BUSINESS DECISION MAKING

Week 7:

DATA PRESENTATION BY

NUMBERS (cont)

Business Decision Making – Nguyen Minh Thu – nmthu@neu.edu.vn

 Outline

• Measures of Dispersion

• Other measures

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 Measures of Dispersion

Firm A Firm B MeanA = MeanB = 1500

Worker 1 400 1480
Worker 2 400 1485
Worker 3 600 1486 Which firm’s worker salary is more
Worker 4 600 1488 fluctuated/stable?
Worker 5 700 1490
Worker 6 800 1503 Central Tendency may not
Worker 7 900 1505 provide efficient information of
Worker 8 2000 1520 the data. Data may have the
Worker 9 2600 1521 same Mean, Median, but differ in
Worker 10 6000 1522 variability (dispersion, spread)

Business Decision Making – Nguyen Minh Thu – nmthu@neu.edu.vn

 Outline

Tells about the spread of the data. Help us to

compare the spread in two or more distributions

▪ Range
▪ Variance
▪ Standard Deviation
▪ Coefficient of Variation

Business Decision Making – Nguyen Minh Thu – nmthu@neu.edu.vn

 Range

• The difference between the largest and the smallest value

in a data set.
Firm A Firm B
R = xmax - xmin
Worker 1 400 1480
• Example: Worker 2 400 1485
Range (A) = 6000 – 400 = 5600 Worker 3 600 1486
Worker 4 600 1488
Range (B) = 1522 – 1480 = 52 Worker 5 700 1490
Worker 6 800 1503
• Pros: simple Worker 7 900 1505
Worker 8 2000 1520
• Cons: affected by outliers Worker 9 2600 1521
Worker 10 6000 1522

Business Decision Making – Nguyen Minh Thu – nmthu@neu.edu.vn

 Interquartile Range

• Interquatile Range is range between 3rd quartile

and 1st quartile

• IQR is the width of 50% middle value of data

• It overcomes the sensitivity to extreme data
values

Business Decision Making – Nguyen Minh Thu – nmthu@neu.edu.vn

 Detecting Outlier by Quartiles

Value < Q1 – 1.5 IQR

or Value > Q3 + 1.5 IQR

Statistics in Economics and Business – Nguyen

Business Decision
Minh Thu Making – Nguyen Minh Thu – nmthu@neu.edu.vn
– nmthu@neu.edu.vn 7
 Variance

• Overcome the weakness of the range by using all

the values

➢ Data: x1, x2,…, xn → the mean: xത

➢ Deviation: xi - xത

➢ Sum of Squares: SS = σ(xi − xത)2

Business Decision Making – Nguyen Minh Thu – nmthu@neu.edu.vn

 Variance

• Formula:
2
Σ(X - μ)
➢ Population Variance: σ 2 =
N
2
Σ(X - X)
➢ Sample Variance: s2 =
n -1
• If 𝑠𝑥2 > 𝑠𝑦2 then:

• x is more dispersed, widespread, fluctuated than y

• y is more stable, concentrated than x

Business Decision Making – Nguyen Minh Thu – nmthu@neu.edu.vn

 Variance for Grouped Data

• Formula:

𝟐 σ 𝐱𝐢 −𝛍 𝟐 𝐟𝐢
➢ Population Variance: 𝛔 = σ 𝐟𝐢

ഥ 𝟐 𝐟𝐢
σ 𝐱𝐢 −𝒙
➢ Sample Variance: 𝐒 𝟐 = σ 𝐟𝐢 −𝟏

Business Decision Making – Nguyen Minh Thu – nmthu@neu.edu.vn

 Standard Deviation

• Is the square root of the variance

• It is measured in the same units as the data,
making it more easily comparable, than the
variance, to the mean
• Formula:
➢ Population Standard Variance: σ = σ2

➢ Sample Standard Variance: s = s2

Business Decision Making – Nguyen Minh Thu – nmthu@neu.edu.vn

 Standard Deviation

Age Number of users

10 – 20 3
20 – 30 7
30 – 40 18
40 – 50 20
50 – 60 12
Total 60

Business Decision Making – Nguyen Minh Thu – nmthu@neu.edu.vn

 Coefficient of Variation

• Applying to compare among:

- Different variables

- Same variables but the means are different

• This is the ratio of the standard deviation to the mean

SD
CV =  100
mean

Business Decision Making – Nguyen Minh Thu – nmthu@neu.edu.vn

 Coefficient of Variation

An investor is considering the relative risks associated with two

projects:
• The first project has a mean expected profit of £5000 with a
standard deviation of £707.11
• The second project has a mean expected profit of £500 with
a standard deviation of £112.13
Use the measures of dispersion to establish which project has
the lowest degree of risk.

Business Decision Making – Nguyen Minh Thu – nmthu@neu.edu.vn

 Five-Number Summary

• Describes the spread of numbers in a data set,

divides a data set into 4 quartiles
Min Q1 Median Q3 Max

25% 25% 25% 25%

• Find the five-number summary of the following

data set: 12, 14, 19, 20, 20, 24, 24, 28, 30

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 Box and Whisker plot

• Display the five-number summary of a data set

Business Decision Making – Nguyen Minh Thu – nmthu@neu.edu.vn

 Box and Whisker plot

• Without outliers

Business Decision Making – Nguyen Minh Thu – nmthu@neu.edu.vn

Detecting Outlier by Quartiles

Value < Q1 – 1.5 IQR

or Value > Q3 + 1.5 IQR

Business Decision Making – Nguyen Minh Thu – nmthu@neu.edu.vn

 Box and Whisker plot

• With outliers

Business Decision Making – Nguyen Minh Thu – nmthu@neu.edu.vn

 Box and Whisker plot

A B C D E F

Max 6 6 7 9 6 4

Q3 5 4 6 6 4 3

Q2 4.5 2.5 5.5 4.5 2.5 2.5

Q1 3 2 4 4 1 2

Min 1 1 1 3 -1 1

4.2 2.8 5.16 4.84 2.5 2.5

Business Decision Making – Nguyen Minh Thu – nmthu@neu.edu.vn

 Exercise

The weights of the male and female students in a class are

summarised in the following boxplots:

Males

Females

80 100 120 140 160 180 200 220 240

Weight (pounds)
Provide a descriptive analysis of this data. Your answer
should mention the range, inter-quartile range and the shape
of the distribution
Business Decision Making – Nguyen Minh Thu – nmthu@neu.edu.vn
Exercise

Business Decision Making – Nguyen Minh Thu – nmthu@neu.edu.vn

Exercise

Business Decision Making – Nguyen Minh Thu – nmthu@neu.edu.vn

 Exercise

• Runners (page 136)

• Case problem 4: Heavenly Chocolates

Website Transactions (page 164)

Business Decision Making – Nguyen Minh Thu – nmthu@neu.edu.vn

 Other measures

• Z-Score: Measure of relative location

• Detecting Outlier

Business Decision Making – Nguyen Minh Thu – nmthu@neu.edu.vn

 Z-Score

• Measures of relative location: how far a paritcular

value is from the mean
• Also called the the standardized value
• Formula:
xi −തx xi −ഥ
μ
zi = zi =
s σ
➢ The number of standard deviations xi is from the mean

Business Decision Making – Nguyen Minh Thu – nmthu@neu.edu.vn

 Z-Score

• Formula:
xi −തx xi −ഥ
μ
zi = zi =
s σ
➢ A data value less than the sample mean will have a z-
score less than zero.
➢ A data value greater than the sample mean will have a
z-score greater than zero.
➢ A data value equal to the sample mean will have a z-
score of zero.

Business Decision Making – Nguyen Minh Thu – nmthu@neu.edu.vn

 Z-Score

Number of Students Deviation about

in Class (xi) the Mean Z-Score

46 2 0.25
54 10 1.25
42 -2 -0.25
46 2 0.25
32 -12 -1.5

Mean = 44
• z1 = 0.25: x1 is 0.25 standard deviations greater than the sample mean
• z3 = -0.25: x3 is 0.25 standard deviations less than the sample mean

Compare among two or more different data sets

Business Decision Making – Nguyen Minh Thu – nmthu@neu.edu.vn
 Detecting Outlier

• By Chebyshev:

Z-score < -3s or Z-score > 3s

• By Quartiles:

Value < Q1 – 1.5 IQR or Value > Q3 + 1.5 IQR

Business Decision Making – Nguyen Minh Thu – nmthu@neu.edu.vn

Detecting Outlier

Business Decision Making – Nguyen Minh Thu – nmthu@neu.edu.vn

Exercise

Business Decision Making – Nguyen Minh Thu – nmthu@neu.edu.vn