LESSON 1 : INTRODUCTION TO STATISTICAL ANALYSIS Internal

➢ Annual reports
Statistical Analysis ➢ Accounting audits
Statistical analysis is the collection and interpretation of data ➢ Financial profitability analysis
in order to uncover patterns and trends. It is a component ➢ Operations management performance
of business analytics ➢ Human resource measurements

Statistical analysis can be used in situations like gathering research Information

interpretations, statistical modeling or designing surveys and ➢ Economic trends
studies. It can also be useful for business intelligence ➢ Marketing research
organizations that have to work with large data volumes.
New developments: Web behavior,
The goal of statistical analysis is to identify trends. Social Media, Mobile
A retail business, ➢ page views, visitor’s country, time of view, length of time, origin
for example, might use statistical analysis to find patterns in and destination paths, products they searched for and viewed,
unstructured and semi-structured customer data that can be products purchased, what reviews they read, and many others.
used to create a more positive customer experience
and increase sales. Big data
➢ refer to massive amounts of business data from a wide variety
Steps of statistical analysis of sources, much of which is available in real time. (Data Mining)
Statistical analysis can be broken down into five steps, as follows:
➢ Describe the nature of the data to be analyzed. Types of Data
➢ Explore the relation of the data to the underlying population.
➢ Create a model to summarize an understanding of how the
data
relates to the underlying population.
➢ Prove (or disprove) the validity of the model.
➢ Employ predictive analytics to run scenarios that will help
guide
future actions

Statistical Analysis Software

Software for statistical analysis will typically allow users to do

more complex analyses by including additional tools for
organization and interpretation of data sets, as well as for the
presentation of that data.
Data for Statistical Analysis
Data
➢ numerical or textual facts and figures that are collected
through some type of measurement process.
Measurement Scales
➢ Categorical (nominal) data - defines the identity
property of data. This scale has certain characteristics, but doesn’t
have any form of numerical meaning. (Ex. gender, religion,
country, zip code)
➢ Ordinal data - can be ordered or ranked according to some
relationship but there’s no information that specifies
what differentiates the categories from each other.
(Ex. Academic ranking, economic status, education level,
satisfaction rating)
➢ Interval data - ordinal but have constant differences between
observations and have arbitrary zero points.
(Ex. date, IQ scores, credit score)
➢ Ratio data - continuous and have zero point characteristic
makes it relevant or meaningful to say, one object has twice the
length/size /amount of the other. (Ex. cost, price, height, time
spent, length, flow rate)

Information
➢ result of analyzing data; that is, extracting meaning from data
to support evaluation and decision making.

Models in Statistical Analysis

Examples of Data Sources and Uses

Model - an abstraction or representation of a real system, idea, or We know from basic business principles that the total cost of
object. producing a fixed volume of a product includes both fixed costs
➢ Often a simplification of the real thing. and variable costs.
➢ Captures the most important features.
➢ Can be a verbal description, a visual representation, or a
mathematical formula.

Three Forms of a Model

The sales of a new product, such as a firstgeneration Apple watch

or the first-generation of Air pods, often follow a common
pattern.
We can create a more detailed model by noting that the variable
cost is affected by both the unit variable cost and the quantity
1. Verbal description: The rate of sales begins slowly as early
produced.
adopters evaluate a new product and then accelerates
over time as positive customer feedback spreads.
Eventually, the market becomes saturated, and the rate
of sales begins to fall.
2. Visual model: A sketch of sales as an S-shaped curve over time.
3. Mathematical model:

Influence Diagram
An influence diagram is a visual representation of a simple
descriptive model because it describes how various model
elements influence or relate to one another.
The elements of the model are represented by circular symbols
called nodes. Arrows called branches connect the nodes and show
which elements influence others.
All the nodes that have no branches pointing into them are inputs
to the model. We can see that the unit variable cost and fixed
costs are data inputs in the model. The quantity produced,
however, is a decision variable because it can be controlled by the
manager of the operation.

In the diagram on the right, the weather condition has influence
on the weather forecast. The weather forecast has an influence on
selecting the vacation activity. Both the vacation activity and the
weather condition influences the satisfaction level.
Building a Mathematical Model from an Influence Diagram
From the influence diagram for Total Cost;
Total Cost = Fixed Cost + Variable Cost
But the variable cost is equal to the unit variable cost multiplied
by the quantity produced, we have…
Variable Cost = Unit Variable Cost × Quantity Produced

By substituting this into equation,

Total Cost = Fixed Cost + Unit Variable Cost × Quantity Produced

Thus the resulting model is as follows;

TC = F + VQ

An Influence Diagram for Total Cost A Break-Even Decision Model

Suppose that a manufacturer can produce a part for ₱125/unit
with a fixed cost of ₱50,000. The alternative is to outsource
production to a supplier at a unit cost of ₱175. The total
manufacturing cost for both cases are expressed by using
equation below;

A general formula for the breakeven point by letting C be the unit

cost of outsourcing the part, V be the unit cost of manufacturing
the part, F for fixed cost and setting TC (manufacturing) = TC
(outsourcing), we get;
F + VQ = CQ