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Statistics Chapters 1-3
Statistics Chapters 1-3

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03/18/2014

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CHAPTER ONE
In tro d u c tio n a n d D a ta C o lle c tio n
1 .'I
W H Y L E A R N S T A T IS T IC S
T h e re a lity T V
s e rie s T h e A p p r e n t i c e s t a r s t h e r e a l e s t a t e d e v e l o p e r D o n a l d T ru m p . W h e n
i tp re m ie re ds e v e ra ly e a rsa g o , T r u m p a s s i g n e d t w o t e a m s o f c o n t e s t a n t s
th e ta s k o f s e ttin g
u p a n d r u n n in g ale m o n a d e s ta n d .A t th e tim e , a num ber o f b u s in e s s p e o p le

c ritic iz e d th a t t a s ka s n o t b e in g a r e a l i s t i cb u s in e s st a s k .T h e ys a w t h e t a s k o f s e llin g l e m o n a d ea s a s im - p le a c t o f s a le s m a n s h ip

th a tw a sm ore d e p e n d e n t
o n th ep e rs u a s iv e
s k ills o f th e s e lle r th a n
a n y t h i n ge l s e .
If y o u h a v ee v e rs o ld le m o n a d eo r h e ld o th e rc h ild h o o djo b s s u c h a s s e llin gc o o k ie so r
d e liv e r in gd a ily n e w s p a p e r s ,
y o uk n o w y o u rta s k w a s fa irly s im p le . F o re x a m p le ,tod e liv e r
n e w s p a p e rs ,
y o un e e do n ly to k e e ptra c kof a lis to f a d d re s s e s
a n dp e rh a p sre c o rd th e w e e k lyo r
m o n th lyp a y m e n ts .
I nc o n tra s t,
s a le sa n d m a rk e tin gm a n a g e rso f th e n e w s p a p e r
n e e dto k e e p
tra c k o f m u c h m o re d a ta -in c lu d in g th e in c o m e s ,
e d u c a tio nle v e ls ,life s ty le s ,
a n db u y in gp re f-
e r e n c e so fth e ir s u b s c r i b e r s - i n o r d e r t om ake a p p r o p r i a t e d e c i s i o n sa b o u t i n c r e a s i n gc ir c u la -
tio n a n d a ttra c tin ga d v e rtis e rs .
B u tu n l e s s t h a t n e w s p a p e r
h a sa tin y c ir c u la tio n ,
t h o s em a n a g e r s
a r e p ro b a b lyn o t lo o k in g a t d a t a d i r e c t l y .I n s t e a d t h e y a re l o o k i n g a t s u m m a rie s ,
s u c h a sth e
p e rc e n ta g eo f s u b s c rib e rs
w ho a t t e n d e d a t l e a s t s o m e c o l l e g e ,o r t r y i n g t ou n c o v e r u s e f u l p a t -
t e r n s ,s u c h a s w h e t h e rm o r e s u b s c rip tio n s
a r e d e l i v e r e d t os i n g l e - f a m i l y h o m e s i n a r e a sa s s o c i-
a t e d w ith h e a v y s a l e so flu x u ry a u t o m o b i l e s .
T h a tis to s a y , t h e m a n a g e r sa t t h e n e w s p a p e r
a re
u s in g s ta tis tic s ,
th e s u b je c to fth is te x t.
S ta tis tic s is th e b ra n c ho f m a th e m a tic sth a t tra n s fo rm sd a ta in to u s e fu l in fo rm a tio nfo r
d e c is io nm a k e rs .
T h e s et r a n s f o r m a t i o n s
o fte nre q u ire c o m p le xc a lc u la tio n st h a ta rep ra c ti-
c a lo n lyi f d o n eb y c o m p u te r,
s o u s in g s t a t i s t i c su s u a l l y m e a n s a l s o u s i n g c o m p u te rs .
T h isi s

e s p e c ia llytru e w h e n d e a lin gw ith th e la r g ev o lu m e so f d a tath a ta ty p ic a lb u s in e s sc o lle c ts . A tte m p tin g t o d o s t a t i s t i c su s i n g m a n u a l c a l c u l a t i o n sf o rs u c h d a ta w o u l db e to o tim e - c o n s u m in gto b e n e fita b u s in e s s .

W h e ny o u le a rns ta tis tic s ,
y o ule a rn a s e to f m e th o d sa n d th e c o n d itio n su n d e r w h ic h it is
a p p ro p ria tefo ry o uto u s eth o s em e th o d s .
A nd b e c a u s e s o m anys ta tis tic a l
m e th o d sa rep ra c ti-
c a l o n ly w h e ny o uu s e c o m p u te rs ,
le a r n in g s t a t i s t i c sa l s o m e a n sle a rn in gm o re a b o u tu s in g
c o m p u te rp ro g ra m sth a tp e rfo rm s ta tis tic a l
a n a ly s e s .
1 .2
S T A T IS T IC S
FO RM A N A G E R S
T o d a y ,s t a t i s t i c sp la y s a n e v e r i n c r e a s i n g i m p o r t a n tro le fo r b u s in e s sm a n a g e rs .
T h e s ed e c is io n
m a k e rsu s e s ta tis tic st o :
P re s e n t
a n d d e s c r i b e b u s i n e s sd a t a a n d i n f o r m a t i o n p ro p e rly
D ra w c o n c l u s i o n sa b o u tl a r g ep o p u la tio n s ,
u s in g in fo rm a tio nc o l l e c t e df r o m s a m p l e s l
M a k e r e lia b lefo re c a s tsa b o u ta b u s i n e s sa c t i v i t v
Im p ro v eb u s in e s sp ro c e s s e s
TIII
lT h es t a t i s t i c a l t e r m s

p o p u la tio na n d s a m p lea re fo rm a lly d e fin e d in S e c tio n 1 .3 ,on page 5.

" S ta tis tic s fo r m a n a g e rs "m e a n s k n o w in gm o re th a n ju s t h o wt o p e rfo rm
th e s e ta s k s .

M a n a g e rs n e e d a c o n c e p tu a l u n d e rs ta n d in g o f th e p r in c ip le sb e h in d e a c h s ta tis tic a la n a ly s is th e y u n d e rta k e ino rd e r toh a v e c o n fid e n c e th a t th e in fo rm a tio n p ro d u c e dis c o rre c ta n d a p p ro - p ria tefor a d e c is io n - m a k in g s itu a tio n .

T o h e lp y o um a s te r th e s e n e c e s s a rys k ills , e v e r y c h a p te ro f S ta tis tic sfo r
M a n a g e rs U s in g
M ic ro s o ft E xcel hasa U s in g S ta tis tic s s c e n a r io . W h ile

th es c e n a rio s a re fic tio n a l,th e y re p re s e n t r e a lis tic s itu a tio n s in w h ic h y o uw illb e a s k e d to m a k e d e c is io n s w h ileu s in g M ic r o s o ftE x c e l to tra n s fo rmd a ta in tos ta tis tic a lin fo rm a tio n . F o r e x a m p le , ino n e c h a p te q y o uw ill b e a s k e d to d e c id e th e lo c a tio n in as u p e rm a rk e tth a tb e s t e n h a n c e ss a le s o f a c o la d r in k ,a n d in a n o th e r c h a p te r,y o u w ill b ea s k e d to fo re c a s ts a le s fo ra c lo th in gs to re . (Y o u w ill n o t b e a s k e d ,a s th e te le v is io n a p p r e n t i c e sw e r e a s k e d , t o d e c i d e h o wb e s ttos e ll le m o n a d eo na N e w Y o rk C itys tre e t c o rn e r.)

e n
n o
la t
1 l-
a n
1 .2 :S ta tis tic s
fo r M a n a g e rs
H o w T h is T e x t ls O rg a n iz e d
T a b le 1 .1s h o w s th e c h a p te rs o fS ra li.s ric '.s
J b rM a n a g e rs[J s in g M ic ro x lft
E x c 'e l o r g a n iz e d
a c c o rd in sto th e fo u r a c tiv itie sfo r w h ic h d e c is io n m a k e r su s e s ta tis tic s .
T A B L E 1 .1
P r e s e n t i n g a n d D e s c r i b i n g I n f o r m a t i o n
O rg a n iz a tio n
o fT h isT e x t
D a taC o lle c tio n(C h a p te r
I)
P re s e n tin gD a ta in T a b le sa n d C h a rts(C h a p te r2 )
N u m e r i c a lD e s c r i p t i v e M e a s u r e s(C h a p te r3 )
D ra w in gC o n c lu s io n s
A b o u t P o p u la tio n sU s in g S a m p leIn fo rm a tio n
B a s ic P r o b a b ility(C h a p te r4 ), a p re re q u is itefo r th e re s to f th e c h a p te rso f th is g ro u p
S o m e I m p o r t a n tD i s c r e t e P r o b a b i l i t yD is trib u tio n s( C h a p t e r5 )

T h e N o rm a lD is trib u tio na n d O th e rC o n tin u o u sD is tr ib u tio n s(C h a p te r6 ) a n dS a m p lin g a n d S a m p l i n gD i s t r i b u t i o n s(C h a p te r7 ), w h ic h le a dto C o n fid e n c eIn te rv a lE s tim a tio n (C h a p te r

8 ) a n dH y p o th e s is
T e s tin g(C h a p te rs
9
1 2 )
D e c is io nM a k in g(C h a p te rl7 )
M a k in g R e lia b leF o re c a s ts
S i m p l e L i n e a rR e g r e s s i o n
(C h a p te rl3 )
ln tr o d u c tio nt o M u ltip le R e g r e s s io n
(C h a p te r1 4 )
M u ltip leR e g re s s io n
M o d e lB u ild in g(C h a p te r1 5 )
T im e -S e rie sF o re c a s tin g
a n dIn d e x N u m b e rs(C h a p te r1 6 )
Im p ro v in g B u s in e s sP ro c e s s e s
S ta tis tic a l
A p p lic a tio n s
i n Q u a litya n d P ro d u c tiv ity
M anagem ent
(C h a p te r
l8 )
M e th o d sp re s e n te d
i n th e C h a p te rsI
3 a re a ll e x a m p le so f d e s c rip tiv es ta tis tic s ,
th eb ra n c h
o f s ta tis tic st h a tc o lle c ts ,s u m m a r iz e s ,

a n dp re s e n tsd a t a .M e t h o d sd i s c u s s e di nC h a p te rs7 th ro u g h 1 2a re e x a m p le so f in fe re n tia ls ta tis tic s ,t h e b ra n c ho f s ta tis tic st h a tu s e s s a m p l ed a t a to d r a w c o n c l u s i o n sa b o u ta n e n t i r e p o p u la tio n .

(C h a p te rs4
6 p ro v id e th e fo u n d a tio ni n p ro b a -
b ility a n dp r o b a b ility d is tr ib u tio n sn e e d e dfo r C h a p te rs1 -1 2 .)T h e d e fin itio no f in fe re n tia l
s t a t i s t i c s u s e s t h e t e r m s s a m p l ea n d p o p u l a t i o n ,th es e c o n dtim e y o uh a v e e n c o u n te re d
th e s e
w o rd si n th is s e c tio n .
Y o uc a np ro b a b ly fig u re o u t th a t y o u c a n n o tle a rn m u c h a b o u ts t a t i s t i c s
u n tily o u le a rn th e b a s icv o c a b u la ryo f s ta tis tic s .
C o n tin u en o w w ith th e firs t U s in g S ta tis tic s
s c e n a rio ,
w h i c h w i l l h e l p i n t r o d u c e y o u t os e v e ra l
im p o rta n tt e rm su s e din s ta tis tic s .
U S I N GS T A T I S T I C S
@G oodT u n e s

G o o d T u n e s ,ag ro w in g fo u r-s to rehom e e n t e r t a i n m e n ts y s t e m s r e t a i l e r , s e e k s t od o u - b le th e ir n u m b e r o f s to re s w ith in th e n e x t th re e y e a rs .T h em a n a g e rsh a v e d e c id e d to a p p ro a c h lo c a la re a b a n k s fo r th ec a s h n e e d e dtou n d e r w r i t e t h i s e x p a n s i o n .T h e y n e e d t op re p a rea n e le c tro n ic s lid e show and a fo rm a l p ro s p e c tu sth a t w illa rg u e th a tG ood T u n e sis a th riv in g b u s in e s sth a t isa g o o d c a n d id a tefo r e x p a n s io n .

Y o u h a v e been asked to
a s s is ti n
th e
p ro c e s so f
p re p a rin g th e
s lid e
s h o w
a n dp ro s p e c tu s .
W h a td a ta w o u ld y o u in c lu d eth a t w ill c o n v in c eb a n k e rs to e x te n dth e
c re d iti t n e e d sto G o o d T u n e s ? H o ww o u ld y o u p re s e n tth a t d a ta ?
1 .3
In th is s c e n a rio ,
y o u n e e dto id e n tify th e m o s tr e le v a n t
d a tafo r th e b a n k e rs .
B e c a u s eG o o d
T u n e sisa n o n g o in gb u s in e s s ,
y o uc a ns ta rtb y r e v ie w in gth e c o m p a n y 'sre c o rd s ,
w h ic h s h o w
b o thi t s c u rre n ta n d re c e n tp a s t s ta tu s .
B e c a u s eG o o dT i r n e si s a r e t a i l e r ,
p re s e n tin gd a taa b o u t
th e c o m p a n y 'ss a le ss e e m sa re a s o n a b le
th in g to d o .Y o u c o u ldin c lu d eth e d e ta ilso f e v e rys a le s
tra n s a c tio nth a th a s o c c u rre dfo r th ep a s tfe w y e a rsa s a w a y o f d e m o n s tra tin g
th a tG o o dT u n e s
is a th r iv in g b u s in e s s .
H o w e v e r,
p re s e n tin gth e b a n k e rsw ith th e th o u s a n d so f tra n s a c tio n s

w o u ldo v e rw h e lm th e m a n dn o t b e v e ry u s e fu l.A s m e n t i o n e di n S e c t i o n 1 .1 ,y o u n e e dto tra n s fo rmth e tra n s a c - tio n s d a tain to in fo r m a tio nb y s u m m a r iz in gth e d e ta ilso f e a c htra n s a c tio ni n s o m eu s e fu lw ay th a t w o u ld a llo wt h e b a n k e r st o(p e rh a p s )u n c o v e rafa v o r a b lep a tte rn a b o u tth e s a le so v e r tim e .

O nep ie c e ofin fo rm a tio nth a tth e b a n k e rsw o u ldp r e s u m a b lyw a n tto s e eis th e d o lla rs a le s to ta lsb y y e a r.T a lly in g a n d to ta lin g s a le s isa com m onp ro c e s so f tra n s fo rm in gd a tain to in fo r- m a tio na n d a v e ry c o m m o n s ta tis tic a l

a n a ly s is .
W h e ny o u ta lly s a le s
o r a n y o th e rre le v a n t
d a t a a b o u tG o o dT u n e sy o u c h o o s et o u s e -y o uf o l l o w n o r m a lb u s i n e s sp ra c tic ea n d ta lly b y a
b u s in e s sp e rio d s u c h a s b y m o n th ,q u a rte r,

o ry e a r .W hen y o udo so, y o ue n d u p w ith m u ltip le v a l u e s :s a l e sf o r t h i s y e a r, s a l e sfo r la s ty e a r,s a le sfo r th ey e a r b e fo reth a t,a n d s o o n .H ow best to re fe rto th e s em u ltip le v a lu e sr e q u i r e s l e a r n i n g t h e b a s i c v o c a b u la ryo f s ta tis tic s .

B A S ICV O C A B U L A R YO F S T A T IS T IC S
V a ria b le sa re c h a ra c te ris tic s
o f i t e m s o r i n d i v i d u a l sa n d a r e w h a ty o u a n a ly z ew h e ny o u u s ea
s ta tis tic a l
m e th o d .F o r th e G o o dT u n e ss c e n a r i o ,
s a le s ,
e x p e n s e s
b yy e a r, a n d n e tp ro fit b yy e a r
a rev a ria b le st h a tth e b a n k e rsw o u ld w a n tto a n a ly z e .
V A R IA B L E
Av a r ia b le is a c h a ra c te ris tic
of anite m orin d iv id u a l.
W h e nu s e d a s a n a d je c tiv ein e v e r y d a ys p e e c h ,
v a ria b le s u g g e s tsth a t s o m e th in gc h a n g e so r
v a r i e s , a n dy o u w o u l d e x p e c tth e s a le s ,
e x p e n s e s ,
a n dn e tp ro fit t o h a v e d i f f e r e n tv a l u e sfro my e a r
to y e a r.T h e s e d iffe re n tv a lu e sa re th e d a ta a s s o c ia te d
w ith a v a r ia b le ,a n dm ore s im p ly ,th e"d a ta "
to b e a n a ly z e d .
In la te rs e c tio n s ,
y o uw ill b e s o m e tim e sa s k e dt o e n t e rt h e c e l l ra n g e o f a v a r i a b l e i n
E x c e l.W h e ny o u s e es u c ha n in s tr u c tio n ,
y o us h o u ld e n t e rt h e c e l lra n g e o f t h e d i f f e r e n t v a l u e s t h a t
c o lle c tiv e lya r eth e d a tato b e a n a lz y e d .
(S e c tio n1 .6 o n p a g eI 1 e x p la in sw h a ta c e ll ra n g eis a n d
fu rth e rd is c u s s e s
h o w to e n te r d a ta in E x c e l.)
V a ria b le sc a n d iffe rfo r re a s o n so th e rth a n tim e .F o r e x a m p le ,

ify o u c o n d u c te da n a n a ly s is o f th e c o m p o s itio no f a la r g ele c tu re c la s s ,y o u w o u ld p ro b a b ly w a n t to in c lu d eth e v a ria b le s c la s ss ta n d in g ,

g e n d e r,
a n dm a jo rfie ld o f s tu d y .T h o s e v a r i a b l e sw o u l d v a r y ,t o o , b e c a u s ee a c h
s tu d e n t
in th e c la s si s d iffe re n t.O n es tu d e n t
m i g h tbe a f r e s h m a n m a l eE c o n o m i c sm a j o r ,w h i l e
a n o th e rm a y b e a s o p h o m o refe m a leF in a n c em a jo r.
Y o u a ls o n e e dto re m e m b e r
th a tv a lu e sa rem e a n in g le s s

u n l e s st h e i r v a r ia b le sh a v eo p e r a - tio n a l d e fin itio n s . T h e s ed e fin itio n s a r e u n iv e r s a llya c c e p te dm e a n i n g s t h a t a r e c l e a rt o a l l a s s o c ia te d

w ith a n a n a ly s is .
W h ile th e o p e ra tio n a l
d e fin itio nfo r s a le sp e r y e a rm ig h ts e e m
c le a r,m is c o m m u n ic a tio n

c o u ld o c c u ri f o n ep e rs o nw a sre fe rrin gto s a le sp e ry e a r fo r th e e n tire c h a in o f s to re sa n d a n o t h e rt o s a l e sp e r y e a r p e r s t o r e .E v e n in d iv id u a lv a lu e sfo r v a r ia b le s s o m e tim e sn e e dd e fin itio n -fo rth e c la s ss ta n d in gv a r ia b le ,

fo r e x a m p le ,
w h a te x a c tlyis m e a n t
b y th e w o rd s s o p h o m o rea rrdju n io r? (P e rh a p sth e m o s t fa m o u s e x a m p leo f v a g u e d e fin itio n s
w a s th e d e fin itio no f a v a lid v o tein th e s ta teo fF lo rid a d u rin gth e 2 0 0 0 U .S .p re s id e n tia l
e le c -
tio n .V a g u e n e s s
a b o u tth e o p e ra tio n a l
d e fin itio n sth e reu ltim a te lyre q u ire da U .S .S u p re m e
C o u rtru lin g .)
U n d e rs ta n d in gth e d is tin c tio nb e tw e e nv a r i a b l e sa n d th e ir v a lu e sh e lp s inle a r n in gfo u r
o th e rb a s icv o c a b u la ryte rm s ,tw o o f w h ic h y o u h a v ea lre a d ye n c o u n te re d
i n p re v io u ss e c tio n s .

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