remain sluggish
next year because of the rand's strength, said the BER. The bureau said yesterday that
consumer spending would slow next year to around 3,7% from 4,1% this year, while investment
was set to accelerate to 9% next year from 8,4% this year. The rand was expected to weaken
to around R7,50-R8 against the dollar next year, given SA's widening current account deficit,
said the university's bureau.

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 UNIT STANDARD 9015
Title
Apply knowledge of statistics and probability to critically interrogate and effectively
communicate findings on life related problems

Level
4

Credits
6

Range
This unit standard includes the requirement to:

Critique the selection of samples in terms of size and representativeness.

Identify features of distributions: symmetry and asymmetry, clusters and gaps, and possible
outliers in data and consider their effects on the interpretation of the data. Critique the use of
data from samples to estimate population statistics.

Apply an understanding of random phenomena to critique, interpret real life, and work related
situations.

Critique arguments based on probability in terms of an understanding of random behaviour and

the law of large numbers (e.g. lottery `hot` numbers).

Demonstrate understanding of and determine probabilities for independent, disjoint and

complementary events.

Judge or critique probability values.

Further range statements are provided for specific outcomes and assessment criteria as needed.

Specific outcomes and assessment criteria

Specific Outcome 1:
Critique and use techniques for collecting, organising and representing data.
OUTCOME NOTES
Specific purposes include:
Determining trends in societal issues such as crime and health;
Identifying relevant characteristics of target groups such as age range, gender, socio-economic
group, cultural belief, and performance;
Considering the attitudes or opinions of people on issues.

Assessment criteria

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 1. Situations or issues that can be dealt with through statistical methods are identified
correctly.
2. Appropriate methods for collecting, recording and organising (data are used so as to
maximise efficiency and ensure the resolution of a problem or issue.
3. Data sources and databases are selected in a manner that ensures the
representativeness of the sample and the validity of resolutions.
4. Activities that could result in contamination of data are identified and explanations are
provided of the effects of contaminated data.
5. Data is gathered using methods appropriate to the data type and purpose for gathering
the data.
6. Data collection methods are used correctly.
7. 7 Calculations and the use of statistics are correct.
8. Graphical representations and numerical summaries are consistent with the data, are
clear and appropriate to the situation and target audience.
9. Resolutions for the situation or issue are supported by the data and are validated in
terms of the context.

Specific Outcome 2
Use theoretical and experimental probability to develop models.
OUTCOME NOTES
Use theoretical and experimental probability to develop models, make predictions and study
problems.
OUTCOME RANGE
Performance in this specific outcome includes the requirement to:
Use the laws governing independent, complementary and mutually exclusive events.
Determine theoretical and experimental probabilities.
Use simulations (e.g. six sided spinners, random number generators in calculators or
computers) for comparing experimental results (e.g. the rolling of a die) with mathematical
expectations. Compare experimental results with mathematical expectations using probability
models.

Assessment criteria
1. Experiments and simulations are chosen and/or designed appropriately in terms of the
situation to be modelled.
2. Predictions are based on validated experimental or theoretical probabilities.
3. The results of experiments and simulations are interpreted correctly in terms of the real
context.
4. The outcomes of experiments and simulations are communicated clearly.

Specific Outcome 3
Critically interrogate and use probability and statistical models.
OUTCOME NOTES
Critically interrogate and use probability and statistical models in problem solving and decision
making in real world situations.

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OUTCOME RANGE
Performance in this specific outcome includes the requirement to:
Source and interpret information from a variety of sources including databases.
Manipulate data in different ways to support opposing conclusions.
Evaluate statistically based arguments, make recommendations, and describe the use and
misuse of statistics in society.
Make inferences about a population based on a sample selected from it.
Make comparisons between predictions and actual occurrences.

Assessment criteria
1. Statistics generated from the data are interpreted meaningfully and interpretations are
justified or critiqued.
2. Assumptions made in the collection or generation of data and statistics are defined or
critiqued appropriately.
3. Tables, diagrams, charts and graphs are used or critiqued appropriately in the analysis
and representation of data, statistics and probability values.
4. Predictions, conclusions and judgements are made based on valid arguments and
supporting data, statistics and probability models.
5. Evaluations of the statistics identify potential sources of bias, errors in measurement,
potential uses and misuses and their effects.
Range: Effects on arguments, judgements, conclusions and ultimately the audience.

Critical Cross-Field Outcomes

Identifying:
Identify and solve problems using critical and creative thinking:
Solve a variety of problems based on data, statistics and probability.
Collecting
Collect, analyse, organise and critically evaluate information:
Gather, organise, evaluate and critically interpret data and statistics to make sense of
situations.
Communicating
Communicate effectively:
Use everyday language and mathematical language to represent data, statistics and probability
and effectively communicate or critique conclusions.
Contributing
Use mathematics:
Use mathematics to critically analyse, describe and represent situations and to solve problems
related to the life or work situations of the adult with increasing responsibilities.

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APPLY KNOWLEDGE OF STATISTICS AND PROBABILITY TO
CRITICALLY INTERROGATE AND EFFECTIVELY
COMMUNICATE FINDINGS ON LIFE RELATED PROBLEMS
Collecting data

Data, what is that

Data – the word is everywhere! Data processing, databases, numerical data, data entry
operation, data banks, and data just about everything else. It is the "in” thing these days – sort
of instant prestige (take the word "data” add another noun or two, tack it onto your title and
you've got it). Well despite their prominent place on most office pedestals, data are really sort
of everyday fellows.

Data are actually just bits of factual information. Numerical data are bits of factual information
stated as numbers, indicating quantities, such as counts or measurements. Data that are
somehow related to each other, enough so they can be compared can be statistical data.

For example your salary figure, by itself, with nothing to compare it with, probably would be of
little use to a statistician (some of us feel our salary figure is of little use to anyone).

Business Decisions and Data

Today, changes occur rapidly. To take advantage of these changes, decisions with long-term
implications must often be made quickly. Information is vital. Farmers, for example, must be
conscious of market needs and must determine how to react to changing economic, political,
and social situations to maintain a competitive advantage and remain profitable.

The question is whether our decisions, based on the information we receive, are making things
better, having no effect, or making things worse.

We will argue that decisions based on numerical information or data, if the data are collected
and processed correctly, typically make things better. Consider the following situations where
decisions seem to naturally depend on data. A survey of customers indicates that a bank should
improve the quality of its customer service.

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What should the bank do? The first step might be to concentrate on the teller-customer
interaction. To improve service, the bank might use data on the lengths of time for teller
transactions, the number of customers waiting in line, the teller error rates, the costs of
handling exceptional requests, the amount of teller turnover, and so forth. These data could
then be used to examine the entire process of providing customers with exceptional service.

Capital for company projects can be raised by selling bonds or issuing additional shares of stock.
The choice of one or the other (or some combination of the two) depends, to some extent, on
the likely behaviour of interest rates, inflation, tax policy, and other economic variables.

These variables are described by sets of numbers or data. Interest rates may be given by a set
of short-term (6-month certificate-of-deposit) and long-term (10-year Treasury note, 30-year
Treasury bond) rates. Tax policy may be characterized by a set of tax brackets.

A drug company has developed a drug for combating the HIV virus that, according to the
company, is more effective than current drugs and has fewer side effects. Before the company
can produce and market the drug, however, it must receive government approval.

Approval from the Medical Council requires that the company successfully complete a set of
clinical trials. That is, the proposed drug must be tested, under carefully controlled conditions,
on groups of human subjects. Data on the effectiveness and side effects must be collected,
analysed, and reported as part of the company's case.

As part of its review, the Medical Council must decide whether the company's claims are sound.
Were the data collected properly? Were the data interpreted correctly?

Sound decisions involve the collection of pertinent data and the application of appropriate
techniques for extracting the information contained in the data.

Statistics and the Scientific Method

The original idea of "statistics" was the collection of information about and for the "state". The
word statistics derives directly, not from any classical Greek or Latin roots, but from the Italian
word for state.

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The birth of statistics occurred in mid-17th century. A commoner, named John Graunt, who was
a native of London, began reviewing a weekly church publication issued by the local parish clerk
that listed the number of births, christenings, and deaths in each parish.

These so-called Bills of Mortality also listed the causes of death. Graunt who was a shopkeeper
organized this data in the form we call descriptive statistics, which was published as Natural and
Political Observations Made upon the Bills of Mortality. Shortly thereafter, he was elected as a
member of Royal Society.

Thus, statistics has to borrow some concepts from sociology, such as the concept of Population.
It has been argued that since statistics usually involves the study of human behaviour, it cannot
claim the precision of the physical sciences.

If we knew exactly what was going to happen, when it was going to happen, and to whom it
was going to happen, we could prepare for it. Knowing everything makes decision making easy
but life less interesting. If Eskom knew how cold it was going to be next winter, it would be
simple to plan for the amount of electricity to have available.

On the other hand, operating with complete uncertainty is frustrating and often costly.
Fortunately, there is a middle ground. Often we can collect or generate numerical information
that, although not eliminating uncertainty entirely, will allow us to learn enough about the
underlying situation to perform effectively.

Statistics is the body of methodology concerned with the art and science of gathering,
analysing, and using data to identify and solve problems, and to make decisions.

Statistical methods should be regarded as valuable tools. They do not replace critical thinking
and common sense. However, if used correctly, statistical methods enable us to generate and
assemble numerical information in a way that will help us pick out the signals in the fog, make
better decisions, and create more rapid improvements in processes and products.

Statistics is a science assisting you in making decisions under uncertainties based on some
numerical and measurable scales. It is about obtaining facts from figures, but moreover it is the
ability to transform raw numbers (data) into knowledge that can be acted upon.

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Today's business decisions are driven by data. Statistical skills enable you to intelligently collect,
summarise, analyse and interpret data relevant to your decision-making process.

Statistical concepts and statistical thinking enable you to:

 Represent data in meaningful ways that are understandable by others;

 Identify functional relationships between variable quantities;
 Justify decisions on the basis of data: the decision making process must be based on
the data and not on personal opinion or belief.
 Solve problems in a diversity of contexts.

Some would say, particularly from a business perspective, that statistics is the study of
variation. The Director of Statistical Methods for Nashua Corporation maintains that the central
problem of management, in all its forms, including planning, research and development,
procurement, manufacturing, sales, personnel, accounting, and law, is the failure to completely
understand variation.

What are its causes? What does it mean?

The director is referring to the differences in numbers of the same type and the failure to
understand the information contained in these differences. Variation can often be summarized in
simple graphs. Pictures are often easier to interpret than tables or lists of numbers.

Spreadsheet programs can be used to construct familiar displays like bar charts and pie charts.
For the former, amounts are indicated by the heights of bars. For the latter, amounts are
indicated by the areas of pie slices.

Elements of Data Collection

Collecting data from a complex environment can be time-consuming and expensive.
Consequently, it is necessary to have a plan and a systematic collection method that gains
maximum information at minimum cost. Every effort should be made to comply with sound data
collection principles so that the information received is as accurate and relevant as possible.

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There are two types of data:

 Primary data
 Secondary data

Secondary data are collected by someone else and are available in published sources. Quarterly
profits published in the Finance Week are secondary data. For our purposes, primary data will
refer to data collected directly by the investigator or by the organization employing the
investigator.

Primary data are collected by a variety of methods: simple observation, personal interview self-
enumeration, check sheets, electronic data capture, experiments simulated on a computer, and
controlled laboratory or field experiments.

Steps in Data Collection

Certain steps help to ensure data quality. Collecting data properly, particularly data collected as
part of a survey is often an intricate process. Data collection requires careful reflection on the
complexities involved in a population structure, the practical feasibility of sampling methods, the
coordination and supervision of fieldwork, and finally the processing, analyses, and reporting of
the data.

We briefly introduce these issues by examining the principal steps involved in the collection of
primary data.

Determine the purpose of the study.

In order to have a clear goal of the investigation we need to decide on the following:

 What do we hope to learn from the data?

 How are we going to collect the data?

 By defining the purpose of the study as specifically as possible before we even start
ensures that we are unlikely to overlook vital information.

Determine the data to be collected.

There are two main ways of collecting data: questionnaires and recording of experimental
results

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1 - Questionnaires:
In sampling human populations, the main method for gathering data is the questionnaire. A
well-designed questionnaire is crucial to the success of a survey.

A well-designed questionnaire is usually anonymous, but allows you to collect background

information about the person that is answering the questions. We usually ask questions
regarding age, gender, income bracket, number of children or race.

These are called demographic questions. Demographic data helps you paint a more accurate
picture of the group of persons you are trying to understand. For example, if you want to find
out what type of chocolate is the most popular, you will probably get very different answers
from males or females, teenagers or elderly people.

Two types of questions can be asked in a questionnaire: open-ended questions or closed

questions. If you ask: “How old are you?” the person answering has to write an answer. This is
an open-ended question. The advantage of these questions is that you get a very accurate
reflection. The disadvantages are that this type of questionnaire takes longer to complete and
that you will find it very difficult to group the responses when you analyse the data later.

You could ask the same question as follows: Mark your response with a cross.

YOUR
Older than
AGE IN 10-20 20-30 30-40 40-50
50
YEARS

The person answering the questions does not have to write anything, but merely place a cross.
This type of question is answered more easily and quickly. Analysis of data is also much faster.
Please see appendix 1 for more information about the different ways you can phrase questions
in a questionnaire.

2 - Experimental results
If we perform an experiment in the field or in a laboratory, then we need to plan how we are
going to record our data. We draw up a sample table during the planning phase. The table is
then used during the collection of data. We need to decide what our independent, dependent
and controlled variables are.

For example, Mr Rose, a flower farmer wants to see if a new brand of fertiliser will give him
more flowers. He will plant two plots with exactly the same plants, but give them different
fertiliser. The variables are as follows:

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  Independent variable: fertiliser type (i.e. either type A or type B)
 Dependent variable: Number of flowers produced per plant.
 Controlled variable: How much water is given and how often, soil type must be the same
in both plots, types of plants must be the same, the two plots must receive the same
amount of light etc.

By deciding on the variables, farmer Rose knows how to conduct the experiment and what
results to collect.

3 - Determine the plan for collecting the data

The method used for collecting data depends on the money and equipment available, and also
on the purpose of the investigation. You must choose a sample design and a sample size.

The choice of the sampling design is based on such factors as the structure of the population,
the type of information sought, and the administrative facilities and personnel available to carry
out the plan.

In conjunction with choosing the appropriate data collection method, we determine the required
sample size by specifying the degree of precision desired in the sample summary measure. Data
collection costs money, thus you must chose a sample procedure that you can afford

4 - Train personnel
Training is often needed for the people responsible for actually recording the observations and
organizing them in files. Training may take several forms and may be on-going if the data
collection takes place over an extended period of time.

Everyone should understand the importance of the data so that data collection is taken
seriously. Why are the data being collected? What difference does it make to the organization?
What happens if the data contain errors?

Probability
5 - Analyse and report the data
Once the data collection plan is established and the data are collected, the full force of graphic
and numerical techniques can be used to interpret the results. Ingenuity in creating plots and
careful data analysis can suggest interesting relationships and conclusions that may be
considered in additional studies.

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Data may be reported as lists of numbers, as summary measures, in graphical form, in tables,
or as an equation, or they may simply be described verbally. In general, data should be
reported so the information is readily apparent to those who will use it to make decisions.

If the appropriate presentation method is unclear, ask the user. Alternatively, imagine yourself
as the decision maker. Which methods work for you?

6 - Solution and Discussion

State the purpose of the study
The objective is to get information from subordinates about the performance of their managers.
This project is important because changes in organizational structure, salary adjustments, and
advancement opportunities will depend on the outcomes. Data will be collected with a
questionnaire given to all workers. Responses will be confidential.

Determine the data to be collected

Performance variables might include the following: ability to communicate goals and objectives;
accessibility; leadership ability; ability to delegate; commitment to quality; management of
resources; interpersonal skills; availability of feedback; and overall effectiveness. Questions
related to these variables will be included on the questionnaire. The response to each
performance variable question will be indicated on a 5-point scale.

1 2 3 4 5
Almost never Almost always

Describe the plan for collecting the data

The data will be collected from all workers. A two-person team has been designated to construct
and distribute the questionnaire. The questionnaire will be limited to a single page. The team
will help workers to fill in the questionnaire, and tabulate and summarize the data.

Train personnel.

Each of the team members has completed a short training course on questionnaire construction
and ways of dealing with people. Farmer Green has instructed each of the team members on the
importance of this project. A draft version of the questionnaire will be tested with a small group
of people to be sure the questions are clearly stated and provide the information required.

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Analyse and report the data

After the questionnaires are produced and distributed, the team will allow a week for the
questionnaires to be completed. As the questionnaires are returned, they will be checked for the
manager's name and to see if all the questions have been answered. Data will be entered into a
file in a spread sheet program as the completed questionnaires are received. One member of
the personnel team is responsible for data entry.

Another member of the team will check a printout of the file for errors. Reports for each
manager, including a sample questionnaire and the data summaries, will be prepared and
forwarded. Each report will also indicate where the raw data are stored and how they can be
accessed. The members of the team will be identified as the authors of the reports.

Methods for collecting data

A variety of procedures exist for collecting data. Three commonly used ones are:

Observation

Observation entails direct examination and recording of an on-going activity. Let us look at
some brief examples:

1. In a study of family decision making, a researcher observed and recorded interactions

between husband and wife as they decided on the brand of colour television to buy.

2. In an engineering study, data about the internal temperature of an oven were obtained by
reading all instruments inserted ill the oven.

3. In a marketing study, an analyst monitored customer flow in a department store by means of

closed-circuit television.

The observation procedure has certain advantages:

 The directness of the procedure avoids problems such as incomplete or distorted recall.
 Data can be gathered more or less continuously over an extended time period.

Limitations of the method include the following:

 The observer (or the instrument) must be free of bias and must accurately record the
events of interest. Human observers usually require thorough training so that they will
record precisely what they observe and so that different observers will record the same
events in the same manner.

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  Individuals who are under observation and aware of this fact may alter their behaviour
and, as a result, observations of their behaviour may be biased.

Personal Interview

In a personal interview, an interviewer asks questions that are printed on a questionnaire and
records the respondent's answers in designated spaces on the questionnaire form. Let us take a
look at some brief examples:

1. A household member was interviewed at home about purchases of toothpastes and

mouthwashes and about family characteristics, such as income and family size.

2. A household member was interviewed over the telephone about television viewing, including
viewing at the moment of call, the station viewed, and number of persons viewing.

3. A company's financial executive was interviewed at the office by a representative of a trade

association about the firm's plans for capital expenditures in the coming year.

Both the advantages and limitations of securing data through personal interviews arise from the
direct contact between the respondent and the interviewer.

Advantages include the following:

 Persons will tend to respond when they are approached directly; hence, the personal-
interview procedure usually yields a high proportion of usable returns from those persons
who are contacted.
 The direct contact generally enables the interviewer to clear up misinterpretations of
questions by the respondent, to observe the respondent's reactions to particular
questions, and to collect relevant supplementary information.

There are several limitations of the personal-interview method:

 The interviewer may not follow directions for selecting respondents. For instance, if a
member of the family other than the one designated is interviewed, a bias may be
introduced into the results.
 The interviewer may influence the respondent by the manner in which the questions are
asked or by other actions. A slight inadvertent gesture of surprise at an answer, for
example, can exert subtle, undetected pressures on the respondent.
 The interviewer may make errors in recording the respondent's answers

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Self-Enumeration

With self-enumeration, the respondent is provided with a questionnaire to complete, which often
also contains necessary instructions.

Let us take a look at some brief examples:

1. A student who graduated from high school recently received a self-enumeration questionnaire
through the mail, information about educational activities since graduation.

2. A new magazine subscriber received a questionnaire through the mail to provide information
about age, type of job held, income, and amounts of money spent last year on specified
recreational activities.

3. A person completed a certificate of registration for a motor vehicle, supplying information on

make, model, and year of car.

4. A purchaser of a toaster filled out the warranty card, giving information on family
characteristics and on the primary method by which attention was directed to this appliance
(e.g., word of mouth, television commercial).

Both the advantages and limitations of the self-enumeration procedure arise from the
elimination of interviewers. The type of interviewer error discussed earlier is thus avoided.

On the other hand, the absence of interviewers creates two serious problems:

 When a questionnaire is sent to a household or an organization, there is no control over

which person answers the questions.
 The absence of interviewers can lead to low response rates. A low response rate can be a
source of serious bias in survey results, because the persons who do answer the
questionnaires are often not representative of the entire group contacted. The user of
data collected by a self-enumeration procedure should therefore know the rate of non-
response as one factor affecting the magnitude of the potential bias.

Where there is a material rate of non-response, some follow-up of non-respondents will be

valuable. In most well-conducted mail surveys, some or all of the non-respondents are
contacted as a routine procedure.

Non-respondents may be contacted by means of "reminder" letters, telephone calls, or special

personal interviews.

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 ORGANISING AND ANALYSING DATA

Among the first activities in statistical analysis is to count or measure

Counting/measurement theory is concerned with the connection between data and reality. A set
of data is a representation (i.e., a model) of the reality based on numerical and measurable
scales.

How data is presented and analysed depends on the type of data

collected
Certain statistical methods are valid for certain data types only. Any characteristic being
measured or observed (e.g. assessment results, choice of canteen meal) is referred to as a
variable. Since data collected for statistical purposes can take on a variety or spread of values
that are not pre-determined, these variables are termed random variables; e.g., when
measuring assessment results, the values of the data can range from 0% to 100%. The random
variable under study is Assessment Result. The individual data values are the values between
zero and one hundred. They are also referred to as observations.

1. The use of measurement

Data may be classified in different ways according to the nature of the random variable under

study. Random variables may be classified as:

Qualitative: which yield non-numeric answers? Examples are eye colour, gender, marital status

(i.e. married, divorced, single, widowed, living together). This type of information cannot be

manipulated mathematically.

Quantitative: which yield numeric responses that can be mathematically manipulated? Data is

measured by Quantitative random variables (e.g. Income, Prices, and Assessment results).

Data of random variables can also be classified as:

 Discrete Data (or discrete random variables): are data that can assume specific values

only, (usually whole numbers). Discrete random variables are characterised by data that

is countable; e.g. the number of employees in an organisation.

 Continuous Data (or continuous random variables): are data that can assume any

numerical value. Continuous random variables are characterised by data that is

measurable; e.g. income, age, time to complete a task, the height of a person.

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2. Data organisation and presentation
There are many ways of presenting data. No one style is appropriate for all types of data. You

should select the style so that the observer will be able to understand the features of the data

that you want to illuminate. Here are a few types of data presentation styles:

Tables

Tables are lists of numerical quantities. If the

data set is "small”, just listing the data can be

done. As the data set becomes larger, this is not

a good technique. Remember that people can

only look at a very small set of number without

"turning-off".

Pictograms

The simplest way of visually representing data is to use pictograms. Pictures are used to

compare quantities. This can have the look as a bar graph as well as add some interest to the

viewer. Pictograms were dealt with in great detail in earlier modules and you are invited to refer

back to work from previous years.

Pie Charts

Pie charts are used to illustrate proportions of the total amount. The size of each slice shows

how much of the total the slice represents. This type of graph is seen quite often in economics.

The disadvantage is that the viewer has no idea how big the actual sample size was.

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Bar Graphs
The length of a bar represents the quantity that is under comparison. There are many types of
bar charts, but they all should try to have a uniform width, spacing, and a zero value.
Remember that bar charts have gaps between them. (Learning tip: bar graph has a gap in its
name!). Bar graphs are used when there is no continuity between data groups. For example: if
you are comparing the sales if a number of different types of bakkies, you will use a bar graph.
There is no continuity between a Nissan bakkie and a Toyota bakkie.

Histogram
A histogram has no spaces between the bars. It is used when there is continuity between the
categories selected. A histogram is also used in showing frequency distributions.

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Time Plot (Time Series)

Graphs used to illustrate some characteristic over time. These and regression plots study two
random variables simultaneously. There are many examples of this in economics. E.g. Daily
share prices. Graphs must be clearly labelled so as to avoid any ambiguity as to what
information is being conveyed.

The reader must also be informed of the source of the presentation so that the data may be
authenticated if necessary.

The ultimate choice of presentation depends on the data type:

 For qualitative data (nominal and ordinal) use tables, pie and bar charts.
 For quantitative data (interval and ratio) use histograms or line graphs.

The latter is useful for looking at trends over time.

Graphs can be powerful tools to convey information but can also be confusing to understand.
Try to keep them simple and use the type of graph which best illustrates information about the
data and its characteristics.

Range

The range is defined as the difference between the maximum and minimum data values. Farmer
Green has measured the height (in meters) of his calves and has the following data set,
arranged from smallest to biggest: 0,7m; 0,8m; 1,3m; 1,5m; 1,5m. The range of heights is
1,5m – 0,7m = 0,8m

Measures of central tendency

Most measurements are distributed randomly in the range that they were collected in, but most
of them concentrate around some sort of “central tendency” or “average”. Three measures of
central tendency are the mean, median and mode. Thabo employs 10 workers on his farm.
Below are the weekly wages of the 10 workers: R250; R275; R200; R520; R260; R250; R250;
R260; R200; R240.

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Arithmetic Mean Add up all the wages The mean
is
Work out the total and divide by the number of Total = R2705
R270.50
items
Mean = total/number of wages
Mean = 2705/10 = R270.50

Median Write numbers from smallest to The

biggest median is
The median is the middle-most value. Write all
R250.00
the numbers from biggest to smallest, and find R200; R200; R240; R250; R250;
the middle number. If there is an even number R250; R260; R260; R275; R520.
of items, then there will be two middle The two middle numbers are R250
numbers. The median is in the middle of those and R250. Median =
two numbers. (R250+R250)/2 = R250

Mode Write numbers from smallest to The mode

biggest is
The mode is the number that appears the most
R250.00
often. Write the numbers in order and see R200; R200; R240; R250; R250;
which one occurs the most often. R250; R260; R260; R275; R520
R250 appears three times.

The Main Characteristics of the Mode, the Median, and the Mean

FACT MODE MEDIAN MEAN

1 It is the value that It is the middle-most value Add all the values and
appears divide the total by the
number of items
the most often

2 A distribution may have 2 Each array has one and only An array has one and only
or more modes. On the one one mean
other hand, there can
median
also be no mode.

3 It cannot be manipulated It cannot be manipulated Means may be manipulated

algebraically algebraically Algebraically

4 Individual values must be Individual values must be You can calculate it even if
known to calculate the known to calculate the mode you do not know the
mode individual values. You need
to know total and sample
size

5 Values must be arranged Values must be arranged Values need not be ordered
from smallest to biggest or grouped for this
from smallest to biggest
calculation

6 Tells you what score Provides a better measure of Very easy to calculate and
occurs the most often location than the mean when used the most often when
there are some extremely there is a
large or small observations.
list of numbers
Median income is used as the

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 measure for the SA household
income

5– How spread-out is data?

Sometimes data are not spread equally (i.e. they are skewed), making the mean senseless. In
this case, the median is a better representation of the central tendency. To get an idea of the
spread of data, we calculate quartiles and percentiles.

Quartiles and the 5-number summary

Consider the following list of data: 1; 2; 3; 4; 5; 6; 7; 8; 9; 10; 11

The median is 6 1; 2; 3; 4; 5; 6; 7; 8; 9; 10; 11

The median is the middle most value. The first quartile is the value that lies in the middle of the
group of data below the median.

The first quartile is 3 1; 2; 3; 4; 5; 6; 7; 8; 9; 10; 11

The third quartile is the value that lies in the middle of the group of data above the median.

The third quartile is 9 1; 2; 3; 4; 5; 6; 7; 8; 9; 10; 11

You can quite clearly see that the median is the same as the second quartile. The inter-quartile
range is the 3rd quartile minus the 2nd quartile. Here it is 9-3 = 6. The Inter-quartile range tells
us that 50% 0f data lie between the values of 3 and 9.

We can summarise the data set in a 5-number system:

Minimum value of the data set

1st quartile

2nd quartile = median

3rd quartile

Maximum value of the data set

Let us prepare a 5-number summary for the data set above:

Minimum value of the data set: 1

1st quartile 3

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2nd quartile = median 6

3rd quartile 9

Maximum value of the data set 11

Example:

Below is a list of test marks of students, arranged in order. Calculate the 1st, 2nd and 3rd
quartiles.

2; 5; 5; 5; 12; 13; 13; 14; 15; 15; 15; 17; 19; 19; 19; 20; 22; 24; 25; 26; 26; 30

First, we calculate the 2nd quartile or median:

2; 5; 5; 5; 12; 13; 13; 14; 15; 15; 15; 17; 19; 19; 19; 20; 22; 24; 25; 26; 26; 30

Median = (15+17)/2 = 16

Now we calculate the 1st quartile:

2; 5; 5; 5; 12; 13; 13; 14; 15; 15; 15; 17; 19; 19; 19; 20; 22; 24; 25; 26; 26; 30

1st quartile = (12+13)/2 = 12, 5

Now we calculate the 3rd quartile:

2; 5; 5; 5; 12; 13; 13; 14; 15; 15; 15; 17; 19; 19; 19; 20; 22; 24; 25; 26; 26; 30

3rd quartile = (22+24)/2 = 23

Now comes the 5-number summary:

Minimum value of the data set: 2

1st quartile 12,5

2nd quartile = median 16

3rd quartile 23

Maximum value of the data set 30

Inter-quartile range 10,5

To see how valuable the 5-number summary is, let us look at an example. Mgrs. Naidoo has set
3 Maths tests for her class. She wants to compare how the learners have fared in the three
tests. To the right is the summary of her results. Comparing tests 1 and 2, we can see that the
minimum and maximum values are the same. The quartiles for test 2 are much higher than for

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test 1, showing that pupils fared better in test 2. In Test 3 the minimum value is higher,
showing that the weakest pupil improved. The quartiles are even higher than test 2, indicating
that the class improved overall. Mrs Naidoo is happy.

Test Test Test

1 2 3

Minimum 4 4 9

1st quartile 11 17 26.5

2nd quartile/median 26 30 39

3rd quartile 39 41 45

Maximum 50 50 50

Cumulative frequency tables

You saw in the previous activity that the calculations of large data sets are very cumbersome.
There is a quicker way, namely by using cumulative frequency tables. First, let us revise
frequency tables. In a certain rural area a survey was done to see how many dogs people had.
The results are listed below. Arrange these data in a frequency table:
3; 5; 1; 3; 7; 5; 6; 5; 9; 5; 2; 4; 4; 5; 5; 8
First, a tally table is drawn up. Secondly, the tallies are counted and recorded in the frequency
column.
Frequency table

Number Tally Frequency

1 I 1

2 I 1

3 II 2

4 II 2

5 IIII I 6

6 I 1

7 I 1

8 I 1

9 I 1

16

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Cumulative frequency table:

Number Tally Frequency Cumulative

Frequency

1 I 1 1 Total of people having 1 dog

2 I 1 1+1 = 2 Total of people having 2 dogs or less

3 II 2 2+2 = 4 Total of people having 3 dogs or less

4 II 2 4+2 = 6 Total of people having 4 dogs or less

5 IIII I 6 6+6 = 12 Total of people having 5 dogs or less

6 I 1 12+1 = 13 Total of people having 6 dogs or less

7 I 1 13+1 = 14 Total of people having 7 dogs or less

8 I 1 14+1 = 15 Total of people having 8 dogs or less

9 I 1 15+1 = 16 Total of people having 9 dogs or less

16

To calculate the median, we use a simple formula. There is an even number of data, thus we
know that the median is going to lie between two values. To find out between which values it
lies, we say (16+1)/2 = 8,5. This means that the median lies between score number 8 and
score number 9.

Let us look at the table we constructed in more detail:

Number Frequency Cumulative Which data

Frequency items lie
here?

1 1 1 Item 1

2 1 2 Item 2

3 2 4 Items 3 – 4 1st quartile lies between item 4 and 5. The

1st quartile is 3.5
4 2 6 Items 5 – 6

5 6 12 Items 7 – 12 Median lies between item 8 and 9. This

means that the median is 5

6 1 13 Item 13 3rd quartile lies between items 12 and 13,

i.e. it is 5,5

7 1 14 Item 14

8 1 15 Item 15

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9 1 16 Item 16

16

The median is 5.

First quartile calculation:

1st quartile lies between (16+1)/4 = 4, 25 i.e. between items 4 and 5. From the table we can
see that item 4 is 3 and item 5 is 4.

Thus the 1st quartile is (3+4)/2 = 3, 5

3rd quartile calculation:

The 3rd quartile lies between 3(16+1)/4 = 12, 75, i.e. between items 12 and 13. The 3rd
quartile is 5, 5.

Cumulative frequency graphs (Ogives)

Let us plot the Ogive of the data in the table above.

Number Cumulative frequency Points to plot

Why Ogives are useful:
0 0 (0; 0)
An ogive usually has the shape of a
stretched out S. The better the S 1 1 (1; 1)
shape,
2 2 (2; 2)
the more the data are centered
around the middle scores.
3 4 (3; 4)

4 6 (4; 6)
Just by looking at the graph you can
tell that the number of farmers
5 12 (5; 12)
interviewed was 16.
6 13 (6; 13)

We can use the ogive to estimate 7 14 (7; 14)

quartiles:
8 15 (8; 15)
Median: take (16+1)/2 = 8,5.
Draw a horizontal line on the graph at 9 16 (9; 16)
8,5.
Draw a vertical line down from the point where your line cuts the graph’s line.
Read off the x-value: it is approximately 4,5.
1st quartile: Take (16+1)/4 = 4,25
Draw a horizontal line on the graph at 4,25.
Draw a vertical line down from the point where your line cuts the graph’s line.
Read off the x-value: it is approximately 3.

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3rd quartile: Take 3(16+1)/4 = 12,75
Draw a horizontal line on the graph at 12,75.
Draw a vertical line down from the point where your line cuts the graph’s line.
Read off the x-value: it is approximately 6

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Variance and standard deviation
See table below.

Plot A Plot B

Height (cm) Deviation Deviation 2 Height (cm) Deviation Deviation 2

from Mean from Mean

364 4 4x4 = 16 304 64 64x64 = 4096

372 -4 16 388 -20 400

364 4 16 332 36 1296

368 0 0 432 -64 4096

370 -2 4 400 -32 1024

368 0 0 352 16 256

370 -2 4 368 0 0

Total 0 56 Total 0 9872

Mean 56 ÷ 7 = 8 Mean 9872 ÷ 7 =

1410
(Variance) = Std deviation √8 = 2.83 (Variance) = Std deviation
√1410 =
Mean Mean
37.55

Now we add up all the squares of the deviation from the mean to give us a total. For Plot A the
total is 56. Now we calculate the mean of the square of the deviations i.e. we take 56 and divide
by 7 (there were 7 measurements in the sample). This gives an answer of 8.

This is called the variance. Variance is defined as the mean of the square of the deviations from
the mean. If we take the square root of the variance, we get the standard deviation. The
standard deviation for Plot A is 2,83. The standard deviation is defined as the square root of the
mean of the square of the deviations from the mean. Let us summarise the steps:

Add up all the data values

Find the mean.

Calculate the deviations from the mean for each value.

Square the deviations from the mean.

Add up all the square deviations from the mean and divide by the number of values. This gives
you the variance. Take the square root of the variance to obtain the standard deviation.

Let us take a closer look at the farmer’s result for his trees. Both the variance and the standard
deviation show us that there was very little variation in the trees from Plot A.

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The trees from Plot B, however, had hugely different growths. If the farmer needs to sell fairly
uniform trees to logging companies, he would be better off to plant on Plot A. He could do
further analysis to see why the trees on Plot B are so very different to one another, or he could
use the land for another purpose.

Plot A Plot B

Mean 368 cm 368 cm

Variance 8 1410

Standard deviation 2.83 37.55

6 – Scatterplots

Sometimes you have more than one variable to consider at one time. For example, a big
company has to decide whether they really get more income if they spend more on advertising.
They are trying to compare two variables.

We say the data are bivariate. To see whether income does increase with increased cost of
advertising, the company would collect as many data as possible regarding both variables.

They would pair the values and write them as (x;y) ordered pairs. They would then plot all
these points on a graph. The horizontal axis is the explanatory variable X and the vertical axis is
the response variable Y. The result will be scattered points all over the graph. This is known as a
scatter plot. Below is an example of a scatter plot.

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The purpose of collecting bivariate observations is to answer such questions as:
Are the variables related?
If so, does an increase in one variable cause an increase or decrease in the other variable?
What is the nature of the relationship indicated by the data?
Can we quantify the strength of the relation?
Can we make predictions?

Studying the x measurements by themselves or the y measurements by themselves would not

help us answer these questions. The scatterplot provides a visual impression of the relation
between the X and Y variables. If the points cluster along a line, a linear relation is indicated.
Points that band around a curve indicate a curvilinear relation. If the points form a pattern-less
cluster, no relation among the variables is indicated.

Total Operating Total Operating

revenue income revenue income

90 30.4 49 10.5

79.3 20 48.4 9.9

91.1 27 46 9

88.7 26.3 45.8 8.9

81.5 10.7 52 9

50.6 11.1 40.3 7

78 18 44 7.5

59.1 12.7 44.7 7.7

64.5 16 38 6.2

66 13.9 42 6.9

58 4.8 30 6

54 12 20 4

49 10 25 8

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Constructing and interpreting a scatterplot

Total revenue (millions of Rands) and operating income (millions of Rands) for the n = 26
teams in the Provincial Rugby League for the 2003 – 2004 season can be determined from the
data given in the table below. Suppose we believe that total revenue determines or explains, to
a large extent, operating income. Plot these pairs of observations as a scatterplot.

Solution and Discussion

The scatterplot of total revenue and operating income for the Rugby League teams is shown in
the figure above. Total revenue is the explanatory variable (X variable), and operating income
as the response (Y variable).

The points in the scatterplot look as though they lie along a straight line. Low revenue is paired
with low operating income. This is what we would expect. When this happens, we say there is a
positive association or positive relation between the two variables.

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 Estimated Cost Actual Cost Estimated Cost Actual Cost

575 .918 8.947 13.371

6.127 7.214 3.157 1.553

11.215 14.577 3.540 4.069

28.195 30.028 37.400 27.973

30.100 38.173 7.650 7.642

21.091 15.320 13.700 3.692

8.659 14.837 29.003 29.522

40.630 51.284 14.639 15.317

37.800 34.100 5.292 5.292

1.803 2.003 .960 .707

18.048 20.099 1.240 1.246

8.102 4.324 1.419 1.143

10.730 10.523 38.936 21.571

In addition to providing a graphical description of the association between two variables,

scatterplots often reveal information that is not evident from looking at the numbers
themselves. The next example illustrates this point.

The scatterplot on the right illustrates a linear relation with increasing variation.

The following table contains estimated and actual costs (millions of Rands) for 26 construction
projects. Plot the bivariate construction cost data as a scatterplot.

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Solution and Discussion
Let the explanatory variable, X, be estimated cost and the response variable, Y, be actual cost.
The (x,y) values are graphed as a scatterplot in the figure below, with the horizontal axis
representing estimated cost and the vertical axis representing actual cost.

The first point to be plotted is (x1, y 1) = (.575,.918). Again, the southwest to northeast
pattern of the points indicates a positive association between estimated cost and actual cost;
that is, (relatively) high estimated costs tend to occur with (relatively) high actual costs, and
(relatively) low estimated costs with (relatively) low actual costs.

If the engineers could explain (predict) construction costs with no error, the estimated cost
would equal the actual cost for each project and all the points would lie along the diagonal line
through the origin.

Notice that the points in the scatterplot "fan out" as the values increase. The points
corresponding to small projects are closer together than the points corresponding to big
(expensive) projects.

The deviation (difference) of actual cost from estimated cost appears to increase with the size of
the project. The engineers typically come close to determining the costs of smaller projects.
They are less successful with the larger ones.

8– The correlation coefficient – a measure of linear relation

The scatterplot gives a visual impression of the relation between the x and y values in a
bivariate data set. In many cases, the points appear to cluster around a straight line.

A numerical measure of the closeness of the scatter to a straight line is provided by the sample
correlation coefficient.

The sample correlation coefficient, denoted by r, is a measure of the strength of the linear
relation between the X and Y variables. The manner in which the correlation coefficient assesses
the strength of the linear relation is summarized as follows:

The value of r is always between -1 and + 1.

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The magnitude of r indicates the strength of the linear relation, and its sign indicates the
direction. In particular,

r > 0 if the pattern of (x, y) values is a band that runs from lower left to upper right

r < 0 if the pattern of (x, y) values is a band that runs from upper left to lower right

r = +1 if all (x, y) values lie exactly on a straight line with a positive slope (perfect positive
linear relation)

r = -1 if all (x, y) values lie exactly on a straight line with a negative slope (perfect negative
linear relation)

A value of r close to -1 or +1 represents a strong linear relation; A value of r close to 0 means

that the linear relation is very weak. It is a good idea to interpret r in conjunction with a
scatterplot of the bivariate data.

If there is no visible relation, that is, if the y values do not change in any direction as the x
values change, then r will be close to 0.

In addition, a value of r near 0 can occur if the scatterplot points band around a curve that is far
from linear. These situations, and others, are illustrated in the figure below. Keep in mind that
the correlation coefficient is a measure of a linear or straight-line relation.

A value of r close to 0 indicates the absence of a linear relation, but it does not necessarily
mean that there is no relationship.

The figure below illustrates the correspondence between scatter diagram patterns and the value
of r. Notice that (e) and (f) correspond to situations where r = 0. The zero correlation in (e) is
due to an absence of any relation between X and Y. The zero-zero correlation in (f) is due to a
relation that is quite strong but far from linear.

Page 75
 CRITIQUE AND USE TECHNIQUES FOR COLLECTING,
ORGANISING AND REPRESENTING DATA
Interpreting and analysing data are problem-solving processes that are essential for dealing
with information presented in many different forms, including but not limited to graphs and
tables. Visual displays of data are found in reports and in the media, often being used to make
decisions or to determine whether to support or reject arguments.

A Problem-Solving Process

The word statistics may bring to mind polls and surveys, or facts and figures in a newspaper
article. However, statistics is more than just a bunch of numbers: Statistics is a problem-solving
process that seeks answers to questions through data.

By asking and answering statistical questions, we can learn more about the world around us.
Statistics is used every day to help us gain insight into questions that affect our lives: Is our
population growing or shrinking? What is the safest way to invest money? Will eating more fruits
and vegetables really make us live longer?

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 What do you think of when you hear the word statistics?

Four things make a problem statistical: the way in which you ask the question, the role and
nature of the data, the particular ways in which you examine the data, and the types of
interpretations you make from the investigation. A statistics problem typically contains four
components:

Ask a question

Asking a question gets the process started. It is important to ask a question carefully, with an
understanding of the data you will use to find your answer. The question is most frequently
derived from a problem situation and therefore can be seen as the core focus for the modelling
of the data.

Collect Appropriate Data

Collecting data to help answer the question is an important step in the process. You obtain data
by measuring something, gathering relevant information pertaining to the problem situation or
even through sampling, which is another way to collect data. Experimentation is another.

Analyse the Data

Data must be organized, summarized, and represented properly in order to provide good
answers to statistical questions. In addition, the data you collect usually vary (i.e., they are not
all the same), and you will need to account for the sources of this variation. The integrity of the
source is of utmost importance to ensure for an accurate analysis.

Interpret the Results

After you analyse your data, you must interpret it in order to provide an answer -- or answers --
to the original question or problem situation. You will become increasingly familiar with this
process as you investigate different statistical problems.

From the recognition of trends to extracting patterns and extrapolating from data are higher-
order problem-solving components of data interpretation and analysis. Therefore, before we can
start to analyse data we need to understand how to collect the information, organise it
effectively and then present it in an easy to understand format.

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There are many forms of models, which could be used to present and display information for
analysis. Selecting the correct one could be critical to ensure that the applicable information can
be analysed effectively.

Let us have a look at a few of these examples. As you go through the examples with your
facilitator, discuss other possible applications for the use of the models.

Line Graphs

A line graph is a way to summarize how two pieces of information are related and how they vary
depending on one another. The numbers along a side of the line graph are called the scale.

Example 1:

Description: The graph above shows how John's weight varied from the beginning of 1991 to the
beginning of 1995. The weight scale runs vertically, while the time scale is on the horizontal
axis.

Following the gridlines up from the beginning of the years, we see that John's weight was 68 kg
in 1991, 70 kg in 1992, 74 kg in 1993, 74 kg in 1994, and 73 kg in 1995. Examining the graph
also tells us that John's weight increased during 1991 and 1995, stayed the same during 1991,
and fell during 1994.

Use:

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Pie Charts

A pie chart is a circle graph divided into pieces, each displaying the size of some related piece of
information. Pie charts are used to display the sizes of parts that make up some whole.

Example 1:

The pie chart below shows the ingredients used to make a sausage and mushroom pizza. The
fraction of each ingredient by weight is shown in the pie chart below. We see that half of the
pizza's weight comes from the crust. Note that the sum of the decimal sizes of each slice is
equal to 1 (the "whole" pizza").

Example 2:

The pie chart below shows the ingredients used to make a sausage and mushroom pizza
weighing 1.6 kg. This is the same chart as above, except that the labels no longer tell the
fraction of the pizza made up by that ingredient, but the actual weight in kg of the ingredient
used. To get the fraction of the pizza made up by any ingredient, divide the weight of the
ingredient by the weight of the pizza. What fraction of the pizza does the sausage make up? We
divide 0.12 kg by 1.6 kg, to get 0.075. This is the same value as in the pie chart in the previous
example.

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Example 3:

The pie chart below shows the ingredients used to make a sausage and mushroom pizza. The
fraction of each ingredient by weight shown in the pie chart below is now given as a percent.
Again, we see that half of the pizza's weight, 50%, comes from the crust. Note that the sum of
the percent sizes of each slice is equal to 100%. Graphically, the same information is given, but
the data labels are different. Always be aware of how any chart or graph is labelled.

Bar Graphs

Bar graphs consist of an axis and a series of labelled horizontal or vertical bars that show
different values for each bar. The numbers along a side of the bar graph are called the scale.

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Example 1:

The bar chart below shows the weight in kilograms of some fruit sold one day by a local market.
We can see that 52 kg of apples were sold, 40 kg of oranges were sold, and 8 kg of star fruit
were sold.

Example 2:

A double bar graph is similar to a regular bar graph, but gives 2 pieces of information for each
item on the vertical axis, rather than just 1. The bar chart below shows the weight in kilograms
of some fruit sold on two different days by a local market. This lets us compare the sales of each
fruit over a 2 day period, not just the sales of one fruit compared to another. We can see that
the sales of star fruit and apples stayed most nearly the same. The sales of oranges increased
from day 1 to day 2 by 10 kilograms. The same amount of apples and oranges was sold on the
second day.

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 USE THEORETICAL AND EXPERIMENTAL PROBABILITY TO
DEVELOP MODELS

Probability Models – Demonstration

Read through the following with your facilitator.

Make notes of the demonstration provided by your facilitator on the information provided below.

Ask questions where required.

Introduction

A probability model is a mathematical representation of a random phenomenon. It is defined by

its sample space, events within the sample space, and probabilities associated with each event.

The sample space S for a probability model is the set of all possible outcomes.

For example, suppose there are 5 marbles in a bowl. One is red, one is blue, one is yellow, one
is green, and one is purple. If one marble is to be picked at random from the bowl, the sample
space possible outcomes S = {red, blue, yellow, green, purple}.

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If 3 of the marbles are red and 2 are blue, then the sample space S = {red, blue}, since only
two possible colour outcomes be possible. If, instead, two marbles are picked from a bowl with 3
red marbles and 2 blue marbles, then the sample space S = {(2 red), (2 blue), (1 red and 1
blue)}, the set of all possible outcomes.

An event A is a subset of the sample space S.

Suppose there are 3 red marbles and 2 blue marbles in a bowl. If an individual picks three
marbles, one at a time, from the bowl, the event "pick 2 red marbles" can be achieved in 3
ways, so the set of outcomes A = {(red, red, blue),(red, blue, red), (blue, red, red)}.

The sample space for picking three marbles, one at a time, is all of the possible ordered
combinations of three marbles, S = {(red, red, red), (red, red, blue), (red, blue, red), (blue,
red, red), (blue, blue, red), (blue, red, blue), (red, blue, blue)}. Since there are only 2 blue
marbles, it is impossible to achieve the event {blue, blue, blue}.

A probability is a numerical value assigned to a given event A. The probability of an event is

written P(A), and describes the long-run relative frequency of the event. The first two basic
rules of probability are the following:

Rule 1: Any probability P(A) is a number between 0 and 1 (0 < P(A) < 1).

Rule 2: The probability of the sample space S is equal to 1 (P(S) = 1).

Suppose five marbles, each of a different colour, are placed in a bowl. The sample space for
choosing one marble, from above, is S = {red, blue, yellow, green, purple}. Since one of these
must be selected, the probability of choosing any marble is equal to the probability of the
sample space S = 1.

Suppose the event of interest is choosing the purple marble, A = {purple}. If it is equally likely
that any one marble will be selected, then the probability of choosing the purple marble, P (A) =
1/5. In general, the following formula describes the calculation of probabilities for equally likely
outcomes:

If there are k possible outcomes for a phenomenon and each is equally likely, then each
individual outcome has probability 1/k.

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The probability of any event A is

CRITICALLY INTERROGATE AND USE PROBABILITY AND STATISTICAL

MODELS

South Africa's population

South Africa is a nation of over 47-million people of diverse origins, cultures, languages and
beliefs.

According to the mid-2006 estimates from Statistics South Africa, the country's population
stands at some 47.4-million, up from the census 2001 count of 44.8-million.

Africans are in the majority at 37.7-million, making up 79.5% of the total population. The white
population is estimated at 4.4-million (9.2%), the coloured population at 4.2-million (8.9%) and
the Indian/Asian population at 1.2-million (2.5%).

South Africa's population by race

While more than three-quarters of South Africa's population is black African, this category is
neither culturally nor linguistically homogenous.

Nine of the country's 11 official languages are African, reflecting a variety of ethnic groupings,
which nonetheless have a great deal in common in terms of background, culture and descent.

South Africa's population by language

Conclusion

Africans include the Nguni

people, comprising the

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Zulu, Xhosa, Ndebele and Swazi; the Sotho-Tswana people, comprising the Southern, Northern
and Western Sotho (Tswana); the Tsonga; and the Venda.

South Africa's white population descends largely from the colonial immigrants of the late 17th,
18th and 19th centuries - Dutch, German, French Huguenot and British. Linguistically it is
divided into Afrikaans- and English-speaking groups, although many small communities that
have immigrated over the last century retain the use of other languages.

The label "coloured" is a contentious one, but still used for people of mixed race descended from
slaves brought in from East and central Africa, the indigenous Khoisan who lived in the Cape at
the time, indigenous Africans and whites. The majority speak Afrikaans.

Khoisan is a term used to describe two separate groups, physically similar in being light-skinned
and small in stature. The Khoi, who were called Hottentots by the Europeans, were pastoralists
and were effectively annihilated; the San, called Bushmen by the Europeans, were hunter-
gatherers. A small San population still lives in South Africa.

The majority of South Africa's Asian population is Indian in origin, many of them descended
from indentured workers brought to work on the sugar plantations of the eastern coastal area
then known as Natal in the 19th century. They are largely English-speaking, although many also
retain the languages of their origins. There is also a significant group of Chinese South Africans.

In terms of religious affiliation, about two-thirds of South Africans are Christian, mainly
Protestant. They belong to a variety of churches, including many that combine Christian and
traditional African beliefs. Many non-Christians espouse these traditional beliefs. Other
significant religions are Islam, Hinduism and Judaism.

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 UNIT STANDARD 9016
Title
Represent analyse and calculate shape and motion in 2-and 3-dimensional space in different
contexts

Level
4

Credits
4

Range
The scope of this unit standard includes length, surface area, volume, mass, speed; ratio,
proportion; making and justifying conjectures.
Contexts relevant to the adult, the workplace and the country.
More detailed range statements are provided for specific outcomes and assessment criteria as
needed.

Specific outcomes and assessment criteria

Specific Outcome 1:
Measure, estimate, and calculate physical quantities in practical situations relevant to the adult.
OUTCOME NOTES
Measure, estimate, and calculate physical quantities in practical situations relevant to the adult
with increasing
responsibilities in life or the workplace.
OUTCOME RANGE
• Basic instruments to include those readily available such as rulers, measuring tapes,
measuring cylinders or jugs, thermometers, spring or kitchen balances, watches and clocks.
• In situations, which necessitate it such as in the workplace, the use of more accurate
instruments such as vernier callipers, micrometre screws, stop watches and chemical balances.
• Quantities to estimate or measure to include length/distance, area, mass, time, speed
acceleration and temperature.
• Distinctions between mass and weight, speed and acceleration.
• The quantities should range from the low or small to the high or large.
• Mass, volume temperature, distance, and speed values are used in practical situations
relevant to the young adult or the workplace.
• Calculate heights and distances using Pythagoras' theorem.
• Calculate surface areas and volumes of right prisms (i.e., end faces are polygons and the
remaining faces are rectangles)
cylinders, cones and spheres from measurements in practical
situations relevant to the adult or in the workplace.

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Assessment criteria
1. Scales on the measuring instruments are read correctly.
2. Quantities are estimated to a tolerance justified in the context of the need.
3. The appropriate instrument is chosen to measure a particular quantity.
4. Quantities are measured correctly to within the least step of the instrument.
5. Appropriate formulae are selected and used.
6. Calculations are carried out correctly and the least steps of instruments used are taken
into account when reporting final values.
7. Symbols and units are used in accordance with SI conventions and as appropriate to the
situation.

Specific Outcome 2
Explore, analyse & critique, describe & represent, interpret and justify geometrical relationships.
OUTCOME NOTES
Explore, analyse and critique, describe and represent, interpret and justify geometrical
relationships and
Conjectures to solve problems in two and three-dimensional geometrical situations.
OUTCOME RANGE
• Applications taken from different contexts such as packaging, arts, building construction,
dressmaking.
• The operation of simple linkages and mechanisms such as car jacks.
• Top, front and side views of objects are represented.
• Use rough sketches to interpret, represent and describe situations.
• The use of available technology (e.g., isometric paper, drawing instruments, software) to
represent objects
• Use and interpret scale drawings of plans (e.g., plans of houses or factories; technical
diagrams of simple mechanical household or work related devices,
• Road maps relevant to the country.
• World maps.
• International time zones.
• The use of the Cartesian co-ordinate system in determining location and describing
relationships in at least two dimensions.
Assessment criteria
1. Descriptions are based on a systematic analysis of the shapes and reflect the properties
of the shapes accurately, clearly and completely.
2. Descriptions include quantitative information appropriate to the situation and need.
3. 3-dimensional objects are represented by top, front and side views.
4. Different views are correctly assimilated to describe 3-dimensional objects.
5. Available and appropriate technology is used in producing and analysing representations.
6. Relations of distance and positions between objects are analysed from different views.
7. Conjectures as appropriate to the situation are based on well-planned investigations of
geometrical properties.

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 8. Representations of the problems are consistent with and appropriate to the problem
context. The problems are represented comprehensively and in mathematical terms.
9. Results are achieved through efficient and correct analysis and manipulation of
representations.
10. Problem-solving methods are presented clearly, logically and in mathematical terms.
11. Reflections on the chosen problem solving strategy reveal strengths and weaknesses of
the strategy.
12. Alternative strategies to obtain the solution are identified and compared in terms of
appropriateness and effectiveness.

Critical Cross-Field Outcomes

Identifying:
• Identify and solve problems using critical and creative thinking:
Solve a variety of problems relevant to the adult with increasing responsibilities involving space,
shape and time using geometrical techniques.
Collecting
• Collect, analyse, organise and critically evaluate information:
Gather, organise, evaluate and critique information about objects and processes.
Communicating
• Communicate effectively:
Use everyday language and mathematical language to describe properties, processes and
problem solving methods.
Science
Use mathematics:
Use mathematics to analyse, describe and represent realistic and abstract situations and to
solve problems relevant to the adult with increasing responsibilities.

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 Measure, estimate, and calculate physical
quantities in practical situations relevant to the
adult.

Specific Outcome 1:
Measure, estimate, and calculate physical quantities in practical situations relevant to the adult.
OUTCOME NOTES
Measure, estimate, and calculate physical quantities in practical situations relevant to the adult
with increasing
responsibilities in life or the workplace.
OUTCOME RANGE
• Basic instruments to include those readily available such as rulers, measuring tapes,
measuring cylinders or jugs, thermometers, spring or kitchen balances, watches and clocks.
• In situations, which necessitate it such as in the workplace, the use of more accurate
instruments such as vernier callipers, micrometre screws, stopwatches and chemical balances.
• Quantities to estimate or measure to include length/distance, area, mass, time, speed
acceleration and temperature.
• Distinctions between mass and weight, speed and acceleration.
• The quantities should range from the low or small to the high or large.
• Mass, volume temperature, distance, and speed values are used in practical situations
relevant to the young adult or the workplace.
• Calculate heights and distances using Pythagoras' theorem.
• Calculate surface areas and volumes of right prisms (i.e., end faces are polygons and the
remaining faces are rectangles)
cylinders, cones and spheres from measurements in practical
situations relevant to the adult or in the workplace.
Assessment criteria
1. Scales on the measuring instruments are read correctly.
2. Quantities are estimated to a tolerance justified in the context of the need.
3. The appropriate instrument is chosen to measure a particular quantity.
4. Quantities are measured correctly to within the least step of the instrument.
5. Appropriate formulae are selected and used.
6. Calculations are carried out correctly and the least steps of instruments used are taken
into account when reporting final values.
7. Symbols and units are used in accordance with SI conventions and as appropriate to the
situation.

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 Measure, estimate, and calculate
Measurements for most are a big part of our daily lives. Along every step of the way, we are
able to notice things, which require measurement of some sort. Let us have a look how
measurement affects us:

Measurements can be found in just about everything. Let us see if you can identify what type of
measurement is used and / or required in the following situations:

When you buy groceries and need to work out whether you have sufficient funds.

Measurement:

When you calculate how much ingredients you will need to prepare the meal.

Measurement:

When you work out how much overtime, you have worked for a particular month.

Measurement:

When you work out how much discount, you are able to offer your client.

Measurement:

When you determine the correct setting on the oven during baking.

Measurement:

When you calculate how far it is that you will need to travel.

Measurement:

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Making use of formulae to calculate measurements

The use of formulae’s to calculate measurements allow us to complete the calculation quicker
and easier. The formulae provide us with set rules, which we could follow to ensure that our
calculation remains accurate and correct. Let’s have a look at a simple example to help us
understand this concept.

Finding Hours and Minutes

Formulae Purpose: How to find hours and minutes when the number of minutes is known.
Formulae:

Divide the number of minutes by 60.

The quotient is the number of hours.

The remainder is the number of minutes greater than those in full hours.
Example:

If you have 240 free talk-time minutes on your cellular contract every month, you can use the
above formulae are as follows:

240 minutes divide by 60 equals: 4 hours

Conclusion: You have 4 hours of free talk-time minutes every month to make use of activity –
examples of other formulae’s
Now give another two examples of formulae’s that you can make use of. Give examples to
explain your answers. Record them below:

Formulae Purpose:

Formulae:

Example:

Formulae Purpose:

Formulae:

Example:

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 EXPLORE, ANALYSE & CRITIQUE, DESCRIBE & REPRESETN,
INTERPRET ANF JUSTIFY GEOMETRICAL RELATIONSHIPS

Using and Analysing Shape and geometrical relationships

Two-dimensional shapes

In this session, we explore the concept of properties of geometric shapes. On the right there are
surface areas of 2-dimensional figures, most complicated shapes can be broken down into the
six basic shapes shown on the right:

Three-dimensional figures
To calculate the surface area of a three-dimensional figure, we need to break the shape up into
known shapes by creating a net diagram. If you had to cut out the net and fold it, it would give
you a 3-d shape.

The ability of analysing and understanding shapes and figures allows us to make calculated
decisions about everyday life when faced with certain situations. Shapes and figures have
geometrical relationships, which act as “formulae” and solutions to complex problems. Shapes

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might have equal sides, which mean that the measurement of those two equal sides will be the
same.

Remember:
Shape can take the form of distance over land and curves on a soccer ball. It is not always just
considered as a particular figure of an object. Have a look at the picture below and answer the
questions that follow by circling the correct answer/s:

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A – Both figures have four right angles

B – Both figures have four congruent sides

C – Each angle measures exactly 45˚

D – Each figures has four lines of symmetry

Question:

In your own words, explain what the geometrical relationship is between the two shapes above.

Now let’s have a look at a practical example

Problem situation:

If you travel from point A to point B and the distance from one point to the other is 5 km. What
will the total distance be which needs to be travelled if one needs to go there and come back 5
times a day over 2 weeks?

Notes:

The distance from point A to point B is 5km. The return distance will also be 5km, therefore
totalling 10km.

If the above distance of 10km per travel needs to be completed 5 times a day it would equal
50km a day.

50km a day worth of travelling over two weeks (14 days) will equal:

Total Distance: 700 km

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