SPC 2308 SIMULATION &

MODELING
Chapter 9 Output Analysis
Objectives
 Central Limit Theorem
 Confidence Interval Estimation of the Mean (σ known)
 Interpretation of the Confidence Interval
 Confidence Interval Estimation of the Mean (σ
unknown)
Central Limit Theorem

Irrespective of the shape of the underlying

distribution of the population, by increasing the
sample size, sample means & proportions will
approximate normal distributions if the
sample sizes are sufficiently large.
How large must a sample be for the Central Limit
theorem to apply?

The sample size varies according to the shape of

the population.

However, for our use, a sample size of 30 or

larger will suffice.
Must sample sizes be 30 or larger for
populations that are normally distributed?

No. If the population is normally distributed, the

sample means are normally distributed for
sample sizes as small as n=1.
Formulae

 Z = (X - µ) ÷ σ

 If sample means are normally distributed, the Z score

formula applied to sample means would be:

 Z = [X-bar - µX-bar ] ÷ σ X-bar

Background
 To determine µX-bar, we would need to randomly draw out all
possible samples of the given size from the population,
compute the sample means, and average them. This task is
unrealistic. Fortunately, µX-bar equals the population mean µ,
which is easier to access.

 Likewise, computing the value of σX-bar, we would have to take

all possible samples of a given size from a population,
compute the sample means, and determine the standard
deviation of sample means. This task is also unrealistic.
Fortunately, σX-bar can be computed by using the population
standard deviation divided by the square root of the sample
size.
Note:

As the sample size increases,

the standard deviation of the sample means becomes
smaller and smaller
because the population standard deviation is being
divided by larger and larger values of the square
root of n.
Z Formula for Sample Means:

Z = [X-bar - µ] ÷ σ / √ n
Example:

The mean expenditure per customer at a tire store is $85.00,

with a standard deviation of $9.00.

If a random sample of 40 customers is taken, what is the

probability that the sample average expenditure per
customer for this sample will be $87.00 or more?
Because the sample size is greater than 30, the central limit theorem
says the sample means are normally distributed.

Z = [X-bar - µ] ÷ σ / √ n

Z = [$87.00 - $85.00] ÷ $9.00 / √ 40

Z = $2.00 / $1.42 = 1.41

 For Z = 1.41 in the Z distribution table, the probability
is .4207.

This represents the probability of getting a mean

between $87.00 and the population mean $85.00.

Solving for the tail of the distribution yields

.5000 - .4207 = .0793

 This is the probability of X-bar ≥ $87.00.

Interpretations

Therefore, 7.93% of the time, a random sample of 40

customers from this population will yield a mean
expenditure of $87.00 or more.
OR
From any random sample of 40 customers, 7.93% of
them will spend on average $87.00 or more.
Interpretations

Therefore, 7.93% of From any random

the time, a random sample of 40
sample of 40 customers, 7.93% of
customers from this them will spend on
population will yield average $87.00 or
a mean expenditure more.
of $87.00 or more.
Solve:
Suppose that during any hour in a large department
store, the average number of shoppers is 448,
with a standard deviation of 21 shoppers.
What is the probability that a random sample of
49 different shopping hours will yield a sample
mean between 441 and 446 shoppers?
Statistical Inference
Via sample data, we can estimate something
about our population, such as its average
value µ, by using the corresponding sample
mean, X-bar.

Recall that µ, the population mean to be estimated,

is a parameter, while X-bar, the sample mean, is
a statistic.
Point Estimate
A point estimate is a statistic taken from a sample and is used to
estimate a population parameter.

However, a point estimate is only as good as the sample it

represents. If other random samples are taken from the
population, the point estimates derived from those samples are
likely to vary.

Because of variation in sample statistics, estimating a population

parameter with a confidence interval is often preferable to
using a point estimate.
Confidence Interval

A confidence interval is a range of values within

which it is estimated with some confidence the
population parameter lies.

Confidence intervals can be one or two-tailed.

Confidence Interval to Estimate µ

 By rearranging the Z formula for sample means, a confidence

interval formula is constructed:

 X-bar +/- Z α/2 σ / √ n

 Where:
 α = the area under the normal curve outside the
confidence interval
 α/2 = the area in one-tail of the distribution outside the
confidence interval
The confidence interval formula yields a range
(interval) within which we feel with some confidence
the population mean is located.

It is not certain that the population mean is in the

interval unless we have a 100% confidence interval
that is infinitely wide, so wide that it is meaningless.

Common levels of confidence intervals used by

analysts are 90%, 95%, 98%, and 99%.
95% Confidence Interval
 For 95% confidence, α =  An alternate method:
.05 and α / 2 = .025. The multiply the confidence
value of Z.025 is found by interval, 95% by ½ (since
looking in the standard the distribution is symmetric
normal table under .5000 - and the intervals are equal
.025 = .4750. This area in on each side of the
the table is associated with population mean.
a Z value of 1.96.  (½) (95%) = .4750 (the
area on each side of the
mean) has a corresponding Z
value of 1.96.
In other words, of all the possible X-bar
values along the horizontal axis of the
normal distribution curve, 95% of them
should be within a Z score of 1.96 from the
mean.
Margin of Error

Z [σ / √ n]
Example:
 A business analyst for cellular telephone company takes a
random sample of 85 bills for a recent month and from
these bills computes a sample mean of 153 minutes. If the
company uses the sample mean of 153 minutes as an
estimate for the population mean, then the sample mean is
being used as a POINT ESTIMATE. Past history and similar
studies indicate that the population standard deviation is
46 minutes.
 The value of Z is decided by the level of confidence
desired. A confidence level of 95% has been selected.
 153 + /- 1.96( 46/ √ 85)
= 143.22 ≤ µ ≤ 162.78
 The confidence interval is constructed from the point
estimate, 153 minutes, and the margin of error of this
estimate, + / - 9.78 minutes.

 The resulting confidence interval is 143.22 ≤ µ ≤

162.78.

 The cellular telephone company business analyst is 95%

confident that the average length of a call for the
population is between 143.22 and 162.78 minutes.
Interpreting a Confidence Interval
 For the previous 95% confidence interval, the following conclusions are
valid:

 I am 95% confident that the average length of a call for the population
µ, lies between 143.22 and 162.78 minutes.

 If I repeatedly obtained samples of size 85, then 95% of the resulting

confidence intervals would contain µ and 5% would not. QUESTION: Does
this confidence interval [143.22 to 162.78] contain µ? ANSWER: I don’t
know. All I can say is that this procedure leads to an interval containing µ
95% of the time.

 I am 95% confident that my estimate of µ [namely 153 minutes] is within

9.78 minutes of the actual value of µ. RECALL: 9.78 is the margin of
error.
 Confidence Interval Estimation of the Mean (σ
Unknown)

In reality, the actual standard deviation of the population, σ, is usually

unknown.

Therefore, we use “s” (sample standard deviation) to compute the

confidence interval for the population mean, µ.

However, by using “s” in place of σ, the standard normal Z

distribution no longer applies.

Fortunately, the t-distribution will work, provided the population we

obtain the sample is normally distributed.
Assumptions necessary to use t-distribution

 Assumes random variable x is normally distributed

 However, if sample size is large enough ( > 30), t-
distribution can be used when σ is unknown.
 But if sample size is small, evaluate the shape of the
sample data using a histogram or stem-and-leaf.
 As the sample size increases, the t-distribution
approaches the Z distribution.
Confidence Interval using a t-distribution

X-bar +/- t α,n-1 [s / √ n

α= confidence interval
n-1 = degrees of freedom
Example:
 As a consultant I have been employed to estimate the average
amount of comp time accumulated per week for managers in
the aerospace industry.
 I randomly sample 18 managers and measure the amount of
extra time they work during a specific week and obtain the
following results (in hours). Assume a 90% confidence interval.

 AEROSPACE DATA
6 21 17 20 7 0 8 16 29
3 8 12 11 9 21 25 15 16
Solution:

To construct a 90% confidence interval to estimate the average

amount of extra time per week worked by a manager in the
aerospace industry, I assume that comp time is normally
distributed in the population.

The sample size is 18, so df = 17.

A 90% level of confidence results in an α / 2 = .05 area in each

tail.

The table t-value is t .05,17 = 1.740.

 With a sample mean of 13.56 hours, and a sample
standard deviation of 7.8 hours, the confidence
interval is computed:

X-bar +/- t α/2, n-1 S / √ n

=13.56 +/- 1.740 ( 7.8 / √ 18) = 13.56 +/- 3.20

= 10.36 ≤ µ ≤ 16.76
Interpretation:

The point estimate for this problem is 13.56 hours,

with an error of +/- 3.20 hours.

I am 90% confident that the average amount of

comp time accumulated by a manager per week in
this industry is between 10.36 and 16.76 hours.
Recommendations:

From these figures, the aerospace industry could

attempt to build a reward system for such extra
work or evaluate the regular 40-hour week to
determine how to use the normal work hours more
effectively and thus reduce comp time.
Solve:
I own a large equipment rental company and I want to make a
quick estimate of the average number of days a piece of ditch
digging equipment is rented out per person per time. The
company has records of all rentals, but the amount of time
required to conduct an audit of all accounts would be prohibitive.

I decide to take a random sample of rental invoices.

Fourteen different rentals of ditch diggers are selected randomly
from the files.

Use the following data to construct a 99% confidence interval to

estimate the average number of days that a ditch digger is
rented and assume that the number of days per rental is
normally distributed in the population.
 Ditch Digger Data:

3 1 3 2 5 1 2 1 4
2 1 3 1 1