Statistical Methods for Decision

Making
Statistical methods are a branch of quantitative methods
that transform numbers into useful information for
decision makers.
 Introduction

• Statistical methods enhance the ability of analytical thinking

that will help to extract meaningful information from raw
data to make better decisions.

• Analytical thinking is a thought process that focuses on the

ways to identify, control, reduce the variations present in all
phenomenon.

• These methods helps the decision maker to understand

– How to present the data
– How to describe information (data) so as to improve decisions.
– How to draw conclusions about population based on sample data.
– How to establish relationship between variables .
– How to obtain reliable prediction of variables of interest.
 Statistics in Business

• Application of statistical methods in business world are

– To summaries business data

– To draw conclusion from the data

– To make reliable prediction about business activities

– To improve business processes

 Data

• Data is an information when it is organized, otherwise it is a

measurement.

• Data are the basic material that needed to make an effective

decision in a particular situation.

• Data.
– Provide necessary inputs to a given situation under study.
– Measure the performance of ongoing process such as production,
service and so on.
– Enhance quality of decision making by enumerating alternative courses
of action in a decision-making process and selecting appropriate one.
– Assist in guessing cause and probable effect of certain phenomenon.
 Data vs Variable

• Data are the outcome of a continuous process of measuring,

counting and observing a phenomenon. Which can be
– Measurable
– Quantifiable
– Countable
– Classifiable

• Variable is a characteristic of an item or individual

• Values of the variable changes with respect to time or space or

both time and space. These changing values are called as data.

• Parameter is a numerical measure that describes characteristics

of a population.
 Types of Variable
• Variables are classified as either being categorical or
numerical and further classify numerical variables as having
either discrete or continuous.

– Categorical variables (also known as qualitative variables) have values

that can only be placed into categories.

– Numerical variables (also known as quantitative variables) have values

represent quantities.

– Discrete variables have numerical values that arise from a counting

process.

– Continuous variables produce numerical responses that arise from a

measuring process.
 Types of Data
• Time Series Data
– A time series is a set of observations on the values that a variable
takes at different times.
• Such data may be collected at regular time intervals, such as daily (e.g., stock
prices), weekly (e.g., money supply figures), monthly (e.g., Consumer Price
Index), quarterly (e.g., GDP), annually (e.g., government budgets), decennially
(e.g., the census of population).

• Cross-Section Data
– Cross-section data are data on one or more variables collected at the
same point in time.
• such as the census of population conducted by the Census Bureau every 10 years,
the surveys of consumer expenditures conducted by the Research organizations.

• Pooled Data
– In pooled or combined data are elements of both time series and
cross-section data. Panel, Longitudinal or Micro panel Data
 Measurement and Scaling of Data

• Measurement is assigning the numbers or some other symbols

to the characteristics of certain objects. Scaling is an extension
of measurement.

– Nominal data: Numbers are used to label an items or characteristics.

– Ordinal data: Numbers are used to rank objects or attributes. It tells

whether an object has more or less of characteristics than other objects.

– Interval data: Numbers are used to rank objects or attributes with

fixed distance.

– Ratio data: Numbers are used in ratio or decimal format to objects or

attributes.
 Data Sources

• Primary
– Information that is original
– Problem or project specific
– Collected for specific objectives and needs.
– Observation
– Questionnaire
– Interview
– through telephone, face-to-face, or other communication media.

• Secondary
– Information is not topical or problem specific
– Collected and compiled by some other investigative body.
– It is recorded and published in a structured format.
– Internal data
– External data
 Statistical Methods

• Methods adopted for collection and analysis of information for

the purpose of drawing conclusions and making decisions are
called statistical methods.

• Descriptive methods describe the basic features of the data by

collecting, classifying, summarizing and presenting data.

• Descriptive methods are graphical and numerical.

– Bar, line, pie chart, etc. are graphical measures
– Percentage, frequency, mean, median, mode, standard deviation,
variance etc. are numerical measures.
• Inferential methods are used to draw inferences about a
population from a sample.
– Population consists of all observations, having some communality.
– Sample is a subset of a population.

• Inferential methods are:

– Estimation
– Hypothesis testing.

• Some other methods are:

– Probability
– Prediction, etc.
• Example

– Conde Nast Traveler conduct an annual survey of subscribers in order

to determine the best places to stay throughout the world.
– Table shows a sample of nine European hotels from their surveys.
– The price of a standard double room during the hotel’s high season
ranges from $ (lowest price) to $$$$ (highest price).
– The overall score includes subscribers’ evaluations of each hotel’s
rooms, service, restaurants, location, atmosphere and public areas; a
higher overall score corresponds to a higher level of satisfaction.
Name of Property Country Room Rate No of Rooms Overall Score
Graveteye Manor England $$ 18 83.6
Villa d'Este Italy $$$$ 166 86.3
Hotel Prem Germany $ 54 77.8
Hotel d'Europe France $$ 47 76.8
Palace Luzern Switzerland $$ 326 80.9
Royal Crescent Hotel England $$$ 45 73.7
Hotel Sacher Austria $$$ 120 85.5
Duc de Bourgogne Belgium $ 10 76.9
Villa Gallici France $$ 22 90.6
• How many elements does this data set contain?
• How many variables does this data set contain?
• Which variables are quantitative and which variables are
qualitative?
• Which types of measurement scale is used for each of the
variables?
• What is the average number of rooms for nine hotels?
• Which country got highest rating and which country got
lowest rating?
• What is the percentage of hotels located in England?
• What is the percentage of hotels with a room rate of $$?
• Are the data time series or cross sectional?
• Example

– All in one sound systems, called miniystems, typically include an

AM/FM tuner, a dual cassette tape deck, and a CD changer in a book
sized box with two separate speakers.
– The data in table show the retail price, sound quality, CD capacity, FM
tuning sensitivity, selectivity and the number of tape decks for a sample
of 10 minisystems.
Price Sound CD Tape
Brand and Model ($) Quality Capacity FM Tuning Deck
Aiwa NSX-AJ800 250 Good 3 Fair 2
JVC FS-SD1000 500 Good 1 Very Good 0
JVC MX-G50 200 Very Good 3 Excellent 2
Panasonic SC-PM11 170 Fair 5 Very Good 1
RCA RS 1283 170 Good 3 Poor 0
Sharp CD-BA2600 150 Good 3 Good 2
Sony CHC-CL1 300 Very Good 3 Very Good 1
Sony MHC-NX1 500 Good 5 Excellent 2
Yamaha GX-505 400 Very Good 3 Excellent 1
Yamaha MCR-E100 500 Very Good 1 Excellent 0
• How many elements does this data set contain?
• How many variables does this data set contain?
• Which variables are quantitative and which variables are
qualitative?
• Which types of measurement scale is used for each of the
variables?
• What is the average price of sound system?
• What is the average CD capacity of this sample?
• What percentage of minisystems provide an FM tuning rating
of very good or excellent?
• What percentage of minisystems provide very good sound
quality?
• What percentage of minisystems include two tape decks?
• Are the data time series or cross sectional?