AACE INTERNATIONAL STATISTICS & PROBABILITY

Chapter 29

Statistics & Probability

Dr. Elizabeth Y. Chen and Mark T. Chen, PE CCE

INTRODUCTION DESCRIBING DATA

Statistics is the field of study where data are collected for the In general, data can be classified as either qualitative or quan-
purpose of drawing conclusions and making inferences. titative.
Descriptive statistics is the summarization and description of
data, and inferential statistics is the estimation, prediction, Qualitative Data
and/or generalization about the population based on the Qualitative data can be categorized or summarized.
data from a sample
Example:
Four elements are essential to inferential statistical problems: As of September 2, 2003, the total membership of AACE
International is 4,307. This can be classified according to
1. Population is the collection of all elements of interest to the member types:
decision-maker. The size of the population is usually
denoted by N. Very often, the population is so large that a members and associates 4,036
complete census is out of the question. Sometimes, not students 147
even a small population can be examined entirely because honorary 124
it may be destructive or prohibitively expensive to obtain total 4,307
the data. Under these situations, we draw inferences based
upon a part of the population (called a sample). Or according to geographical distribution:
2. Sample is a subset of data randomly selected from a
population. the size of a sample is usually denoted by n. U.S. 3,509
3. Statistical inference is an estimation, prediction or gen- Canada 480
eralization about the population based on the informa- Caribbean 28
tion from the sample. Asia 158
4. Reliability is the measurement of the “goodness” of the Africa 29
inference. Europe 48
Australia 55
Only the first two elements will be discussed in this chapter. total 4,307
Numerical characteristics of a population are called parame-
ters of the population. The corresponding numerical charac- Quantitative Data
teristics calculated from a sample are called sample statistics. The description of quantitative data is more complex. It can
be described graphically or numerically.

LEARNING OBJECTIVES Some graphic methods for describing quantitative data

include the following:
After completing this chapter, readers should be able to
• frequency distribution and relative frequency (f/n),
• understand basic definitions and terminologies in prob- • stem and leaf plots, and
ability and statistics, and • histogram.
• apply statistical techniques in decision making.

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STATISTICS & PROBABILITY AACE INTERNATIONAL

Numerical methods for describing quantitative data include Stem Leaf f f/n
the following: frequency relative
frequency
• measures of location (central tendency),
-mean (average), 2 5, 0, 0, 0, 0, 0 6 6/50
-median, and 3 5, 0, 0, 0, 5, 5, 0, 0, 0, 5, 0 11 11/50
4 0, 0, 0, 0, 0, 5, 5, 5, 0, 0, 0, 0, 0, 5, 0 15 15/50
-mode;
5 0, 0, 0, 0, 0, 0, 5, 0 8 8/50
• measures of dispersion, 6 0, 0 2 2/50
-range, 7 0,0,0,5 4 4/50
-variance, and 8 0 0
-standard deviation; 9+ 95, 145, 160, 140 4 4/50
• relative standing,
-percentile, and 50 50/50
-Z-score.

Example: Frequency
Many companies invest on training their employees. The fol-
lowing average training hours for every employee are select- 15
ed from “The 100 Best Companies to Work For” (Fortune,
January 20, 2003). Numbers are rounded to the nearest 5 for 11
convenience.

145 50 35 50 25 160 30 40 40 20
40 20 30 95 40 50 30 50 20 35 6 8
70 35 40 45 30 45 70 45 40 140 4 4
50 70 20 30 40 40 30 60 40 50
60 55 50 35 40 30 45 75 20 40
2 Training Hours

The data will first be divided into smaller equal intervals 20 30 40 50 60 70 80 90+
(classes). The number of observations that fall into each class,
the frequency, is then counted. These classes should not over-
Figure 29.1—Stem, Leaf, Frequency and Relative Frequency
lap and there should be enough classes to include all the
Distributions
data. There may be open-ended intervals when the first class
contains no lower limit or the last data class contains no
upper limit. The number of classes depends on the number
of observations in the data set. In practice, a frequency distri-
bution usually has from five to twenty classes.

The stem and leaf plot is developed by first determining the

stem and then adding leaves. In this example, the stem is
formed by the “tens” digit and the leaves are the “ones” digit.
Note that the stem values are placed to the left of the vertical
line and the leaves on the right.

Example: 45 is shown as:

Stem Leaf

4 5

Figure 29.2—Histogram of Training Hours

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AACE INTERNATIONAL STATISTICS & PROBABILITY

The sum of the training hours from the above 50 companies is

145 + 50 + 35 + 50 +….+20 + 40 = 2,445 hours
Mean (average): Mean is the sum of measurements divided
by the number of measurements.
Population mean is denoted by µ = sum of all numbers
in population/N
Sample mean is denoted by x = sum of all numbers in
sample/n
The mean of this example is 2,445/50 = 48.9 hours
Median: Median is the middle number when the data obser
vations are arranged in ascending or descending order.
If the number n of measurements is even, the median is the
average of the two middle measurements in the ranking.
The median of this example is 40 hours.
GLOSSARY TERMS IN THIS CHAPTER
frequency distribution ◆ standard deviaton
statistics
Range: The difference between the largest and the smallest
values of the data set.
The range of this example is 160 - 20 = 140 hours.
The range only uses the two extreme values and ignores the
rest of the data set. One instinctive attempt to measure the dis-
persion would be to find the deviation of each value from the
mean and then calculate the average of these deviations. One
will find that this value is always zero, an answer which is no

For symmetric data set, the mean equals to the median.

If the median is less than the mean, the data set is
skewed to the right.
If the median is greater than the mean, the data set is
skewed to the left.

Mode: Mode is the measurement that occurs most often in

the data set
The mode of this example is 40 hours.
Figure 29.3—Symmetry
If the observations have two modes, the data set is said
to have a bimodal distribution.
When the data set is multi-modal, the mode(s) is no
longer a viable measure of the central tendency.
In a large data set, the modal class is the class containing
the largest frequency. The simplest way to define the
mode will then be the midpoint of the modal class.

Comparison of the Mean, Median, and Mode

The mean is the most commonly used measure of central
location. However, it is affected by extreme values. For exam-
ple, the high incomes of a few employees will influence the Figure 29.4—Rightward Skewness
mean income of a small company. Under such situation, the
median maybe a better measure of central tendency.

The median is of most value in describing large data sets. It is

often used in reporting salaries, ages, sale prices, and test scores.

The mode is frequently applied in marketing. For example, the

modal men’s shirt neck size and sleeve length, shoe size, etc.

Numerical Measures of Variability

Measures of central tendency do not describe the spread of the
data set, which may be of greater interest to the decision-maker.

The simplest measure of the variability of a data set is its range. Figure 29.5—Leftward Skewness

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STATISTICS & PROBABILITY AACE INTERNATIONAL

accident. The alternative might be to calculate the average
absolute deviation. However, this measure is rarely used
because it is difficult to handle algebraically and does not have
the nice mathematical properties possessed by the variance.
Variance: The average of the squared deviations from the mean.
The population variance is denoted by
The first (lower) quartile: the 25th percentile
The third (upper) quartile: the 75th percentile
And you guessed it; the second (middle) quartile is the
median.
For the above training hours example, the 80th percentile is
60 hours.

∑(x - µ)2 = ∑x2 - N µ2 Another measure of relative standing is the famous z-score.
σ2 =
N N
A z-score is the number of standard deviations a point is
above or below the mean of a set of data.
The sample variance is denoted by
The population z-score for a measurement x is z = (x - µ)/?
∑ (x - x)2 ∑x2 - nx2
s2 = = The sample z-score for a measurement x is z = (x - x)/s
n-1 n-1

RANDOM VARIABLES AND SOME IMPORTANT

Note the divisor (n -1) is used instead of the more obvious n.
This will make the sample variance, s2, a better estimate of
the population variance, σ2. The explanation for this practice
is beyond the scope of this text but can be found in many sta-
tistics textbooks.
The variance of this example is:
162,825 – 50(48.4)2
s2 = = 882.95 hours
50 - 1
The variance has a squared unit and is in a much larger scale
than that of the original data. To offset these, the square root
is used.
Standard Deviation: The positive square root of the variance.
The population standard deviation is denoted by σ.
The sample standard deviation is denoted by s.
PROBABILITY DISTRIBUTIONS
Analyzing frequency distribution for every decision-making
situation would be very time consuming. Fortunately, many
physical events that appear to be unrelated have the same
underlying characteristics and can be explained by the same
laws of probability. The mathematical model used to repre-
sent frequency distributions is called a probability distribu-
tion. To understand the concept and know which distribution
to use in a particular situation will save considerable time
and effort in the decision-making process. We will start from
the concept of a random variable.
Random Variable: A random variable is a variable whose
numerical value is determined by the outcome of a random
experiment. A random experiment is the type of experiment
that may produce different results in spite of all efforts to
keep the conditions of performance constant.

The sample standard deviation s of this example is If a random variable can take on only countable number of
values, then we call it a discrete random variable. For exam-
√882.95 = 29.71 hours ple, the number of sales made by a salesperson in a given day

The standard deviation can be approximated by range/6.
Some may prefer to use range/4.
Measures of Relative Standing
Another measure of interest is the description measurement
of the relative location of a particular observation within a
data set.
Random variables that can assume any value within some
interval or intervals are called continuous random variables.
For example, the length of time an employee is late for work
Probability Distribution: Probability Distribution is
expressed in a table listing all possible values that a random
variable can take on together with the associated probabilities.

pth percentile: In any data set, the pth percentile is the num Notice that the random variable itself will be denoted by X,
ber with exactly p percent of the measurements fall while the small x denotes a particular value of X. The symbol
below it and (100-p) percent fall above it when the data p(x) = Pr( X=x ) means the probability that the experiment
are arranged in ascending or descending order. yields the value x.

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AACE INTERNATIONAL
In a discrete probability distribution, each p(x)≥0 for all val-
ues of x and ∑p(x)=1.
Example: Two coins are tossed. Let X be the number of heads
appeared.
x 0 1 2
Probability distribution of X
p(x) 1/4 2/4 1/4
The probabilities p(x) can be interpreted as long-run relative
frequencies. For instance, if two coins were flipped many,
many times, we could anticipate obtaining two tails (X=0)
about one-fourth of the time, one head and one tail (X=1) one
half of the time and two heads one-fourth of the time.
Therefore, the probability distribution for a random variable
is a theoretical model for the relative frequency distribution
of a population.
Like the frequency distribution, the mean and standard devi-
ation of a probability distribution need to be calculated to
describe the central location and spread of the probability
distribution.
The predicted long-range average of a discrete random vari-
able X, often called the expected value (or mean) of X, is
defined by
µ = E(x) = ∑xp(x)
The population variance is defined as
µ = E(x-µ)2 = ∑(x- µ)2p(x)
The standard deviation σ is the square root of the variance.
In the above two-coin example, the expected value of X is
µ = ∑xp(x) = 0*p(x=0) + 1*p(x=1) + 2*p(x=2) = 0*(1/4) +
1*(1/2) + 2*(1/4) = 1
It is very important to remember that the expected value is
not a number we “expect” to get at a given experiment. What
this expected value tells is that if we were to toss two fair
coins many, many times, carefully record the number of
heads appeared in each toss, and at the end calculate the
average number of heads, then this average would be 1.
The variance and the standard deviation of X is respectively,
σ2= (0 - 1)2 (1/4) + (1-1)2 (1/2) + (2-1)2 (1/4) = 1/2
σ= √ 1
–
2
Another example of expected value is the following:
29.5
STATISTICS & PROBABILITY
Suppose you work for an insurance company and sell an
individual 10-year $100,000 term life insurance coverage at
an annual premium of $240. Actuarial tables show that the
probability of death during the next year for a person of your
customer’s age, sex, health, etc., is .001. What is the expected
gain to the company for a policy of this type?
Gain(X) Event Probability
$240 customer lives .999
$240–100,000 customer dies .001
If the customer lives, the company keeps the $240 premium.
If the customer dies, the company must pay $100,000 and will
have a net “gain” of $(240-100,000). The expected gain is
therefore
µ=E(X)=(240)(.999) + (240 - 100,000)(.001) = 240(.999 +
.001)-100,000(.001) = $140
Please note that for each policy sold, the insurance company
is taking a risk of either gaining $240 or losing $99,760.
However, if the company were to sell a very large number of
such insurance policies to customers possessing the charac-
teristics described above, the company would on the average
net $140 per policy written.
DISCRETE RANDOM VARIABLES
There are several theoretical discrete probability distribu-
tions that have extensive applications in decision-making.
One will be introduced in this section.
Binomial Distribution
Many decisions are of the either/or variety. A company bid-
ding for a contract may either get the contract or it won’t.
The responses to a public opinion poll may be either “favor”
or “oppose”. Many experiments (situations) have only two
possible alternatives, such as yes/no, pass/fail, or accept-
able/defective.
Consider a series of experiments which have the following
properties:
• The experiment is performed n times under identical
conditions.
• The result of each experiment can be classified into one
of two categories, say, success (S) and failure (F).
• The probability of a success, denoted by p, is the same for
each experiment. The probability of a failure is denoted
by q. Note that q =1-p.
• Each experiment is independent of all the others.
• The binomial random variable X is the number of successes
in n experiments. Probability of x successes in n experiments:
STATISTICS & PROBABILITY AACE INTERNATIONAL

Continuous Random Variables

p(x) = n()
x p q
x n-x x =0,1,2,…,n
The probability distribution for a continuous random vari-
able is often denoted by f(x) and is variously called a proba-
bility density function. The primary difference between prob-
The name binomial arises from the fact that the probabilities abilities for discrete and continuous random variables is that
p(x), x = 0,1,2,…,n, are terms of the binomial expansion, while probabilities for a discrete random variable are defined
(q+p)n. for specific values of the variable, the probabilities of a con-
tinuous random variable are defined for a range of values of
Mean, Variance, and Standard Deviation for a Binomial the variable. The graphic form of f(x) is a smooth curve and
Random Variable: the area under the curve corresponds to probabilities for x.
For example, the area A beneath the curve between the two
Mean: µ = np points a and b, is the probability Pr(a<x<b).
Variance: σ2 = npq
Standard Deviation: σ = √npq
Several extensive tables of the binomial distributions for
some values of p and n have been published. Either one of the
cumulated probabilities Pr(X ≤ x) or Pr(X ≥ x) is listed.

Example: Suppose your company ships electrical fuses in

lots, each lot containing 10,000 fuses. Your quality control
plan requires that you will randomly sample twenty-five
fuses from each lot and accept the lot if the number of defec-
tive fuses, x, is less than 2. If x ≥ 2 you will reject the lot and
will conduct a complete re-inspection. What is the probabili-
ty of accepting a lot (x=0,1) if the actual fraction defectives in
the lot is (a) .1? (b) .01?

Solution: Figure 29.6—Continuous Distribution

n = 25
(a) If p = 0.1; q = 1-p=1-0.1=0.9

Pr (Accepting the lot) = Pr(x < 2) = Pr (x ≤ 1) = Because there is no area over a point, the probability associ-
Pr(x = 0) + Pr(x = 1) ated with any particular value of x, say, x=a, is equal to zero.
Hence, Pr(a≤x≤b)=Pr(a<x<b). In other words, the probability
= ( 250 ) (.1)0 (.9)25 + ( 251 ) (.1)1(.9)24 is the same regardless of whether the endpoints of the inter-
val are included. The total area under the curve, which is the
total probability for x, equals to 1.
= .27121
The areas under most probability density functions are
(b) If p = .01; q = .99 obtained by the use of calculus or other numerical methods.
This is often a difficult procedure. However, as with com-
25 monly used discrete probability distributions, there are tables
Pr(x≤1) = ( 250 ) (.01)0(.99)25+ ( 1 ) exist for finding probabilities under commonly used contin-
uous probability distributions.
(.01)1(.99)24 = .77782 + .19642
= .97424 Similar to the requirements for a discrete probability distri-
bution, we require
The two measurements indicate that, under the proposed
quality control plan, there is 73 percent chance that you will f(x)≥0 and ∫ f(x)dx = 1 for all x
reject the lot if in fact 10 percent (p=0.1) of the fuses manu-
factured are defective. If only 1 percent of the fuses are defec- The Normal Distribution
tive, the chance of re-inspection is very small (less than 3 per- The most important continuous distribution in statistical
cent). decision making is the normal distribution. It is important for
the following reasons:

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AACE INTERNATIONAL STATISTICS & PROBABILITY

• as odd as it may seem, many observed variables are nor-

mally distributed, or approximately, so.
• many of the procedures used in statistical inference
require the assumption that a population is normal.

Probability distribution for a normal random variable X is

1 x-µ 2
- –
2 ( √2π σ )
1
f(x) = e for -∞x<+∞
√2π σ

where
Figure 29.8—A Normal Probability Distribution
µ = mean of the random variable X
σ = standard deviation of X
e = 2.71828…
π = 3.14159…
is a normally distributed variable with mean zero and stan-
dard deviation 1. The probability distribution of Z is called
the standard normal distribution. Notice that z gives the
number of standard deviations that a value of x lies above or
below the mean. By using the Z score, all normal distribu-
tions can be transformed to Standard Normal Distribution.
We can say that if X is N(µ, σ 2), then Z=(x - µ)/σ is N(0,1).

The standard normal distribution table that gives the area

under the standard normal curve is available. Some tables
give the area between the mean 0 and any particular value of
z, where 0< z < 3.59. Remember that the area represents the
probability that a value of z will lie between zero and the
Figure 29.7—Two Normal Distributions given value and it must always be positive. Further, since the
normal curve is symmetric, the area between -z and zero is
the same as the area between zero and z; the area between -z
and +z is twice the area between zero and z.
The graph of a normal distribution is called a normal curve
and it has the following characteristics:
Frequently quoted z values and the probabilities:
• It is bell-shaped and is symmetrical about the mean. The
mean, median and mode are all equal. Probability density Table 29.1—Frequently Quoted Z Values and Probabilities
decreases symmetrically as x values move from the mean
in either direction. Since the total area (probability) under
the curve is 1, the area on each side of the mean is 1/2. Z Pr ( -z < Z < z) Pr(Z<-z) or Pr(Z>z)
1.00 .683 .158
• The curve approaches but never touches the horizontal
axis. However, when the value of X is more than three 1.282 .80 .10
standard deviations from the mean, the curve approach- 1.645 .90 .05
es the axis so closely that the extended area under the
curve is negligible. 1.96 .95 .025
2.00 .954 .023
The Standard Normal Distribution
2.326 .98 .01
If X is a normally distributed random variable with mean µ
and standard deviation σ, the random variable Z, defined by 2.576 .99 .005
3.00 .997 .0015
Z=(X- µ)/σ

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STATISTICS & PROBABILITY AACE INTERNATIONAL

Example: The actual amount of coffee grounds that a filling
machine puts into “6-ounce” jars varies from jar to jar, and it
may be assumed as a normal random variable with a stan-
dard deviation of 0.04 ounce. If the jar contains less than 6
ounces, it is considered unacceptable. Determine the mean
fill of the machine so that only 1 percent of the jars will be
unacceptable.
2. The average project duration to build a greenfield man-
ufacturing plant is 26 months with a standard deviation
of two months, assuming the project critical path follows
a normal distribution. Your company is planning to
build a similar greenfield manufacturing plant. The sen-
ior management is interested in the following three
schedule outcomes:

Solution: Let x be the amount of coffee in the jar. We are given a. What is the chance to complete the project between 24
σ = 0.04 and 28 months?
b. What is the likelihood of completing the project in 24
We are asked to find the average fill, µ, such that months?
Pr(x<6)=.01 c. What is the risk that the project duration would exceed
30 months?
x-µ 6-µ
Px(x<6) = Pr(
σ < σ
) = Pr (z< 6 - µ ) = .01
.04 Solutions:

From the above table we find that 1. a. Mean is the average work-hours/unit of the 200
Pr(z < –2.326) = .01; therefore, observations.
6-µ
= -2.326 µ = 6.093
.04 (6x 6) + (7 x 11) + (8 x 27) + (9 x 47) + (10 x 52) +
(11 x 44) + (12 x 9) + (13 x 4)
∑x
µ=—= ——————————————————————
If the average fill is set at 6.093 ounces, only 1 percent of the N 200
jars will contain less than 6 ounces.

b. After arranging the observed 200 workhours/unit

PRACTICE PROBLEMS AND QUESTIONS data in ascending order, the median is the average of
the 100th and 101st observations. Both are 10 work-
hours/unit, so the median is 10 workhours/unit.
1. After a long-term observation of a production line, the
following productivity data are recorded. c. The mode is the observation that occurred most often.
Ten workhours/unit was recorded 52 times, the high-
est frequency. Thus, 10 workhours/unit is the mode.
∑(x -µ)2 ∑x2 - Nµ2
d. variance = σ2 = ———— = —————
N N

= [(6 2x 6) + (72 x 11) + (8 2x 27) + (92 x 47) + (102 x 52) +

(112 x 44) + (122x 9) + (132 x 4)] -200 x (9.58)2
———————————————————————
200

Find: 18786 - 200 (9.58)2 18786 - 18355.28

= ——————— = ——————— = 2.1536
a. mean 200 200
b. median
c. mode
d. variance
e. standard deviation
e. Standard deviation σ = √2.1536 = 1.47
workhours/unit.

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AACE INTERNATIONAL STATISTICS & PROBABILITY

Problem 1—Frequency Distribution Problem 2b—Project Duration within 24 Months

2. a. The project duration between 24 and 28 months is
within one standard deviation from the average
(mean) duration of 26 months. Since the probability
within one standard deviation from the mean is 0.68,
this project has a 68 percent chance to be competed
between 24 and 28 months.
c. Thirty-month duration is four months longer than the
26-month mean duration, which is two standard
deviations above the mean. From the standard nor-
mal distribution table, the probability exceeding two
standard deviations is 0.023. Thus, there is only a 2
percent risk that the project duration would exceed 30
months.

Problem 2a—Project Duration Between 24 and 28 months

Problem 2c—Project Duration Exceeding 30 Months

b. Twenty-four-month duration is shorter than the 26-

month mean duration by two months. Referring to
the standard normal distribution table, the probabili-
ty is 0.16. This project has only 16 percent chance to
be completed within 24 months.

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STATISTICS & PROBABILITY AACE INTERNATIONAL

REFERENCES

1. AACE International. 2003. Certification Study Guide. 2nd

ed. Chapter 20.
2. Brockett, P., and A. Levine. 1984. Statistics & Probability &
Their Applications. CBS College Publishing.
3. Byrkit, D.R. 1987. Statistics Today. The Benjamin
Cummings Publishing Company.
4. Groebner, D. F., and P.W. Shannon. 1985. Business
Statistics. Charles E. Merrill Publishing Company.
5. McClave, J.T. and F. H. Dietrich. 1985. Statistics. 3rd.ed.
Dellen Publishing Company.
6. Smith, G. 1985. Statistical Reasoning. Allyn and Bacon.
7. Summers, G. W., W. S. Peters, and C. P. Armstrong. 1985.
Basic Statistics in Business and Economics. 4th ed.
Wadsworth Publishing Company.

29.10
AACE INTERNATIONAL BASIC CONCEPTS IN DESCRIPTIVE STATISTICS

Chapter 30

Basic Concepts in Descriptive Statistics

Dr. Frederick B. Muehlhausen

INTRODUCTION LEARNING OBJECTIVES

The manager of the construction process must make deci-
sions daily that affect the operation of an individual project
as well as the company as a whole. Rarely does a manager
have the intuition to make decisions that avoid serious or
continued error without input from past field and company
performance. The successful company collects information
so that when analyzed, good decisions can be made.
Statistics constitutes all methods useful for the analysis of
this information. In general, statistical methods are of two
types and subsequent purpose:
1. descriptive statistics, which allow the cost engineer to
organize, summarize, interpret, and communicate quan-
titative information obtained from observations; and
2. inferential statistics, which allow the cost engineer to go
beyond the data collected from a small sample to formu-
late tentative conclusions about the population from
which the sample was taken.
This chapter examines some of the basic concepts and proce-
dures that are a part of descriptive statistics.
After completing this chapter, the readers should be able to
• understand the basic concepts and procedures of
descriptive statistics, such as frequency distributions,
frequency graphs, the normal curve, and cumulative
probability curve.
FREQUENCY DISTRIBUTIONS
A concrete contractor engaged in installing foundation foot-
ings and walls needs to be able to predict with some accura-
cy the time it takes to install formwork. Not only will a
knowledge of past performance help the contractor predict
future performance useful in estimating and scheduling, this
knowledge also will provide an internal benchmark for cost
control purposes once the project is in progress. Before these
predictions can be made, the contractor must know more
about past performance. Thus, data about similar forming
techniques is collected from 20 projects completed over the
last several years. This data is summarized in Table 30.1.

Table 30.1—Formwork Production in Hours Per Square Foot of Contact Area

JOB HRS/SFCA JOB HRS/SFCA JOB HRS/SFCA JOB HRS/SFCA

1 .050 6 .050 11 .040 16 .050
2 .050 7 .065 12 .055 17 .060
3 .065 8 .060 13 .045 18 .055
4 .055 9 .050 14 .050 19 .070
5 .050 10 .045 15 .065 20 .045

The data above is hard to interpret in its present form. It must be organized so that the data yields meaning to the manager.

30.1
BASIC CONCEPTS IN DESCRIPTIVE STATISTICS AACE INTERNATIONAL

Frequency Distribution—A frequency distribution is an
organization of measures or observations that lists the class
(in this case, the productivity rate as measured in labor hours
per square foot of contact area) and the frequency or the
number of times this production rate was achieved. In Table
30.2, the data has been rearranged by listing the data from
high productivity to low productivity (column 1), and the
number of times this production rate occurred (column 2).
Interpretation of the cumulative frequency distribution (col-
umn 3) indicates that 6 of the 20 productivity rates fall below
(too many hours expended per square foot of contact area) the
required rate of .055 HRS/SFCA. In order to be within budget
and on time for more than 2/3 of the projects, the data indicates
that the contractor has two choices: (1) bid future work at a
higher rate per square foot of contact area, or (2) implement
process changes to increase production on future projects.

Cumulative Percentage Distribution—Sometimes it is use-

Note that it is much easier to get a “feel” for the measures
ful to show the percent of scores that fall below certain val-
observed when arranged by frequency (column 2) than when
ues. The contractor acknowledges the fact that variations
examining the unorganized raw data. One can easily deter-
from project to project in labor and management will prevent
mine the highest productivity (.040 HRS/SFCA), the lowest
process changes from reducing the rate on all projects to .055
(.070 HRS/SFCA), and the production rate that occurred
HRS/SFCA or lower. In addition, market competition will
most often (.050 HRS/SFCA). In addition, one can easily
not allow the budget rate to go above .055 HRS/SFCA. The
observe how the measures are distributed along the entire
contractor will accept a 10 percent failure rate. That is, 90 per-
scale; that is, whether the measures are distributed uniform-
cent of the projects must yield a production rate of .055
ly or whether gaps appear at certain points. In this case, the
HRS/SFCA or less. The cumulative frequency distribution
data is distributed uniformly.
can be converted into a cumulative percentage distribution to
readily find the failure rate. This is accomplished by divid-
Cumulative Frequency Distribution—Sometimes, one is not
ing each cumulative frequency by the total number of meas-
particularly interested in the number of occurrences within a
ures (N = 20). Table 30.2, column 4, shows the cumulative
particular class but in the number of occurrences that fall below
percents for the production rates.
or above a certain value. For example, suppose the contractor
bid this type of formwork at .055 HRS/SFCA. Any value above The advantage of this distribution is that it readily shows the
this rate would be over budget and extend the project duration. percentage of measures falling below a certain value.
The question arises, “How many projects failed to yield the Generally, it is more meaningful to know the percentage of
required production rate?” The cumulative frequency distri- those measures that fall below a certain value rather than to
bution answers this question by adding successively from the know the number of measures. In this case, 30 percent of the
bottom (.07 HRS/SFCA) the number of cases in each class production rates failed to make .055 HRS/SFCA. Hence, one
interval. Thus, the distribution would be developed as shown would conclude that the contractor would not be satisfied.
in Table 30.2, column 3. Note that the topmost entry in the
cumulative frequency column must agree with the total num-
ber of measures (n = 20). If it does not, then an error has been
made in adding the frequencies.

Table 30.2—Frequency Distributions

COLUMN COLUMN COLUMN COLUMN

1 2 3 4
rate (SFCA) frequency (f) cum. freq. (cf) cum. percent (%)
.040 1 20 100
.045 3 19 95
.050 7 16 80
.055 3 9 45
.060 2 6 30
.065 3 4 20
.070 1 1 5
n = 20

30.2
AACE INTERNATIONAL BASIC CONCEPTS IN DESCRIPTIVE STATISTICS

FREQUENCY GRAPHS
Once the contractor finds that 30 percent of the projects yield
an unacceptable production rate, this information is conveyed
to project management and labor. Rather than show the infor-
mation in tabular form, the contractor decides to present the
information graphically. Graphs convey the essential charac-
teristics of a frequency distribution in a pictorial form.
Graphical information is much more pleasing to view than
tables, and so provides an effective medium for communicat-
ing frequency distribution information to others.
Frequency graphs have two characteristics in common: (1) one
axis that represents all possible scores or classes within a distri-
bution, and (2) one axis that represents the frequency of occur-
rence of that score or class. Frequency distributions are repre-
sented graphically via the histogram or the frequency polygon.
Histogram—In a histogram, the frequency of each score or
class is represented as a vertical bar. For the production rate
data, a histogram would be produced as shown in Figure 30.1.
GLOSSARY TERMS IN THIS CHAPTER
frequency distribution ◆ standard deviaton
statistics ◆
togram, but instead of drawing a vertical bar, a point is plot-
ted at the exact score (or midpoint of the interval) and at a
height corresponding to the frequency of that score (or inter-
val). These points are then connected by a straight line, which
results in a polygon. See Figure 30.2.
The reason for constructing histograms and frequency poly-
gons is to reveal how scores are distributed along the score
scale. That is, the form of the distribution is shown. A distri-
bution is symmetrical if one side is a mirror image of the
other. If not, it is asymmetrical. Asymmetrical curves can be
skewed either positively or negatively. See Figure 30.3.

When developing the histogram, the 3/4 rule should be For negative skewness, the tail travels to the left; for positive
applied. That is, the highest frequency should be laid out so skewness, the tail travels to the right. The production rate fre-
that the height is approximately 3/4 the length of the horizon- quency polygon, Figure 30.3, indicates a mild skew in the
tal axis. Otherwise, the viewer may obtain the wrong impres- positive direction. Another noticeable feature of a polygon is
sion based on graph appearance rather than on graph data. the number of humps or high points. If only one high point,
The bar width should be the same as the “real limit” of a class. then the curve is unimodal. If two humps, then the curve is
For example, suppose the production rates were rounded off bimodal. For three humps, it is trimodal, and so on. The pro-
to the nearest .005, then the real productivity rate for class .05 duction rate frequency polygon, Figure 30.2, shows 2 humps,
would fall between .0475 and .0525. Thus, the width of the ver- one much higher than the other.
tical bar would be .005 and extend from .0475 to .0525 on the
graph. In addition, the graph should be titled in a descriptive The frequency graph's information should generate curiosity
fashion to indicate what the graph is showing. among the viewers. In this case, the following questions
arise, “Why the second hump at .065 HRS/SFCA? What
Frequency Polygon—For the frequency polygon, the vertical causes the variation? Can we isolate this cause and fix it?”
and horizontal axes are laid out the same way as for the his- For example, suppose that an examination of job
data reveals that the projects with the lower pro-
ductivity rate (higher number of hours per square
foot of contact area installed) occurred where
8 formwork was stacked. One might conclude that
7 the stacking activity requires more hours related to
6 square feet of contact area than if no stacking
FREQUENCY 5 occurred. Thus, the outcome of the analysis would
4 be to have two budget rates—one for when panels
3 are not stacked and one for when they are. Based
2 on the frequency distribution, viable budget rates
1 would be .050 HRS/SFCA for no stacking and .065
0 HRS/SFCA for stacking. Each rate reflects a mode
of the frequency distribution.
0.045

0.075
0.035

0.055
0.04

0.07
0.05

0.06

0.06

PRODUCTION RATES (HRS/SFCA)

Figure 30.1—Histogram of Production Rates

30.3
BASIC CONCEPTS IN DESCRIPTIVE STATISTICS AACE INTERNATIONAL

MEASURES OF CENTRAL TENDENCY
The frequency distributions can be characterized by certain
statistics. One type of statistic is called the index of central
tendency, or average, and represents the general location of a
distribution of measures on the measurement scale. There are
three commonly used indexes of central tendency—the
mode, the median, and the mean.
Mode—The mode is the simplest measure of central tenden-
cy. It is merely the score value or measure that occurs most
often in a distribution of scores. For the production rate dis-
tribution, the score occurring most often is .050 HRS/SFCA.
Hence, the mode for this distribution is .050.
Median—The median is the middle point in a distribution.
Half of the distribution is above this point and half is below.
To find the median one arranges the scores in order. For
example, consider the following observations of concrete test
cylinders: 2700 psi, 2750 psi, 2965 psi, 3100 psi, 3130 psi, 3480
psi, and 3500 psi. The score, 3100 psi, is the middle point.
There are three observations above and below the median of
3100 psi.
8
7
6
FREQUENCY 5
4
3
2
1
0
When the number of scores is even or there is a repetition of
a certain score, then the location of the median requires com-
putation. Consider the production rate distribution shown in
Figure 30.4. Since there are 20 scores, the median is the point
below which 10 cases fall.
If one counts from the left of the distribution, one finds that
the median falls between the sixth and seventh .05 in the dis-
tribution. Since there is an additional .05 lying above the
tenth score which is also .05, one cannot say that .05 is the
median. Looking at the distribution, there are 4 scores that
fall below .05, and 9 scores that lie above .05. Thus, .05 would
not fit the definition of the median. But, one knows that the
median falls somewhere within the interval .005, somewhere
between .0475 and .0525. One can locate the median within
an interval by applying the formula shown in Figure 30.5.
Mean—The best known and most reliable measure of central
tendency is the mean. The mean is the arithmetic average of
a group of scores. Thus, for the production rate distribution
containing the 20 observations in Table 30.1, one would com-
pute the mean as shown in Table 30.3.
Comparison of Mean, Median, and Mode—If the
contractor wants to know what production rate
occurred most often, the mode would be calculat-
ed. However, the mode is a crude and unstable
measure of central tendency and is generally not
used to describe a distribution. Usually the medi-
an or the mean is used. However, there is an
important difference between the median and
mean. The median is a rank or a position statistic
unaffected by the numerical size of the individual
scores, while the mean is sensitive to the size of the
individual scores in a distribution, including
extreme scores.

If the frequency distribution is unimodal and per-

0.035

0.045

0.050

0.070
0.040

0.060

0.075
0.065
0.055

fectly symmetrical, then the mean, median, and

PRODUCTION RATES (HR/SFCA) mode will fall at exactly the same point. This fre-
quency distribution is called the normal curve. If a
Figure 30.2—Frequency Polygon of Production Rates

Positive Negative

Figure 30.3—Skewed Curves

30.4
AACE INTERNATIONAL
04, .045, .045, .045, .05, .05, .05, .05, .05, .05, .05, .055, .055, .055, .06, .06, .065, .065, .065, .07
10 scores <--|-----> 10 scores
Figure 30.4—Production Rate Distribution
Table 30.3—Calculation of the Mean Production Rate
RATE (HRS/SFCA) FREQUENCY (F) PRODUCT
.040 1 .040
.045 3 .135
.050 7 .350
.055 3 .165
.060 2 .120
.065 3 .195
.070 1 .070
TOTALS 20 1.075
Mean = Sum of scores/N = 1.075/20 = .05375
distribution is skewed (that is, scores are concentrated more
at one end or the other), then the curve will not be symmet-
rical, and the three measures of central tendency will not be
equal. Note that the median lies between the mode and mean
in all skewed distributions. If negatively skewed, the median
is higher than the mean. If positively skewed, the median is
lower than the mean.
The mean is the most stable or reliable measure of central ten-
dency. If one were to draw a sample from the total popula-
tion, the mean would show less fluctuation from sample to
sample than the medians. Thus, if one wanted to infer some
characteristic about a population from a sample, the mean
would yield the most reliable estimate of the population
parameter. Or, stated another way, if the contractor wanted to
bid the next job based on past experience, the best estimate
(that rate with the least amount of error) of the actual pro-
duction rate would be the mean of .05375 HRS/SFCA.
MEASURE OF VARIABILITY
The measures of central tendency (mean, median, and mode)
provide a concise index of the average value of a set of scores
or measures. However, there is more to be known about a
distribution of scores than this one characteristic. The
amount of variability or spread of the scores within the dis-
tribution is also an important characteristic to know about a
given distribution. For example, suppose the production
rates varied from .02 to .09, a spread of .07, rather than .04 to
.07, a spread of .03; yet, in both instances the mean was
.05375. If the contractor used the mean production rate to bid
BASIC CONCEPTS IN DESCRIPTIVE STATISTICS
|~~
Mdn = L + [(N/2-cfb)/fw]i = .0475 + [(20/2 - 4)/7].005 = .05179
where: Mdn = the median
N = total number of cases in the distribution
L = lower real limit
cfb = the cumulative frequency below
fw = the frequency of cases within the median
interval
Figure 30.5—Calculation of the Median Production Rate
the work, the distribution with the greater spread would
yield less confidence in the accuracy of the mean rate for any
one particular project than if the spread were small. In addi-
tion, the real amount of error would be greater.
The Range—The simplest measure of variability is the range.
The range is defined as the difference between the lowest and
highest score in a distribution of scores. Figure 30.6 shows the
calculation of the range.
Range = Xh- X1 = .065 - .04 = .25
where: Xh = the highest score
X1 = the lowest score
Figure 30.6—Calculation of the Range for the Production
Rates
The range is not considered a stable measure of variability
because the value can change greatly with the change in a
single score within the distribution--either the high or low
score. In addition, there may be frequent or large gaps in the
distribution, which the range does not reflect, because it only
uses two scores—the high and low. Thus, the range is only
useful as a quick estimate of variability.
Quartile Deviation—The quartile deviation is more stable
than the range because it is based on the spread of the scores
through the center of the distribution rather than through the
two extremes. The quartile deviation is the measure which is
half the distance between the 1st and 3rd quadrilles. The first
quartile (Q1) is the score that sets off the lowest 25 percent of
the scores while the third quartile (Q3) sets off the upper 25
30.5
BASIC CONCEPTS IN DESCRIPTIVE STATISTICS AACE INTERNATIONAL

percent of the scores. The interval from Q1 to Q3 contains the
middle 50 percent of the scores in a distribution and is called
the inter-quartile range. Then, this distance is divided by 2 to
give the average distance from the median to each of the
quadrilles. This is called the quartile deviation (QD). For the
production rates, the calculations are shown in Fgure 30.7.
Since the quartile deviation is an index that reflects the
spread of scores throughout the middle part of the distribu-
tion, it should be used whenever extreme scores may distort
the data. Thus, the median and the quartile deviation are
both insensitive to extreme scores in the distribution and
should be used accordingly.
Standard Deviation—The major disadvantage of the quartile
deviation is that it does not take into account the value of
each of the raw scores in the distribution. A more reliable
indicator of the spread of a distribution can be found by
determining the amount each score deviates from the mean
of the distribution. In most instances, the contractor will be
computing a sample statistic rather than a population statis-
tic. The production rates do not include the entire population
of rates for every job past, present, and future. Thus, the 20
rates are a sample of all work the contractor does. The sam-
ple standard deviation can be calculated from the frequency
distribution shown in table 30.4.
The standard deviation can be computed from raw scores
with the use of an inexpensive hand-held calculator that has
statistical functions built in. One simply enters the raw
scores in the STAT mode on the calculator. Then, a few key
strokes will yield such information as the sample mean and
the sample standard deviation.

Q1 = L + [(N/4 - cfb)/fw]i = .0475 + [(20/4 - 4)7].005 = .0482

Q3 = L + [(.75N - cfb)/fw]i = .0575 + [(.75 x 20 - 14)2].005 = .060
QD = (Q3 - Q1)/2 = (.060 - .0482)/2 = .0118

where:

Q1 = first quartile
Q3 = second quartile
L = the lower limit of the interval within which the first quartile lies or the third quartile lies
N = the number of cases
cfb = the cumulative frequency below the interval containing either the first quartile or third quartile
fw = the frequency of cases within the interval containing either the first or third quartile
i = the interval size

Figure 30.7—Calculation of the Quartile Deviation for the Production Rates

Table 30.4—Calculation of the Standard Deviation From the Frequency Distribution

Production Rate (X) Frequency (f) Product (fX) fX2

.070 1 .070 .004900
.065 3 .195 .038025
.060 2 .120 .014400
.055 3 .165 .027225
.050 7 .350 .122500
.045 3 .135 .018225
.040 1 .04 .001600
N = 20 sum of fX = 1.075 sum of fX2 = .226875
s = [Sum of fX2 - (Sum of fX)2/N]/(N - 1) = [.226875 - (1.075)2/20](20-1) = .0088996 or .009
where: s = sample standard deviation
X = raw data (individual observed production rate)
f = frequency with which that raw data occurs
N = number of observations in the sample

30.6
AACE INTERNATIONAL BASIC CONCEPTS IN DESCRIPTIVE STATISTICS
THE NORMAL CURVE
Recall that a frequency distribution that is symmetrical is
known as the normal curve. The normal curve is unimodal
with mean, median, and mode at the same point. See Figure
30.8.
In actuality, the normal curve is a theoretical curve, which by
definition can take many shapes, but in all of those shapes,
the shape is symmetrical, and the curve is unimodal. This
theoretical curve is important because many physical and
psychological phenomena resemble the normal curve when
shown in a frequency distribution.
Properties—The important properties of normal curves are
(1) the curve is symmetrical with its maximum height at the
mean; (2) the mean, median, and mode fall at the same point;
(3) the height of the curve decreases to the left and to the right
of the mean at an accelerated rate, which forms the convex
portion of the curve until reaching one standard deviation
above or below the mean at which point the decrease decel-
erates and the curve becomes concave; and (4) the theoretical
range of the curve is plus infinity to minus infinity, but for all
practical purposes so little of the curve falls below -3 stan-
dard deviations or above +3 standard deviations that for
most frequency distributions these are the practical limits of
the curve.
z-scores—Though two or more frequency distributions may
approximate normality yet differ in terms of their means and
standard deviations, any normal distribution can be trans-
formed into a distribution of standard scores. These scores
are known as z-scores. The distribution is known as the stan-
dard normal curve.
30
20
Frequency
10
0 distribution of production rates was normally distrib-
1 6 11
Class
Figure 30.8—A Normal Curve
30.7
The z-score is computed from a sample score by applying the
formula, z = (X-X)/s, where X is the mean of the distribution,
X is a raw score from the distribution, and s is the sample
standard deviation. For example, assume that the produc-
tion rate frequency distribution approximates the normal
curve. Then, a rate of .60 would yield the following:
z = (.060-.05375)/.009 = .694 or .69
When all scores from a distribution are transformed to their
corresponding z-scores, the result is a distribution of scores
with a mean of 0 and a standard deviation of 1. Thus, the score
above is .694 standard deviation above the mean. One can
determine what this z-score indicates by entering published
tables. A portion of one such table is shown in Table 30.5.
Based on the observed data, the contractor concludes that for
the z-score of .69 (column 1), the area (proportion of scores)
from the mean to .69 is .2549 or 25.49 percent (column 2), the
area below the score of .69 is .7549 or 75.49 percent (column
3), the area above the score of .69 is .2451 or 24.51 percent
(column 4), and the .69 score is found on the curve at the y-
ordinate of .3144 (column 5). Thus, the contractor could inter-
pret the score by saying that 75.49 percent of all the possible
production rates will fall below .060 HRS/SFCA.
The contractor also can use the standard normal curve table
to determine a specific production rate to be used in estimat-
ing and scheduling. Assume that the contractor wants to
select a rate based on past experience that will be greater than
95 percent of the rates possible. From the table, the contractor
finds the area in larger portion (column 3) closest to .95 or 95
percent. From the table, .9505 is found, with a corresponding
z-score of 1.65. (Typically, for the kinds of analysis the con-
tractor will perform, interpolation is not necessary.)
Solving for the unknown by applying the equation
above, the production rate can be computed as follows:
1.65 = (X -.05375)/.009
X = .0686 HRS/SFCA
When one compares this rate (.0686) with that shown on
the cumulative percent frequency distribution (.07), one
notices a discrepancy. The difference is that the cumula-
tive percent is based on only those rates in the sample
as compared to the rate extracted from the normal
curve, which is based on all possible rates within the
distribution and is an estimate of the true population
rate. In addition, the assumption was made that the
uted. An examination of the frequency polygon reveals
that it is not normally distributed. If the lower produc-
tion rates (high scores) were omitted, then the curve
would indeed be more normally distributed.
BASIC CONCEPTS IN DESCRIPTIVE STATISTICS AACE INTERNATIONAL

Table 30.5—Areas of the Standard Normal Curve

1 2 3 4 5
z-score Area from Area in Area in y ordinate
mean to z-score larger portion smaller portion at z-score
.67 .2422 .7422 .2578 .3230
.68 .2517 .7517 .2483 .3166
.69 .2549 .7549 .2451 .3144
.70 .2580 .7580 .2420 .3123
.71 .2611 .7611 .2389 .3101
.72 .2642 .7642 .2358 .3079

1.65 .4505 .9505 .0495 .1023

CUMULATIVE PROBABILITY CURVE
One key purpose of the frequency polygon is to examine how
the data is distributed. From this examination, one gets an
indication of whether the scores are normally distributed or
not. If they are not, then the cumulative probability curve can
be applied to the data. An examination of the frequency poly-
gon in Figure 30.2 reveals that the production rate data is not
normally distributed. The curve plots the cumulative per-
centage distribution data (Table 30.2, column 4) as illustrated
in Figure 30.9.
Note that the curve shows the percentage of scores (crude
measure of probability) where the production rate will fall
below a certain value. For example, the contractor may wish
to know what the probability is that the production rate will
not meet or exceed the acceptable rate. From the cumulative
probability curve, one reads that 30 percent of the production
rates are .060 HRS/SFCA or higher; thus, 30 percent of the
observed rates failed to yield the acceptable rate of .055
HRS/SFCA.
It is important to note that the construction of the cumulative
probability curve is dependent upon the question asked. In
this case, the contractor wanted to determine the probability
of failure. The contractor could just have easily asked for the
probability of success. In this instance, the data in Table 30.2
would have been rearranged from low production (high
score) to high production (low score). The cumulative per-
centage frequency would be found as shown in Table 30.6.

%
100
90
80
70
CUMULATIVE 60
PERCENTAGE
50
40
30
20
10

0
0.070

0.060

0.050

0.040
0.075

0.065

0.035
0.055

0.045

PRODUCTION RATES (HRS/SFCA)

Figure 30.9—Cumulative Probability Curve

30.8
AACE INTERNATIONAL BASIC CONCEPTS IN DESCRIPTIVE STATISTICS

Table 30.6—Cumulative Probability

Rate (HRS/SFCA) Frequency Probability of Cumulative Probability

Occurrence
.070 1 5 percent 100 percent
.065 3 15 percent 95 percent
.060 2 10 percent 80 percent
.055 3 15 percent 70 percent
.050 7 35 percent 55 percent
.045 3 15 percent 20 percent
.040 1 5 percent 5 percent

The resultant cumulative probability curve is shown in 3. Montgomery, D. C., and G. C. Runger. 1994. Applied
Figure 30.10. Note that the successful production rate is .055 Statistics and Probability for Engineers. New York: John
HRS/SFCA. Thus, from the curve, the probability of success Wiley & Sons, Inc.
is 70 percent. 4. Spiegel, M. R. 1989. Schaum’s Outline of Statistics. New
York: McGraw-Hill, Inc., 1989.

RECOMMENDED READING

1. Ary, D., and L. C. Jacobs. 1976. Introduction to Statistics:

Purposes and Procedures. New York: Holt, Rinehart and
Winston.
2. DeFranco, D., and M. R. Spiegel. 1996. Schaum’s
Interactive Outline of Statistics. New York: McGraw-Hill,
Inc., 1996.

%
100
90
80
70
CUMULATIVE 60
PERCENTAGE
50
40
30
20
10

0
0.040

0.070
0.035

0.045

0.075
0.055
0.05

0.06

0.06

PRODUCTION RATES (HRS/SFCA)

Figure 30.10—Cumulative Probability Curve

30.9