Quantitative Techniques Study Guide

Quantitative Techniques Damelin ©
BACHELOR OF COMMERCE
(GENERIC)
QUANTITATIVE TECHNIQUES
STUDY GUIDE
2023
COPYRIGHT © EDUCOR, 2023
All rights reserved. No part of this publication may be reproduced, distributed, or transmitted
in any form or by any means, including photocopying, recording, or other electronic or
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methods, without the prior written permission of Educor Holdings. Individual’s found guilty
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TABLE OF CONTENTS
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1. ABOUT BRAND
Damelin knows that you have dreams and ambitions. You’re thinking about the future, and
how the next chapter of your life is going to play out. Living the career you’ve always dreamed
of takes some planning and a little bit of elbow grease, but the good news is that Damelin will
be there with you every step of the way.
We’ve been helping young people to turn their dreams into reality for over 70 years, so rest
assured, you have our support.
As South Africa’s premier education institution, we’re dedicated to giving you the education
experience you need and have proven our commitment in this regard with a legacy of
academic excellence that’s produced over 500 000 world – class graduates! Damelin alumni
are redefining industry in fields ranging from Media to Accounting and Business, from
Community Service to Sound Engineering. We invite you to join this storied legacy and write
your own chapter in Damelin’s history of excellence in achievement.
A Higher Education and Training (HET) qualification provides you with the necessary step in
the right direction towards excellence in education and professional development.
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2. OUR TEACHING AND LEARNING METHODOLOGY
Damelin strives to promote a learning-centred and knowledge-based teaching and learning

environment. Teaching and learning activities primarily take place within academic
programmes and guide students to attain specific outcomes.
• A learning-centred approach is one in which not only lecturers and students, but all
sections and activities of the institution work together in establishing a learning
community that promotes a deepening of insight and a broadening of perspective
with regard to learning and the application thereof.
• An outcomes-oriented approach implies that the following categories of outcomes
are embodied in the academic programmes:
• Culminating outcomes that are generic with specific reference to the critical cross-
field outcomes including problem identification and problem-solving, co-operation,
self- organisation and self-management, research skills, communication skills,
entrepreneurship and the application of science and technology.
• Empowering outcomes that are specific, i.e. the context specific competencies
students must master within specific learning areas and at specific levels before
they exit or move to a next level.
• Discrete outcomes of community service learning to cultivate discipline-appropriate
competencies.
Damelin actively strives to promote a research culture within which a critical-analytical
approach and competencies can be developed in students at undergraduate level. Damelin
accepts that students’ learning is influenced by a number of factors, including their previous
educational experience, their cultural background, their perceptions of particular learning tasks
and assessments, as well as discipline contexts.
Students learn better when they are actively engaged in their learning rather than when they
are passive recipients of transmitted information and/or knowledge. A learning-oriented culture
that acknowledges individual student learning styles and diversity and focuses on active
learning and student engagement, with the objective of achieving deep learning outcomes and
preparing students for lifelong learning, is seen as the ideal. These principles are supported
through the use of an engaged learning approach that involves interactive, reflective,
cooperative, experiential, creative or constructive learning, as well as conceptual learning via
online-based tools.
Effective teaching-learning approaches are supported by:
• Well-designed and active learning tasks or opportunities to encourage a deep
rather than a surface approach to learning.
• Content integration that entails the construction, contextualization and application
of knowledge, principles and theories rather than the memorisation and
reproduction of information.
• Learning that involves students building knowledge by constructing meaning for
themselves.
• The ability to apply what has been learnt in one context to another context or
problem.
•
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Knowledge acquisition at a higher level that requires self -insight, self-regulation

and self- evaluation during the learning process.
• Collaborative learning in which students work together to reach a shared goal and
contribute to one another’s learning at a distance.
• Community service learning that leads to collaborative and mutual acquisition of

competencies in order to ensure cross cultural interaction and societal
development.
• Provision of resources such as information technology and digital library facilities
of a high quality to support an engaged teaching-learning approach.
• A commitment to give effect teaching-learning in innovative ways and the fostering
of digital literacy.
• Establishing a culture of learning as an overarching and cohesive factor within
institutional diversity.
• Teaching and learning that reflect the reality of diversity.
• Taking multi culturality into account in a responsible manner that seeks to foster an
appreciation of diversity, build mutual respect and promote cross-cultural learning
experiences that encourage students to display insight into and appreciation of
differences.
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Icons
The icons below act as markers, that will help you make your way through the study guide.
Additional information
Find the recommended information listed.
Case study/Caselet
Apply what you have learnt to the case study presented.
Example
Examples of how to perform a calculation or activity with the
solution / appropriate response.
Practice
Practice the skills you have learned.
Reading
Read the section(s) of the prescribed text listed.
Revision questions
Complete the compulsory revision questions at the end of each
unit.
Self-check activity
Check your progress by completing the self-check activity.
Study group / Online forum discussion

Discuss the topic in your study group or online forum.
Think point
Reflect, analyse and discuss, journal or blog about the idea(s).
Video / audio
Access and watch/listen to the video/audio clip listed.
Vocabulary
Learn and apply these terms.
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3. INTRODUCTION TO THE MODULE
Welcome to Quantitative Techniques. This course is a Business Statistics in nature and its
part of every management education programme offered today by academic institutions and
business schools. Statistics provides evidence-based information which makes it an important
decision support tool in management.
Although students are encouraged to use this guide, it must be used in conjunction with other
prescribed and recommended text.
3.1Module Information
Qualification title Bachelor of Commerce (Generic)
Module Title Quantitative Techniques
NQF Level 6
Credits 10
Notional hours 100
3.2 Module Purpose

The purpose of this module is to instill critical thinking and analytical mind-set in making
decisions in a business and management settings. This will give learners the ability to
logically analyse sets of related issues and be able to come up with an informed decision.
3.3 Outcomes
At the end of this module, students should be able to:
• Describe the role of Statistics in management decision making and the importance of
data in statistical analysis.
• Describe the meaning of and be able to calculate the mean, confidence intervals for
the mean, standard deviation, standard error, median, interquartile range, and mode.
• Summarise tables (pivot tables) and graphs providing a broad overview of the profile
of random variables, identifying the location, spread, and shape of the data.
• Understanding the basic concepts of probability to help a manager to understand and

use probabilities in decision making.
• Describe and make use of probability distributions that occur most often in
management situations, that describe patterns of outcomes for both discrete as well as
continuous events
• Review the different methods of sampling and the concept of the sampling distribution.
• Describe the concept of interval estimation
• Describe hypothesis testing and construct the null and an alternate hypothesis.
• Describe normal distribution, student’s distribution, binomial distribution, Poisson

distribution, the CHI-squared distribution and the F distribution and apply for testing
hypothesis.
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• Describe the concepts of multiple correlation and regression.

• Discuss the necessity of including statistical planning in research design.
• Test the difference between correlated and uncorrelated sample means using a t-test
for two means and analysis of variance of several means.
• Express the relationship between two variables by regression and calculating their
correlation.
• Analyse the dependence of one variable upon another by regression.
• Sole well defined but unfamiliar problems using correct procedures and appropriate
evidence.
• Describe the time series analysis using a statistical approach to quantify the factors
that influence and shape time series data and apply it to making forecasts of future
levels of activity of the time series variables.
3.4 Assessment
You will be required to complete both formative and summative assessment activities.
Formative assessment:
These are activities you will do as you make your way through the course. They are designed
to help you learn about the concepts, theories and models in this module. This could be
through case studies, practice activities, self-check activities, study group / online forum
discussions and think points.
You may also be asked to blog / post your responses online.
Summative assessment:
You are required to write Exam at the end of the semester. For online students, the tests
are made up of the revision questions at the end of each unit. A minimum of five revision
questions will be selected to contribute towards your test mark.
Mark allocation
The marks are derived as follows for this module:
Test 20%
MCQ’s 10%
Assignments 10%
Exam 60%
TOTAL 100%
3.5 Planning Your Studies
You will have registered for one or more modules in the qualification and it is important that
you plan your time. To do this look at the modules and credits and units in each module.
Create a time table / diagram that will allow you to get through the course content, complete
the activities, and prepare for your tests, assignments and exams. Use the information
provided above (How long will it take me?) to do this.
What equipment will I need? • Access to a personal computer and internet.

• scientific calculator
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4. PRESCRIBED READING
4.1 Prescribed Book

Textbook Author Year Publisher ISBN
Applied business Wegner, T, 2016 Juta. Cape 978-1-48511-193-1

statistics methods and Town South
Excel-based Africa
applications
4.2 Recommended Books
• Bergquist, T., Jones, S. and Freed, N (2013) Understanding Business Statistics. John
Wiley & Sons
• Black K (2013). Business Statistics: For Contemporary Decision Making, 7th Edition.
4.3 Recommended Multimedia

Websites:
• www.statisticssa.gov.za
Video / Audio
• https://www.youtube.com/watch?v=8SHnJfPQ9qc
5. MODULE CONTENT
You are now ready to start your module! The following diagram indicates the topics that will
be covered. These topics will guide you in achieving the outcomes and the purpose of this
module. Please make sure you complete the assessments as they are specifically designed
to build you in your learning.
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Unit1: STATISTICIN MANAGEMENT

S
Unit2: SUMMARISING DATA:SUMMARY TABLEANDGRAPHS
S
Unit3: DESCRIBINDATA:NUMERIC
DESCRIPTIV
STATISTIC
G E S
Unit4: BASI PROBABILITCONCEPT
C Y S
Unit5: PROBABILITDISTRIBUTIONS
Y
Unit6: SAMPLING
ANDSAMPLING
DISTRIBUTIONS
Unit7: CONFIDENCE
INTERVAL
ESTIMATION
Unit8: HYPOTHESE
TEST– SINGLE
POPULATION
(PROPORTIONS
& MEANS)
S S
Unit9: CHI-SQUARE
D HYPOTHESE
TEST
S S
Unit10: SIMPLELINEARREGRESSIO
ANDCORRELATIO
ANALYSI
N N S
Unit11: TIMESERIEANALYSIS:
A FORECASTIN
TOOL
5.1 S in Management
Study Unit 1: Statistics G
The purpose of this unit is to introduce the common terms, notations and
Purpose concepts in statistical analysis
By the end of this unit, you will be able to:

• Define the term ‘management decision support system’
• Explain the difference between data and information explain
the basic terms and concepts of Statistics and provide
examples recognise the different symbols used to describe
statistical concepts
• Explain the different components of Statistics
Learning • Identify some applications of statistical analysis in business
Outcomes practice
• Distinguish between qualitative and quantitative random
variables
• Explain and illustrate the different types of data
• Identify the different sources of data
• Discuss the advantages and disadvantages of each form of
primary data collection
• Explain how to prepare data for statistical analysis.
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It will take you 4 hours to make your way through this unit.
Time
Important
Information • is organised (collected, collated, summarized,
terms and analysed and presented) data values that are
definitions meaningful and can be used to make business
decisions
Date constitute of individual values, for instance,

Data • observations or measurements on an issue
It is a set of mathematically-based methods

and techniques which transform small or large
sets of raw (unprocessed) data into a few
•
Statistics meaningful summary measures, that may
exhibit relationships, show patterns and
trends, which then contains very useful and
usable information to support sound decision
making
is any attribute or characteristic being

Random measured or observed
•
Variable
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• represents every possible item that contains a data

Population value (measurement or observation) of the random variable
under study
• is a subset of items drawn from a population

The sample
• condense large volumes of data into summary

Descriptive
Statistics measures. It seeks to paint a picture of a management
problem scenario.
• sample findings can be generalized to the broader

Inferential population. It extends the sample findings to the
Statistics actual population.
• builds relationships between variables to make

Statistical predictions
Modelling
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5.1.1 Introduction
This unit focuses on describing what is statistics and the role it plays in management and
decision making. The importance of data in statistics is also discussed. Some basic statistical
terms and concepts are also explained
5.1.2 Statistics in Management

In all academic institutions, business schools and management colleges worldwide, business
statistics is part of every programme being offered today. The term statistics can take on a
variety of meanings. It's frequently used to describe data of any sort, mass, pressure, height,
weight, stock prices, batting average, GPA, temperature, etc. Other people may connect the
term to the results of surveys, polls, and questionnaires. Particularly in our study, we will use
the term statistics primarily to designate a specific academic discipline focused on methods of
data collection, analysis, and presentation. Virtually in all case, statistics is concerned with the
transformation of data into information. Black
(2011)
Management Decision Making

As a manager decision making is one of the most crucial aspects of the jobs. Decision are
made on all business activities such as what to sell, how to sell, how much to buy, which
market to target, which equipment to buy; whether certain types of goods are of acceptable
quality; where to locate stores so as to maximise profits; and whether girls buy more of a
particular product than boys etc. Therefore, a well-informed decision based on quality
information will need to be made. Wegner (2016)
Information
In order to make sound and viable business decisions, managers need high-quality
information. Information must be relevant, adequate timeous, accurate and of easy access.
Information is organised (collected, collated, summarized, analysed and presented) data
values that are meaningful and can be used to make business decisions. Most often the
information is not readily available in the formats required by the decision makers. Wegner
(2016)
Data
Date constitute of individual values, for instance, observations or measurements on an issue
e.g. R400.50, 5 days, 70 meters, strongly agree, etc. Data is readily available and carries a
little useful and usable information to decision makers. Wegner (2016)
Statistics
It is a set of mathematically-based methods and techniques which transform small or large

sets of raw (unprocessed) data into a few meaningful summary measures, that may exhibit
relationships, show patterns and trends, which then contains very useful and usable
information to support sound decision making, whether we're sorting out the day's stock
quotations to make a more informed investment decision or unscrambling the latest market
research data so we can better respond to customer needs and wants. The understanding and
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use of statistics empower managers to become confident and quantitative reasoning skills that
enhance decision-making capabilities and provides an advantage over colleagues who do not
possess them Black (2013).
Transformation process from data to information
INPUT___________PROCESS____________OUTP UT ____________BENEFIT
(Data) (Statistical Analysis) (Inf ormation) (Management decision

making)
Source: Wegner 2016)

Statistics support the decision process by strengthening the quantifiable basis from which a
well- informed decision can be made.
Figure 1.1 Key Statistical Elements
Source: Black (2013)
Video / audio
Watch the YouTube link below and write a brief essay on why
you think statistics is important.
https://www.youtube.com/watch?v=yxXsPc0bphQ
5.1.3 The terminology of Statistics
Some essential terms and concepts are:
Random Variable is any attribute or characteristic being measured or observed. It takes
different values at each point of measurement e.g. Years of experience of an employee.
Data, these are real values or outcomes drawn from a random variable e.g. Years of experience of
an employee might be (2, 4, 1, 3, 2, 6).
See below some examples of random variables and related data:
• Travel distances of delivery vehicles (data: 22 km, 18 km, and 29 km)
• Daily occupancy rates of hotels in Pretoria (data: 34%, 48%, and 34%)
• Duration of machine spends on working (data: 13 min, 21 min, and 18 min)
• Brand of washing powder preferred (data: Sunlight, OMO, and Aerial).
Sampling Unit, this will be the item being measured, observed or counted with respect to the
random variable under study. e.g. employees.
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Population represents every possible item that contains a data value (measurement or
observation) of the random variable under study. The sampling units should possess the
characteristics that are relevant to the problem. e.g. all employees of Damelin Randburg.
Population Parameter, the actual value of a random variable in a population. It’s derived
from all data values on the random variable in the population. It is constant. e.g. about 57%
of MTN employees have more than 5 years’ experience.
The sample is a subset of items drawn from a population. e.g. employees in the Finance
department of MTN.
Sample Statistic, It is a value of a random variable derived from sample data. It is NOT
constant as its value always depends on the values included in each sample drawn.
Table 1. 1 Examples of population and associated samples
Randomvariable Population Sampling Sample
unit
Size of bank An Absa 400
overdraft client with randoml
All current accountswith a current y
Absa account selected
client’s
current
account
s
Mode of daily All commuters to Cape A commuter 600 randomly
commuter transport Town’s central business district (CBD) to Cape selected
to work Town’s commuters to
CBD Cape Town’s
CBD
TV programme All TV viewers in Gauteng A 2000
preferences TV randomly
vie selected TV
wer viewers in
in Gauteng
Gau
teng
Age of students at a All students at Damelin College A registered 1000 randomly

college student at selected
Damelin registered
College Damelin
student
Source: Wegner (2016)
Table 1. 2 Symbolic Notation for Samples and Population Measure
StatisticalMeasure SampleStatistic Population
Parameter
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Mean x µ
Standard deviation s Σ
Variance s2 σ2
Size n N
Proportion p π
Correlation r ρ
Source: Wegner (2016)
5.1.4 Components of Statistics

Statistics has three components namely:
▪ Descriptive Statistics – condense large volumes of data into summary measures. It
seeks to paint a picture of a management problem scenario.
▪
Inferential Statistics – sample findings can be generalized to the broader population.
It extends the sample findings to the actual population.
▪ Statistical Modelling – builds relationships between variables to make predictions. It
uses equations to explain variables and to estimate or predict values of one or more
of the variables under different management scenarios.
5.1.5 Statistical Applications in Management
Recent examples that show importance of statistics decision making
• According to an Electronics wholesale survey, the average amount spent by a shopper

on computer accessories in a two-month period is R 7280 at the Game store, R5040
at Makro, R2460 at PnP hyper, R6720 at the Incredible store, and R4200 at President
Hyper.
• 1275 workers survey by job mail reports shows that 45% of workers believe that the
quality of their work is perceived the same when they work remotely as when they are
physically in the office.
• A survey of 377 executives by the Association of Mid-level search consultants
determined that
38% of men and 57% of women say they are more likely to negotiate for less business
travel compared with three years ago.
• A survey of 1367 adults by JANO Capital Markets showed that 27% of adults would be
willing to drive 5 to 10 km to save 20 cents on a gallon of gas.
• A KPMG Retail “Blue” survey of 1860 adults revealed that 44% agreed that plastic,
non- compostable shopping bags should be banned.
From these few examples, it is clear that there are a wide variety use and applications of
statistics in business i.e.
▪ Finance
▪ Marketing
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▪ Human Resources
▪ Operation/Logistics
▪ Economics
5.1.6 Statistics and Computers
The invention of computers has opened many new opportunities for statistical analysis. A
computer allows for storage, retrieval, and transfer of large data sets. Some widely used
statistical techniques, such as multiple regression, are so tedious and cumbersome to compute
manually that they were of little practical use to researchers before computers were developed.
Some statistical software packages, include i.e. R, Minitab, SAS, and SPSS.Wegner (2016)
Study group
The link below takes you through various statistical packages that
are used in industry. Identify three statistical packages that are of
interest to you and carry out a brief research writing what features
they entail. https://www.youtube.com/watch?v=hHywVkLwLzg
5.1.7 Data and Data Quality

To this point, we've used the term data pretty loosely. In statistics, the term refers specifically
to facts or figures that are subject to summarization, analysis, and presentation. A data set is
a collection of data having some common connection. Data can be either numeric or non-
numeric. Numeric data are data expressed as numbers. Non- numeric data are represented
in other ways, often with words or letters. Telephone numbers and golf scores are examples
of numeric data. Nationalities and nicknames are non-numeric. Data is the raw material of
statistical analysis. If the quality of data is poor, the quality of information derived from
statistical analysis of this data will also be poor. Consequently, user confidence in the statistical
findings will be low. A useful acronym to keep in mind is GIGO, which stands for ‘garbage in,
garbage out’. It will be of great importance to understand influences of the quality of data
needed to produce meaningful and reliable statistical results. Data is used to plan business
activities and to make business decisions Black (2013) Data should be of good quality and the
quality of data depends on three aspects:
▪ Type of data
▪ Source of data
▪ Data collection method
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5.1.8 Data Types

Classification 1: categorical versus numeric
Table1. 3 CategoricalData
Randomvariable Categories Codes

Gender Female
Male
Countryof origin Angola
Botswana
Source: Examiner’s compilation
▪ Categorical data (qualitative): refers to data representing categories of outcomes of a

random variable e.g.
▪ Numeric data (quantitative data): refers to real numbers that can be manipulated using
arithmetic operations to produce meaningful results.
Classification 2: Nominal, Ordinal, Interval and Ratio Scales of Measurement

Enormous numerical data are gathered in businesses every day, representing myriad items.
For instance, numbers represent rand costs of items produced, geographical locations of retail
outlets, weights of shipments, and rankings of subordinates at yearly reviews. All this data
should not be analyzed the same way statistically because the entities represented by the
numbers are different. In such cases, the business researchers need to know the level of data
measurement represented by the numbers being analyzed Black (2013). Four common levels
of data measurement follow.
1. Nominal
2. Ordinal
3. Interval
4. Ratio
Nominal is the lowest level of data measurement followed by ordinal, interval, and ratio. Ratio
is the highest level of data
Figure 1.2 Hierarchy of Levels of Data
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▪ Nominal-scaled data: used on categorical data of equal importance e.g. gender –

male or female
▪ Ordinal-scaled data: used on categorical data where ranking is implied e.g. Shirt size
– small, medium, large.
▪ Interval-scaled data: It is mainly from rating scales, which are used in questionnaires
to measure respondents’ attitudes, motivations, preferences, and perceptions e.g.
attitudes – poor, unsure, good etc.
▪ Ratio-scaled data: used on numeric data involving direct measurement where there is
an absolute origin of zero. E.g. length of service – 27 months, 45 months.
Classification 3: Discrete versus Continuous Data
▪ Discrete data: consists of whole numbers only. E.g. 1, 2, 3, 4
▪ Continuous data: is numeric data that can take any value in an interval (both whole
number and fractional values) e.g. 4, 4.6, 10.7, 34.2

Data types are a very important concept in the world of
statistics, See the video below for additional information on data
types and discuss in a group their
relevance to data analysis.
https://www.youtube.com/watch?v=hZxnzfnt5v8
5.1.9 Data Sources
Data, of course, can be collected from a variety of sources—from vast
government agencies charged with maintaining public records to surveys conducted among
a small group of customers or prospective clients.
The Internet
In these last 20 years, Internet has become an almost limitless source of business and economic
data. With the help of powerful search engines, even the casual user has instant access to data
that once would have required hours, if not weeks, of painstaking research (Bergquist et al,
2013).
Government Agencies and Private-Sector

Both governmental agencies and private-sector companies gather and make available a
wealth of business and economic data. Government sources like the Bureau of Labor
Statistics (bls.gov), the US Census Bureau (census.gov), and the Bureau of Transportation
Statistics (rita.dot.gov/bts) organize and update databases for all sorts of things—from the
average hourly wage of biophysicists ($42.13 in 2011) to the incidence of motorcycle
accidents involving riders not wearing helmets (66 percent in states without a universal
helmet law). State, local, and regional agencies also maintain large databases of general or
specialized interest. Private-sector companies like Bloomberg (bloomberg.com) and Dow
Jones & Company (dowjones.com) offer detailed data services for businesses and financial
markets. Many universities provide students and alumni access to rich business databases
like Standard & Poor's Compustat (compustat.com), which contains comprehensive histories
of more than 30,000 companies. Industry boards and councils, set up to provide information
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on topics of narrower interest, are also important sources of business and economic data
(Bergquist et al, 2013).
Original Studies
If the data you need doesn't already exist, you may have to design an original study. In
business, this often means setting up an experiment, conducting a survey, or leading a focus
group. To estimate the effect of price on sales of your company's new 3D camera, for
example, you might set up a three- month experiment in which different prices are charged
in each store or region in which your product is sold. At the end of the experiment, differences
in sales volume can be compared and analyzed. Surveys typically involve designing and
administering a questionnaire to gauge the opinions and attitudes of a specific target group.
Although this may sound like a simple data-gathering procedure, you'll need to take care. The
way in which questions are phrased, and the order by which questions are asked, can have
a significant impact on the answers you get (Bergquist et al, 2013).
Internal versus External Sources
▪ Internal data refers to the availability of data from within an organization, examples are.
Financial, production, human resources etc.
▪ External data refers to data available from outside an organization, examples are.
Employee associations, research institutions, government bodies etc.
Primary versus Secondary Sources

▪ Primary data is data which is taken at the point at which it is generated. i.e. surveys
▪ Secondary data: the data is collected and processed by others for various purposes other
than the problem at hand. i.e. publications
Data Collection Methods

▪ Observation Methods
Direct observation –by directly observing the respondent or object in action data is collected.
E.g.
vehicle traffic survey
Desk Research (Abstraction) – extracting secondary data from a variety of source documents.
E.g. books, publications, newspapers etc.
▪ Survey Methods:
Primary data is gathered through the direct questioning of respondents.
Personal interviews: involves face-to-face with a respondent during which a questionnaire gets
to be completed.
Postal surveys: involve posting questionnaires to respondents for completion
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5.1.10 Ethics in Statistics

The rapidly expanding role of data-based studies and widespread use of statistical information
have elevated the need for clearly defined standards of ethical behavior for all those engaging
in the practice of statistics. To this end, the American Statistical Association (ASA) has
published on the ethical guidelines, intended not only for its members but also for anyone who
sponsors, conducts, or reports on statistical analysis. In its Ethical Guidelines for Statistical
Practice (amstat.org/about/ethical guidelines. cfm), the ASA points to the pervasive influence
of statistics in our lives—in the economy, science, government, and even entertainment—and
emphasizes the need for practitioners to
“recognize their potential impact on the broader society and the attendant ethical obligations
to perform their work responsibly” (Bergquist et al, 2013).
Video / audio
Watch the video on the link below about ideas on data
collection and list some instances where you think a particular
data collection method is suited for.
https://www.youtube.com/watch?v=8SHnJfPQ9qc
Reading
Read T. Wegner, 4th edition, Chapter 1, p 2 – 19 for a
comprehensive coverage of this unit on statistics in management.
5.1.11 Summary
In this unit, the importance of statistics has been explained as a support tool in management
decision making. The language of statistics will be key as it allows for interaction with various
statistical data analysts. Components of statistics were discussed as well as the different
statistical packages that may be used in data analysis. Data quality was discussed in terms of
the four factors that affect it, namely data type, data source, data collection method and the
process used to prepare it. The manner in which each data type influences the choice of an
appropriate statistical method will be addressed more fully in later units. As shown in this unit,
data sources, data-gathering methods, and data
preparation issues all have an influence on the quality of data, and hence the accuracy,
reliability, and validity of statistical findings.
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Case study/Caselet State of Business in India's Countryside

India is the second largest country in the world, with more than a
billion people. Nearly three-quarters of the people live in rural
areas scattered about the countryside in 6,000,000 villages. In
fact, it may be said that 1 in every 10 people in the world lives in
rural India. Presently, the population in rural India can be
described as poor and semi-illiterate. With an annual per capita
income of less than $1 (U.S.) per day, rural India accounts for only
about one-third of total national product sales. Less than 50% of
households in rural India have electricity, and many of the roads
are not paved. The annual per capita consumption for toothpaste
is only 30 grams per person in rural India compared to 160 grams
in urban India and 400 grams in the United States.
Besides the impressive size of its population, there are
compelling reasons for companies to market their goods and
services to rural India. The market of rural India has been growing
at five times the rate of the urban India market. There is increasing
agricultural productivity, leading to growth in disposable income,
and there is a reduction in the gap between the tastes of urban
and rural customers. The literacy level is increasing, and people
are becoming more conscious about their lifestyles and
opportunities for a better life.
Nearly two-thirds of all middle-income households in India are in
rural areas, with the number of middle- and high-income
households in rural India expected to grow from 80 million to 111
million over the next three years. More than one-third of all rural
households now have the main source of income other than
farming. Virtually every home has a radio, almost 20% have a
television, and more than 30% have at least one bank account.
In the early 1990s, toothpaste consumption in rural India doubled,
and the consumption of shampoo increased fourfold. Recently,
other products have done well in rural India, accounting for nearly
one-half of all of the country's sales of televisions, fans, bicycles,
bath soap, and other products. According to MART, a New Delhi–
based research organization, rural India buys 46% of all soft
drinks and 49% of motorcycles sold in India. In one year alone,
the market for Coca-Cola in rural India grew by 37%, accounting
for 80% of new Coke drinkers in
India. Because of such factors, many U.S. and Indian firms, such
as
Microsoft, General Electric, Kellogg's, Colgate-Palmolive,
Hindustan Lever, Godrej, Nirma Chemical Works, and Mahotra
Marketing, have entered the rural Indian market with enthusiasm.
Marketing to rural customers often involves building categories by
persuading them to try and adapt products that they may not have
used before. Rural India is a huge, relatively untapped market for
businesses. However, entering such a market is not without risks
and obstacles. The dilemma facing companies is whether to enter
this marketplace and, if so, to what extent and how. Source:
Black (2013)
25
Think point
Explain in your opinion if the statistics presented in this report are
exact figures or estimates? Describe in your thinking possibilities
of how and where could the analysts have gathered such data?
Discuss the levels of data measurement are represented by data
on rural India Black (2013).
5.1.12 Revision
Let’s see what you have learned so far by taking this short self-assessment.
Self-check activity
The following types of questions are sometimes on a survey, to
determine how providers can better serve their clientele,
hospital administrators sometimes administer a quality
satisfaction survey to their patients after the patient is released.
What level of data measurement will result from these
questions?
1. How long has it been since released from the hospital?
2. Which type of unit did you spend all of the time in during
your stay?
a) Coronary care
b) Intensive care
c) Maternity care
d) Medical unit
e) Pediatric/children unit
f) Surgical Unit
3. When choosing a hospital, how important is the hospital’s
location?
a) Very Important b) Somewhat importantc) Not very important
d) Not at All Important

4. How serious were you when you were first admitted to the
hospital?
a) Critical b) Serious c) Moderate d) Minor
5. Rate your doctor’s skill
a) Excellent b) Very good c) Good d) Fair e)
Poor
5.2 Study Unit 2: Summarising Data: Summary Tables and Graphs
The purpose of this unit is to explain how to summarise data into table
Purpose format and how to display the results in an appropriate graph or chart
26

• Summarize categorical data into frequency table and cross-
tabulation table.
• Interpret the findings from a categorical frequency table and
cross- tabulation table.
• Construct and interpret appropriate bar and pie charts.
Learning • Summarize numeric data into a frequency distribution and
Outcomes cumulative frequency distribution (ogive).
• Construct and interpret a histogram and a cumulative frequency
polygon.
• Construct and interpret a scatter plot of two numeric measures
• Display time series data as line graphs and interpret trends.
Time
Important Histogram • is a graphic display of numeric frequency
terms and
definitions distribution
Pie Chart
• A circular display of data where the area of the
whole circle represents 100% of the data and
slices of the circle represents a percentage
Frequency breakdown of the different sublevels
polygon
Ogive • Is a graphical display of class frequencies.
However, instead of using rectangles like a
histogram, in a frequency polygon, each class
frequency is plotted as a dot at the class
midpoint, and the dots are connected by a
series of line segments
• is a cumulative frequency polygon
5.2.1 Introduction
This study unit aims to give the students an understanding of the common ways in which
statistical findings are conveyed. The most commonly used means of displaying statistical
results are summary tables and graphs. Summary tables can potentially be used to summarise
single random variables as well as examine the relationship of 2 random variables. The choice
of the summary table and graphic to be used depends on the type of data that need to be
displayed. Managers do benefit from the statistical findings if the information will easily be
interpreted and communicated effectively to them. Tables and graphs convey information
much more efficiently and quick than a written report. In graphs and tables, for instance, there
is much truth in the old adage ‘a picture is worth a thousand words’.
While in practice, analysts’ should most if not all the times consider the use summary tables
and graphical displays more than written texts. Profile consisting of a single random variable
27
(e.g. most- preferred TV channel by viewers or pattern of delivery times) or to examining the
relationship between two random variables (e.g. between gender and newspaper readership)
can be easily summarised by summary tables and graphs.
5.2.2 Summarising Categorical Data

Quantitative data graphs are plotted along a numerical scale while qualitative graphs are
plotted using non-numerical categories. In this particular section of the study unit, the aim is
to examine 2 types of qualitative data graphs, pie charts and bar charts,
Categorical summary table (one-way pivot table) shows the count/percentage of responses
that belong to each category of a categorical variable. If it is given as a count it is called
absolute frequency and if given as a percentage or fraction it is referred to as relative
frequency Wegener (2016).
Table 2.1 Types of Cars at Company X
Car AbsoluteFrequency Relative
Type Frequency
(%)
Mazda 6 40
Toyota 3 20
Nissan 2 13
Isuzu 4 27
Total 15 100
Source: Examiner’s own compilation

Data from a categorical frequency table can be displayed as a pie chart or simple bar chart.
Simple Bar chart
Charts or bar graphs contain 2 or more categories along one axis and a series of bars, one for
each particular category, along with the other axis. The length of the bar would represent the
magnitude of the measure (frequency, percentages amount, money, etc.) for each category.
A bar graph is qualitative since the categories are not numerical, they may be either horizontal
or vertical. The same type of data that is used to produce a bar graph is also used to construct
a pie chart. The advantage of a bar graph over a pie chart is that for some categories close in
value, it is considered easier to see the difference in the bars of bar graph than discriminating
between pie slices Black (2011).
Construction of a simple bar chart
• The categories are exhibited on the horizontal axis.
• Frequencies are exhibited on the vertical axis.
• The height of each bar displays the frequency of each category.
• The width of the bars must be constant.
28
Figure 2.1 Simple Chart for Table 2.1
Source: Examiner’s own compilation

In the example below, consider the data in Table 2.2 expenses by an average student on back-
to- school spending. When constructing a bar graph from the data, the categories would
be Electronics, Clothing and Accessories, Dorm Furnishings, School Supplies, and Misc. Bars
for each of these categories are made using the rand figures given in the table. Figure 2.1 is
the resulting bar graph produced by Excel Table 2.2 Back to School Spending
Category Amount Spent (R)
Electronics R211.89
Clothing R134.40
Dorm Furnishings R90.90
School Supplies R68.47
Misc. R93.72
29
Pie Chart
A circular display of data where the area of the whole circle represents 100% of the data and
slices of the circle represents a percentage breakdown of the different sublevels is known as
a pie chart. Pie charts are widely used in business, mostly in showing things such as budget,
market share, ethnic groups and time/resource allocations categories. Since pie charts can
lead to less accuracy than are possible with other types of graphs there are, however, their
use is minimized in the sciences and technology. In general, it is harder for the viewer to
interpret the relative sizes of angles in a pie chart than judging the length of rectangles in a bar
chart Black (2013).
Construction of a Pie chart
• Divide a circle into segments.
• Size of each segment should be proportional to the frequency count/ percentage of its
category.
• The sum of the segment frequency must equal to the whole.
Figure 2.3 Pie Chart for Table 2.1

• Profiling two categorical variables
A cross-tabulation table (two-way pivot table) shows the number/percentage of observations
that jointly belong to each combination of categories between two categorical variables. For
example car type at company X in two years 2007 and 2008.
The first categorical variable is car type with four categories (Mazda, Toyota, Nissan, and
Isuzu). The second categorical variable is a year with two categories (2007 and 2008). The
results can be displayed as shown in Table 2.3:
30
Table 2.3 Type of Car at Company X 2007 & 2008

Car Type Year Total
2007 2008
Mazda 6 5 11
Toyota 3 2 5
Nissan 2 1 3
Isuzu 4 7 11
Total 15 15 30
Data from a cross-tabulation table can be displayed as a component bar chart or a multiple
bar chart.
Figure 2.4 Component (Stacked) Bar Chart for Table 2.2
Source: Examiners’ own compilation

Figure 2.5 Multiple Bar Chart
Absolute 2007
2008
31
Frequency
Mazda Toyota Nissan Isuzu

Car
Type
Source: Examiners’ own compilation
5.2.3 Summarising Numeric Data

Raw data, or data that have not been summarized in any way, are sometimes referred to as
ungrouped data. Data that have been organized into a frequency distribution are called
grouped data. The distinction between ungrouped and grouped data is important because
the calculation of statistics differs between the two types of data. Several of the charts and
graphs presented in this section are constructed from grouped data. One particularly useful
tool for grouping data is the frequency distribution, which is a summary of data presented in
the form of class intervals and frequencies Black (2013).
Profiling a single numeric variable
A numeric frequency table (distribution) is a summary table which groups numeric data into
intervals and reports the frequency count of numbers assigned to each interval.
Construction of a frequency table:
• Determine data range, often is defined as the difference between the largest and smallest
numbers
• Decide on a number of classes, one rule of thumb is to select between 5 and 15 classes.
If the frequency distribution contains too few classes, the data summary may be too general
to be useful. Too many classes may result in a frequency distribution that does not
aggregate the data enough to be helpful. The final number of classes is arbitrary. The
business researcher arrives at a number by examining the range and determining the
number of classes that will span the range adequately and also be meaningful to the user
• Determine class width, an approximation of the class width can be calculated by dividing
the range by the number of classes
• Determine class limits, are selected so that no value of the data can fit into more than one
class Table 2. 4 Frequency Table of Office Data
32
Class Column Column Column Column Column

Interval 1 2 3 4 5
115 -<130 5 12.5 12.5 100 122.5
130-<145 7 17.5 30 87.5 137.5
145-<160 6 15 45 70 152.5
160-<175 12 30 75 55 167.5
175-<190 8 20 95 25 182.5
190-<205 2 5 100 5 197.5
Total 40 100

Column 1: Absolute frequency
Column 2: Relative frequency
Column 3: Less than Cumulative frequency
Column 4: More than Cumulative frequency
Column 5: Class Mid-points
Histogram
A Histogram is a graphic display of numeric frequency distribution. One of the more widely
used types of graphs for quantitative data is the histogram. A histogram is a series of
contiguous rectangles that represent the frequency of data in given class intervals. If the class
intervals used along the horizontal axis are equal, then the heights of the rectangles represent
the frequency of values in a given class interval. If the class intervals are unequal, then the
areas of the rectangles can be used for relative comparisons of class frequencies Black
(2013).
33
Frequency polygon
A frequency polygon, like the histogram, is a graphical display of class frequencies. However,
instead of using rectangles like a histogram, in a frequency polygon, each class frequency is
plotted as a dot at the class midpoint, and the dots are connected by a series of line segments.
Construction of a frequency polygon begins by scaling class midpoints along the horizontal
axis and the frequency scale along the vertical axis. A dot is plotted for the associated
frequency value at each class midpoint. Connecting these midpoint dots completes the graph
Black (2013).
Ogive – the cumulative frequency table

An ogive (o-jive) is a cumulative frequency polygon. Construction begins by labeling the x-
axis with the class endpoints and the y-axis with the frequencies. However, the use of
cumulative frequency values requires that the scale along the y-axis be great enough to
include the frequency total. A dot of zero frequency is plotted at the beginning of the first
class, and construction proceeds by marking a dot at the end of each class interval for the
cumulative value. Connecting the dots then completes the ogive. Ogives are most useful
when the decision maker wants to see running totals. For example, if a comptroller is
34
interested in controlling costs, an ogive could depict cumulative costs over a fiscal year. Steep
slopes in an ogive can be used to identify sharp increases in frequencies Black (2013).
Figure 2.7 Ogive of the Unemployment Data
Cumulative frequency polygon/curves

Less than cumulative frequency curve: obtained by plotting the less than cumulative
frequencies against the upper-class limits of each class interval and joining the points using
a smooth curve Wegner (2016).
More than cumulative frequency curve: obtained by plotting the more than cumulative
frequencies against the lower class limits of each class interval and joining the points using a
smooth curve.
Exploring Relationship between two numeric variables
Figure 2.8 Trend Line Graph: Volume of Sales for Emajoy
Holdings in 2016
Stem-and-Leaf Plots
Another way to organize raw data into groups besides using a frequency distribution is a
stem-and- leaf plot. This technique is simple and provides a unique view of the data. A stem-
and-leaf plot is constructed by separating the digits for each number of the data into two
35
groups, a stem, and a leaf. The leftmost digits are the stem and consist of the higher valued
digits. The rightmost digits are the leaves and contain the lower values. If a set of data has
only two digits, the stem is the value on the left and the leaf is the value on the right. For
example, if 34 is one of the numbers, the stem is 3 and the leaf is 4. For numbers with more
than two digits, division of stem and leaf is a matter of researcher preference Black (2013)
Table 2.5 Safety Examination Scores for Plant Trainees

86 77 91 60 55
76 92 47 88 67
23 59 72 75 83
77 68 82 97 89
81 75 74 39 67
79 83 70 78 91
68 49 56 94 81
Table 2.6 Stem and Leaf for Plant Trainees Data
Stem Leaf
2 3
3 9
4 7 9
5 5 6 9
6 0 7 7 8 8 6 7 7 8 9
7 0 2 4 5 5 6 8 9
8 1 1 2 3 3
9 1 1 2 4 7
5.2.4 Summary
In this unit, we have explained a categorical frequency table and how different charts (pie and
bar) are constructed from it. The cross-tabulation table was also explained and how different
bar charts (stacked and multiple) are constructed from it. The unit also looked at the
summarization of one or two numeric variables. The construction of numeric frequency
distribution tables, histograms, ogives, frequency polygons, scatter plot, box plot, trend line
graphs and Lorenz curves were explained.
36
Case study: Container Shipping Companies
Container Shipping Companies

For decades, businesspeople in many countries around the world
wrestled with the issue of how to store and ship goods via trucks, trains,
and ships. Various sizes and shapes of containers were developed to
ship goods even within a country. The lack of consistent containers
created a lot of extra work, as products were relocated from one
container to another. Fortunately, in 1955 a former trucking company
executive teamed up with an engineer to develop a version of the
modern intermodal container that is widely used today. Because it is a
standard size, this container in various forms can be moved from trucks
to trains to ships without being opened, thereby eliminating the work of
loading and unloading its contents multiple times. The International
Organization for Standardization (ISO) has set up standards for the
modern-day container, and perhaps the most commonly used container
is 20 feet long and 8 feet wide. The container capacity of a ship is often measured in the
number of 20-foot equivalent units or TEUs that can be loaded or unloaded from the vessel.
Containerization has revolutionized cargo shipping, and today approximately 90% of non-
bulk cargo worldwide moves by containers stacked on transport ships.
Shown in the next column are TEU capacities available on board
operated ships for the top five companies in the world as of October 24,
2012. Also included in the data is the total number of ships operated by
each company.
Think point
If you are a shipping container industry specialist, and you are requested
to prepare a brief report displaying the leading shipping companies both
in a number of ships and TEU shipping capacity. What could be the best
way to statistical display information from this shipping container
company? Is the raw data adequate? Can you graphically display the
data?
5.2.5 Revision
Self-Assessment
37
Let’s see what you have learned so far by taking this short self -assessment.
1. Complete the sentence: ‘A picture is worth a

.......................’
2. What is the name was given to the chart that displays:

(a) The summarised data of a single categorical variable?
(b) The summarised data of two categorical variables simultaneously?
3. What is the name given to the table that summarises the data of
two categorical variables?
4. Explain at least three differences between a bar chart and a
histogram.
5. What is the name of the chart that is used to display time series
data?
6. – annual car sales
The following table shows the number of passenger cars sold by each
manufacturer last year.
Manufacturer Annual Sales

a) Construct a bar
Toyota 96 959 chart to show the
number of passenger
Nissan 63172 cars sold by each
manufacturer.
Volkswagen 88 028 b) Construct a
percentage pie chart
Delta 62 796 to show the market
share of the
Ford 74 155
passenger can
market held by each
of the car manufacturers last year.
c) What percentage of the total passenger car market is held by the
top three car manufacturers?
38
5.3 Study Unit 3: Describing Data: Numeric Descriptive Statistics

The purpose of this unit is to explore descriptive statistics, this kind of
Purpose statistics help to identify the location, spread and shape of the data.

• Describe the various central and non-central location measures.
• Calculate and interpret each of these location measures.
• Describe the appropriate central location measure for different
data types.
• Describe the various measures of spread (or dispersion)
Learning
• Calculate and interpret each measure of dispersion
Outcomes
• Describe the concept of skewness
• Calculate and interpret the coefficient of skewness
• Calculate the five-number summary table and construct its box
plot
• Explain how outliers influence the choice of valid descriptive
statistical measures
Time
Important Central • A central location statistic represents a typical

terms and value or middle data point of a set of
Tendency observation and is useful for comparing data
definitions
is the average of a group of numbers and is
Mean • computed by summing all numbers and
dividing by the number of numbers
is the most frequently occurring value in a set

of data
Mode •
is the middle value in an ordered array of
numbers It is the difference between the
highest quartile (upper quartile) and the lowest
Median • quartile (lower quartile)
is a measure of average squared deviation
Interquartile •
range It is the square root of the variance
It is used to compare variability where data sets
Variance •
are given in different units
Standard •
deviation
Coefficient of •
variation
2.1.1. Introduction
Summary table and their graphical displays, described in study unit 2 are used to communicate
broad overviews of the profiles of random variables. Managers sometimes need numerical
measures (statistics) to convey more precise information about the behavior of random
39
variables. This precise communication of data is the purpose of descriptive statistical

measures
5.3.1 Central Location Measures
Descriptive Statistics – Location Measures
Definition of Measures of Central Tendency

One type of measure that is used to describe a set of data is the measure of central tendency.
Measures of central tendency yield information about the center, or middle part, of a group of
numbers, observations of a random variable tend to group about some central value. The
statistical measures, which quantify where the majority of observations are concentrated, are
referred to as measures of central location. A central location statistic represents a typical
value or middle data point of a set of observation and is useful for comparing data sets Wegner
(2016).
There are three main measures of central location:
1. Arithmetic mean
2. Mode
3. Mean
Measures of Central Tendency for Ungrouped

Data
1. Mean
The arithmetic mean is the average of a group of numbers and is computed by summing all
numbers and dividing by the number of numbers. Because the arithmetic mean is so widely
used, most statisticians refer to it simply as the mean. The population mean is represented by
the Greek letter mu (μ). The sample mean is represented by
Formula:
=∑ = 1+ 2+ 3 +⋯
Population mean
=∑ = 1+ 2+ 3………
+
Sample mean
2. The Mode
The mode is the most frequently occurring value in a set of data Organizing the data into an
ordered array (an ordering of the numbers from smallest to largest) helps to locate the mode
i.e. The value with the highest frequency. It is calculated by observation Wegner (2016).
3. The Median
The median is the middle value in an ordered array of numbers. For an array with an odd
number of terms, the median is the middle number. For an array with an even number of
terms, the median is the average of the two middle numbers Wegner (2016).
The following steps are used to determine the median.
STEP 1. Arrange the observations in an ordered data array.
40
STEP 2. For an odd number of terms, find the middle term of the ordered array. It is the median.
STEP 3. For an even number of terms, find the average of the middle two terms. This average
is the median.
Measures of Central Tendency for Grouped data
1. The Arithmetic Mean

For ungrouped data, the mean is computed by summing the data values and dividing by the
number of values. With grouped data, the specific values are unknown. What can be used to
represent the data values? The midpoint of each class interval is used to represent all the
values in a class interval. This midpoint is weighted by the frequency of values in that class
interval. The mean for grouped data is then computed by summing the products of the class
midpoint and the class frequency for each class and dividing that sum by the total number of
frequencies. The formula for the mean of grouped data follows.
−
(fx)
Mean = x= x = mid-point of each class interval, f = frequency of each data value, n
n
= total frequency.
2. The Mode
The mode for grouped data is the class midpoint of the modal class. The modal class is the
class interval with the greatest frequency. The formula for the mode of grouped data follows
Modal Formula:
m −fm )1 −
Modal Value = M o = Omo
+2fm − fm− 1 − fm+1
O
Where mo =lower limit of the modal class interval
f
c = thewidthof the modal class interval m =the frequency
f
of the modal class m1 + =thefrequencyof the class after the
f
modal class m1− =thefrequencyof the class preceding the
modal interval.
3. The Median
The median for ungrouped or raw data is the middle value of an ordered array of numbers.
For grouped data, solving for the median is considerably more complicated. The calculation
of the median for grouped data is done by using the following formula.
Median Formula:
41
n
c −f
2
Median = M e = O + fme me
Where, Ome =lower limit of the median interval
c = class width n= sample size
(total frequency) fme =the frequency

of the modal class
)= the cumulative frequency counts of all intervals before the median interval.
5.3.2 Non-central Location Measures

• Interquartile range
• Quartile deviation
5.3.2.1 Measures of Dispersion for Ungrouped data

Interquartile range
It is the difference between the highest quartile (upper quartile) and the lowest quartile (lower
quartile). i.e.IQR =Q3− Q1
Quartile deviation
It is a measure of the spread of the data values about the median.
Q−3Q1
i.e. QD=
2
5.3.3 Measures of Dispersion

These are statistical measures that quantify the spread of the data set about their central
location value. The main measures of dispersion include:
• Range
• Variance
• Standard deviation
• Coefficient of variation
• Coefficient of skewness
Range
42
For our student survey data, 1, 3, 2, 2, 5, 4, 3, 3, 4, 3, we could report a range of 5 − 1 = 4

Unfortunately, although the range is obviously a simple measure to compute and interpret, its
ability to effectively measure data dispersion is fairly limited. The problem is that only two
values in the data set the smallest and the largest are actively involved in the calculation. None
of the other values in between has any influence at all. Considering also the data set consisting
of the values 3, 7, 5, 2, 4, 5, 1000. The range would be 998, this would give a pretty misleading
sense of the dispersion involved here since all the values but one is clustered within 5 units of
each other.) The measures described next are intended to correct for this shortcomings Black
(2013).
5.3.3.1 Variance 5.3.3.2

A variance is a measure of average squared deviation. It is calculated using all the data values
in the dataset.
Population Variance
= ∑( − )2
Sample
2
−
f xi − x
Variance(s
n− 1
2
) =
5.3.3.3 Standard deviation

It is the square root of the variance.
Population standard
deviation
Sample Standard Deviation

(S) =
5.3.3.4 Coefficient of variation

It is used to compare variability where data sets are given in different units. The coefficient of
variation essentially is a relative comparison of a standard deviation to its mean. The
coefficient of variation can be useful in comparing standard deviations that have been
computed from data with different means.
Coefficient of Variation (C.V) = 100
43
5.3.4 Measure of Skewness

Measures of shapes can be tools used in describing the shape of a distribution of data. This
section, examines the skewness. Skewness is a measure of the shape of a uni-modal
distribution of numeric
data values. A distribution of data in which the right half is a mirror image of the left half is said
to be symmetrical. Skewness is when a distribution is asymmetrical or lacks symmetry Figure
3.1 Relationships of Mean, Median and Mode
It influences the analyst’s choice of central location and dispersion measure.
• Pearson’s coefficient of skewness

3
−
n xi −x
= 3
(n()1−n)2−s
Interpretation:
SK = 0: Complete symmetry
SK > 0: Positively skewed
SK < 0: Negatively skewed
An approximation test for skewness
= 3(Mean – Median)/standard deviation
5.3.5 The Box Plot
Box and whisker plot is another way to describe a distribution of data. Sometimes referred as
a box plot, is a depiction of the upper and lower quartiles together with the median and the two
extreme values to show a distribution graphically. The median is then enclosed by the box.
The box gets extended outward from the median along a band to the lower and upper quartiles,
encompassing not only the median but also the middle 50% of the data. From the lower and
upper quartiles, lines referred to as whiskers are stretched out from the box toward the
44
outermost data values. The box- and-whisker plot is determined from five specific numbers
sometimes referred to as the five-number summary Black (2013).
1. median (Q2)
2. lower quartile (Q1)
3. upper quartile (Q3)
4. smallest value in the distribution
5. largest value in the distribution.
5.3.6 Choosing Valid Descriptive Statistics Measures
Data type and the shape of a histogram (for numeric variables only determine the choice of a
statistical measure to describe the profile of any random variable. In the case of categorical
type data i.e. gender, job, marital status categorical frequency table (count and percentage,
the bar chart, pie chart and the modal category are the only valid statistical measures.
Dispersion and skewness measures do not exist and do not have any meaning Wegner (2016).
In numeric data type, the following are the appropriate descriptive statistics measures:
• A numeric frequency distribution (count and percentages) and cumulative frequency

distribution ogives.
• The histogram and frequency polygons
• All central location measures: mean, median and mode (including geometric mean and
weighted arithmetic mean)
• The non-central location measures of quartiles and percentiles
• All measures of dispersion: range, variance, standard deviation, coefficient of variation
• A measure of skewness (Pearson’s coefficient of skewness)
• A graph of descriptive statistics measures: the box plot.
Study the prescribed textbook T. Wegner Chapter 3, 4th edition, p 66 –
94 for more detailed information on describing data.
45
This unit covered most of the numeric descriptive statistical measures that can be used to
profile sample data. These measures expressed the location, spread, and shape of the
sample data in numeric terms. Each measure was defined and calculated and the conditions
under which each would be appropriate to use were identified. The influence of data type
and the presence of outliers are identified as the primary criteria determining the choice of
a suitable numeric descriptive measure to describe sample data.
Case study
Laundry Statistics
According to Procter & Gamble, 35 billion loads of laundry are run in
South Africa each year. Every second 1,100 loads are started. Statistics
show that one person in South Africa generates a quarter of a ton of
dirty clothing each year. South Africans appear to be spending more
time doing laundry than they did 40 years ago. Today, the average South
African woman spends seven to nine hours a week on laundry.
However, industry analysis shows that the result is dirtier laundry than
in other developed countries. Various companies market new and
improved versions of washers and detergents. Yet, South Africans seem
to be resistant to manufacturers' innovations in this area. In South Africa,
the average washing machine uses about 25 litres of water. In Europe,
the figure is about 20 litres. The average wash cycle of a South African
wash is about 35 minutes compared to 90 minutes in Europe. South
Africans prefer top-loading machines because they do not have to bend
over, and the top- loading machines are larger. Europeans use the
smaller front-loading machines because of smaller living spaces.
Think point
Most of the statistics presented here are drawn from studies or surveys.
Let’s say a study of laundry usage is done in 50 South Africa households
that have washers and dryers. Water measurements are taken for the
number of gallons of water used by each washing machine in completing
a cycle. The following data presented are the number of litres used by
each washing machine during the washing cycle. Summarize the data so
those study findings can be reported.
1. The average wash cycle for a South African wash is 35 minutes.

Suppose the standard deviation of a wash cycle for a South Africa
wash is 5 minutes.
Within what range of time do most South African wash cycles fall?
46
5.3.8 Revision
Self- check activity
1. Select the appropriate central location measure (mean,
median, mode) referred to in each of the following statements.
(a) A quarter of our lecturers have more than 10 years’ work
experience.
(b) The most wealth city in South Africa in Johannesburg. (c)
The average time taken by a runner to finish the 200m race is 17
seconds.
2. Identify for which of the following statements would the
arithmetic mean be inappropriate as a measure of central
location? (Give a reason.) State which measure of central
location would be more appropriate, if necessary? (a) The
ages of children at a playschool
(b) The number of cars using a parking garage daily
(c) The brand of cereal preferred by consumers
(d) The value of transactions in a clothing store
3. A candy shop owner documented the daily revenue of his
outlet for 300 trading days as shown in the frequency the
table.tr
Number of da
(a) Calculate
and interpret – < 750 15 the
(approximate) average daily
revenue of the – < 1 000 23
candy shop
(b) Find the median daily
revenue of the 000 – < 1 250 55
candy shop and
interpret its meaning.
250 – < 1 500 92
(c) What is the modal
daily revenue 500 – < 1 750 65 of the candy
shop?
5.4 Study Unit 4: Basic Probability – < 2 000
750Concepts 50
The purpose of this unit is to provide a brief overview of the basic

Purpose concepts of probability to help a manager understand and use
probabilities in decision making.
47

• Understand the importance of probability in statistical analysis.
• Define the different types of probability.
• Describe the properties and concepts of probabilities.
Learning
Outcomes • Apply the rules of probability to empirical data.
• Construct and interpret probabilities from joint probability
tables.
• Understand the use of counting rules (permutations and
combinations).
Time
Important Subjective • The subjective method of assigning probability

terms and is based on the feelings or insights of the
Probability person determining the probability
definitions
It is founded on empirical observations or
Objective • theoretical properties of an object is the
Probability probability of only a single event A occurring
Marginal • is the probability of both event A and event B

occurring
Probability A conditional probability is the probability of
Joint • one event A occurring, given information about
the occurrence of a prior event is a graphical
Probability way to apply probability rules where there are
Conditional • multiple events that happen in sequence is the
Probability number of distinct ways of arranging a subset
of r objects selected from a group of n objects
Probability • where the order is important
is the number of diverse ways of bringing
Trees together a subset of r objects selected from a
Permutations • group of n objects where the order is not
important
Combinations •
2.1.1. Introduction
Most business decisions are made under ambiguous conditions. Probability theory provides
the underpinning for quantifying and assessing uncertainty. It is used to estimate the
dependability in making inferences from samples to populations, as well as to quantify the
uncertainty of future occurrences.
5.4.1 Types of Probability

Uncertainty surrounds most aspects of the business situations. Frequently business people
make decisions based on chance. Probability theory provides a logical way of quantifying and
evaluating uncertainty.
Probability is the chance or possibility of a particular outcome out of a number of conceivable
outcomes occurring for a given event.
48
There are two types of probability:

• Subjective Probability
• Objective Probability
Subjective Probability
The subjective method of assigning probability is based on the feelings or insights of the
person determining the probability. Subjective probability comes from the person's intuition
or intellectual. Although not a scientific approach to probability, the subjective method often
is based on the accrual of knowledge, understanding, and experience stored and processed
in the human mind. At times it is merely a supposition. At other times, the subjective
probability can potentially yield accurate probabilities. Subjective probability can be used to
exploit the background of experienced workers and managers in decision making. It is based
on an educated guess, expert belief or value judgment. This type of probability cannot be
confirmed statistically, hence it has limited use. E.g. the probability that it will rain in Capetown
tomorrow is 0.15 Wegner (2016).
Objective Probability
It is founded on empirical observations or theoretical properties of an object. e.g. the probability

of getting a Head after tossing a coin is 0.5. With this method, the probability of an event
occurring is equal to the number of times the event has occurred in the past divided by the
total number of opportunities for the event to have occurred.
Formula
)=
A = event of a specific type r =

number of outcomes of event A
n = total number of all possible outcomes (sample space)
P (A) = Probability of event A occurring
e.g. A container contains 3 red balls and 2 black balls. If a ball is picked at random from the
bag, what is the probability that it is: (i) red, (ii) black?
Solution:
(i) P(Red) = 3/5 (ii) P(Black) = 2/5
Structure of probability
In the study of probability, developing a language of terms and symbols is helpful. The structure
of probability provides a common framework within which the topics of probability can be
explored
Experiment
An experiment is a procedure that produces outcomes. Examples of business-oriented
experiments with outcomes that can be statistically analyzed might include the following.
• Interviewing 10 randomly selected consumers and asking them which brand of washing
powder do they prefer
49
• Sampling every 100th bottle of KOO beans from an assembly line and weighing the
contents
• Testing new antibiotic drugs on samples of HIV patients and measuring the patients'
improvement
• Auditing every 5th account to detect any errors
• Recording the S&P 500 index on the first Monday of every month for 5 years
• Event
Since an event is an outcome of an experiment, the experiment expresses the possibilities of
the event. If the experiment is to sample five bottles coming off a production line, an event
could be to get one defective and four good bottles. In an experiment to roll a die, one event
could be to roll an even number and another event could be to roll a number greater than two
5.4.2 Properties of a Probability
• A probability value lies between 0 and 1 0 )1

If A cannot occur its probability is 0 )=0
•
If event A is sure to take place its probability is 1
1= )
•
• The sum of exhaustive events is 1
• The probability of A complement is 1 – probability of A
5.4.3 Basic Probability Concepts
Concept 1: Intersection of two events A B

The intersection of events A and B is the set of outcomes that belong to both A and B
altogether. The key word is “AND” Wegner (2016).
Concept 2: Union of two events A B

The union of events A and B is the set of outcomes that belong to either event A or B or both.
The key word is “OR” Wegner (2016).
Concept 3: Mutually Exclusive Events

Events are mutually exclusive if they cannot happen together on a single trial of a random
experiment. Two or more events are mutually exclusive events if the happening of one event
precludes the occurrence of the other event(s). This characteristic means that mutually
exclusive events cannot occur at the same time and therefore can have no intersection
Wegner (2016).
50
NB* The probability of two mutually exclusive events taking place at the same time is
zero. Concept 4: Collectively Exhaustive Events
Events are collectively exhaustive when the union of all possible events is equal to the sample
space.
i.e. at least one of the events is certain to occur in a randomly drawn object from the sample
space Wegner (2016).
Concept 5: Statistically Independent Events
Two events A and B are statistically independent if the happening of event A has no effect on
the outcome of event B and vice-versa. Two or more events are independent events if the
occurrence or nonoccurrence of one of the events does not affect the occurrence or
nonoccurrence of the other event(s). Certain experiments, such as rolling dice, yield
independent events; each die is independent of the other. Whether a 6 is rolled on the first
die has no effect on whether a 6 is rolled on the second die. Coin tosses always are
independent of each other. The event of getting ahead on the first toss of a coin is
independent of getting ahead on the second toss. It is generally believed that certain human
characteristics are independent of other events Wegner (2016).
5.4.4 Calculating Objective Probabilities
Components of Objective Probabilities

Empirically derived objective probabilities can be classified into three categories:
• Marginal Probability
• Joint Probability
• Conditional Probability Marginal Probability

A marginal probability is the probability of only a single event A occurring. i.e. the outcome of
only one random variable Wegner (2016).
Joint Probability
A joint probability is the probability of both event A and event B occurring simultaneously on a
given trial of a random experiment Wegner (2016).
Conditional Probability
A conditional probability is the probability of one event A occurring, given information about
the occurrence of a prior event Wegner (2016).
51
Figure 4.1 Marginal, Union, Joint and Conditional Probabilities
Source: Black 2013

5.4.5 Probability Rules
There are basically two probability rules:
• Addition Rule
Multiplication Rule Addition
Rule
For non-mutually exclusive events
B )= )+ )− B)
For mutually exclusive events
B)= )+ )
Multiplication Rule
For statistically dependent events
B) = / B) )
For statistically independent events
B) = ) )
5.4.6 Probability Trees

A probability tree is a graphical way to apply probability rules where there are multiple events
that happen in sequence and these events can be represented by branches (similar to a tree).
See example on page 114 of the prescribed textbook.
5.4.7 Permutations and Combinations
Most probability questions involve counting large numbers of event outcomes and a total
number of outcomes (n). Counting rules assist in finding values of r and n.
52
Multiplication Rule of counting

Factorial Notation
It is used to find the total number of different ways in which n objects of a single event can be
arranged (ordered).
n! = n factorial = n(n-1)(n-2)(n-3) ….. 3.2.1
Permutations
A permutation is the number of distinct ways of arranging a subset of r objects selected
from a group of n objects where the order is important. Each possible arrangement
(ordering) is called a permutation Formula nPr = n!/(n-r)!
Counting Rules
A combination is the number of diverse ways of bringing together a subset of r objects
selected from a group of n objects where the order is not important. Each separate grouping
is called a combination. Formula nCr = n!/r!(n-r)!
Reading
For extensive coverage of this topic on basic probability, concept
read the prescribed textbook T. Wegner Chapter 4, 4thedition,
p106-123
5.4.8 Summary
This unit presented the concept of probability as a basis for inferential statistics. The term
probability, probability concepts and types of probability were expounded. The calculations of
objective probability were carried out. The probability rules and counting rules were explained
and applied to everyday real-life situations.
53
Case study THINKING CRITICALLY ABOUT STATISTICS IN BUSINESS

TODAY Probabilities in the Dry-Cleaning Business
According to the International Fabricare Institute, about two-thirds
of 67% of all dry-cleaning customers are female, and 65% are
married. Thirty-seven percent of dry-cleaning customers use a
cleaner that is within a mile of their home. Do dry-cleaning
customers care about coupons? Fifty-one percent of dry-cleaning
customers say that coupons or discounts are important, and in
fact, 57% would try another cleaner if a discount were offered.
Converting these percentages to proportions, each could be
considered to be a marginal probability. For example, if a
customer is randomly selected from the dry-cleaning industry,
there is a .37 probability that he/she uses a dry cleaner within a
mile of his/her home, P(≤ 1 mile) = .37.Suppose further analysis
shows that 55% of dry-cleaning customers are female and
married.
Converting this figure to probability results in the joint probability:
P (F
∩ M) = .55. Subtracting this value from the .67 who are female,
we can determine that 11% of dry-cleaning customers are female
and not married: P (F ∩ not M) = .11. Suppose 90% of those who
say that coupons or discounts are important would try another
cleaner if a discount were offered. This can be restated as a
conditional probability: P (try another | coupon important) =
.90.Each of the four types of probabilities discussed in this
chapter can be applied to the data on consumers in the dry-
cleaning industry. Further breakdowns of these statistics using
probabilities can offer insights into how to better serve dry-
cleaning customers and how to better market dry-cleaning
services and products.
Think point
What could be the reason that two-thirds of all dry-cleaning
customers are female? What are some of the factors to consider?
What could dry cleaners do to increase the number of male
customers? Sixty-five percent of customers at dry-cleaning
establishments are married. Can you consider reasons why a
smaller percentage of dry-cleaning customers are single? What
could dry cleaners do to grow the number of single customers?
54
5.4.9 Revision
Self-check activity
1. If an event has a probability equal to 0.2, what does this
mean?
2. What term is used to describe two events that cannot
occur simultaneously in a single trial of a random experiment?
3. What is meant when two terms are said to be ‘statistically
independent’?
4. If P (A) = 0.26, P (B) = 0.35 and P(A and B) = 0.14, what
is the value of P(A or B)?
5. If P(X) = 0.54, P(Y) = 0.36 and P(X and Y) = 0.27, what
is the value of P(X/Y)? Is it the same as P(Y/X)?
6. Economic sectors
In a survey of companies, it was found that 45 were in the
mining sector, 72 were in the financial sector, 32 were in the IT
sector and 101 were in the production sector.
(a) Show the data as a percentage frequency table.
(b) What is the probability that a randomly selected company
is in the financial sector?
(c) If a company is selected at random, what is the probability
that this company is not in the production sector?
(d) What is the likelihood that a randomly selected company
is either a mining company or an IT company?
(e) Name the probability types or rules used in questions b,
c and d.
5.5 Study Unit 5: Probability Distributions
Purpose The purpose of this unit is to introduce a few important probability
distributions that occur most often in management situations and also
describe patterns of outcomes for both discrete as well as continuous
events.
Learning By the end of this unit, you will be able to:
Outcomes • Understand the concept of a probability distribution.
• Describe three common probability distributions used in
management practice.
• Identify applications of each probability distribution in
management
• Calculate and interpret probabilities associated with each of
these distributions.
Time It will take you 12 hours to make your way through this unit.
55
Important Binomial • indicates any single trial of a binomial

terms and experiment consists of only two possible
Probability
definitions outcomes. These two outcomes are
categorized as success or failure. Usually, the
outcome of interest to the analyst is labeled a
success
Poisson • Defines the occurrence of infrequent events. In

fact, the Poisson formula has been signified to
Probability as the law of improbable events.
These are used to model random variables that

Continuous • take both fractional and whole numbers
Probability
It fits many human characteristics, such as
height, weight, length, speed, IQ, scholastic
Normal • achievement, and years of life expectancy,
Probability and many others
Standard is described or illustrated by two parameters, the

Normal (z) • mean, μ, and the standard deviation, σ
Probability
Distribution
56
Case study Life with a Cell Phone

As early as 1947, scientists understood the basic concept of a cell
phone as a type of two-way radio. Seeing the potential of crude
mobile car phones, analysts understood that by using a small
range of service areas (cells) with frequency reuse, they could
increase the capacity for mobile phone usage significantly even
though the technology was not then available. During that same
year, AT&T proposed the allocation of a large number of radio-
spectrum frequencies by the FCC that would thereby make
widespread mobile phone service feasible. At the same time, the
FCC decided to limit the amount of frequency capacity available
such that only 23 phone conversations could take place
simultaneously. In 1968, the FCC reconsidered its position and
freed the airwaves for more phones. About this time, AT&T and
Bell Labs proposed to the FCC a system in which they would
construct a series of many small, low-powered broadcast towers,
each of which would broadcast to a “cell” covering a few miles.
Taken as a whole, such
“cells” could be used to pass phone calls from cell to cell, thereby
reaching a large area.
The first company actually to produce the cell phone was
Motorola, and Dr. Martin Cooper, then of Motorola and considered
the inventor of the first modern portable handset, made his first
call on the portable cell phone in 1973. By 1977, AT&T and Bell
Labs had developed a prototype cellular phone system that was
tested in Chicago by 2,000 trial customers. After the first
commercial cell phone system began operation in Japan in 1979,
and Motorola and American Radio developed a second U.S. cell
system in 1981, the FCC authorized commercial cellular service
in the United States in 1982. By 1987, cell phone subscribers had
exceeded 1 million customers in the United States, and as
frequencies were getting crowded, the FCC authorized alternative
cellular technologies, opening up new opportunities for
development. Since that time, analysts have developed a number
of advances that have increased capacity exponentially.
Today in the United States, nearly 34% of cell phone owners use
only cellular phones, and the trend is rising. According to a Harris
Poll of 9132 surveyed adults, 89% of adults have a cell phone. In
an Associated Press/America Online Pew Poll of 1,200 cell phone
users, it was discovered that two-thirds of all cell phone users said
that it would be hard to give up their cell phones, and 26%
responded that they cannot imagine life without their cell phones.
In spite of American's growing dependence on their cell phones,
not everyone is happy about their usage. Almost 9 out of 10 cell
users encounter others using their phones in an annoying way. In
addition, 28% claim that sometimes they do not drive as safely as
they should because they are using cell phones. Now, there are
multiple uses for the cell phone, including picture taking, text
messaging, game playing, and others. According to the study,
57
two-thirds of cell phone owners in the 18 to 29 age bracket sent text messages using
their cell phones, 55% take pictures with their
phones, 47% play games on the phones, and 28% use the Internet through their cell
phones.
Think point
The study reports that nearly 34% of cell phone owners in the US
use only cellular. What if you randomly choose 20 Americans,
what is the probability that more than 10 of the sample use only
cell phones? The research also reports that 9 out of 10 cell users
come across others using their phones in an annoying way.
Based on this, if you were to randomly choose 25 cell phone
users, what is the probability that fewer than 20 report that they
encounter others using their phones in an annoying way? The
source, Dead Zones states that the average person makes or
receives eight mobile phone calls per day. This averages to about
two mobile phone calls per every six hours. If this may be true,
what is the probability that a mobile phone user receives no calls
in a six-hour period? What is the probability that a cell phone user
receives five or more calls in a six-hour period?
5.5.1 Introduction
This unit makes known to us the probability distributions. Probabilities can also be
derived using mathematical functions known as probability distributions. Probability
distributions quantify the uncertain conduct of many random variables in business
practice. Probability distributions can define patterns of outcomes for both discrete as
well as continuous events.
5.5.2 Types of Probability Distribution

A probability distribution is a list of all the conceivable outcomes of a random variable and their
associated probabilities of occurrence. Probability distributions can be classified into two
groups:
• Discrete Probability Distributions

• Continuous Probability Distributions
5.5.3 Discrete Probability Distributions

These are used to model random variables that take whole number values only. i.e. specific
values.
58
e.g. 0, 1, 2, 3, 4, etc. A random variable is a discrete random variable if the set of all possible
values is
at most a finite or a countably infinite number of possible values. In most statistical situations,
discrete random variables produce values that are nonnegative whole numbers.
The two common discrete probability distributions are:
• The Binomial Probability Distribution
• The Poisson Probability Distribution
Binomial Probability Distribution

The word binomial indicates any single trial of a binomial experiment consists of only two
possible outcomes. These two outcomes are categorized as success or failure. Usually, the
outcome of interest to the analyst is labeled a success.
Example
1. If a quality analyst is looking for defective products, he would contemplate finding a
defective product a success even though the company would not consider a defective
product a success.
2. If analysts are studying HIV patients, the outcome of getting an HIV person in a trial of
an experiment is a success.
The other possible outcome of a trial in a binomial experiment is called a failure. The word
failure is used only in opposition to success.
Characteristics:
• There are only two, mutually exclusive and collectively exhaustive outcomes of the
random variable, success & failure.
• Each outcome has an associated probability:
• Probability of success = p and probability of failure = q o p + q = 1 (always)
• The random variable is observed n times/trials. Each trial generates either a success
or failure.
• Then trials are independent of each other. i.e. p & q are constant.
The Binomial question: What is the probability that r successes will occur in n trials of the
process under study?
The Binomial formula: P = n

n− r
for r = 0, 1, 2, 3, 4, 5… n
Where n = sample size

r = the number of successes in the n independent
trials p = probability of a success outcome q =
probability of a failure outcome
Descriptive Statistical Measures of the Binomial Distribution
A measure of central location and a measure of dispersion can be calculated for any random
variable that follows a binomial distribution using the following formulae:
59
Mean =
Study group discussion

One study by CNNMoney reported that 60% of workers
have less than $25,000 in total savings and
investments (excluding the value of their home). If this
is true and if a random sample of 20 workers is
selected, what is the probability that fewer than 10 have
less than $25,000 in total savings and investments?
Poisson Probability Distribution

The Poisson distribution defines the occurrence of infrequent events. In fact, the Poisson
formula has been signified to as the law of improbable events.
Example
1. Serious accidents at a chemical plant are rare, and the number per month might be
described by the Poisson distribution.
2. The number of random customer arrivals per five-minute interval at a small boutique on
weekday mornings.
The Poisson distribution is every so often used to explain the number of random arrivals per
some time interval. If the number of arrivals per interval is too recurrent, the time interval can
be reduced enough so that a rare number of occurrences is expected. In the field of
management science, models used in queuing theory are usually based on the assumption
that the Poisson distribution is the proper distribution to describe random arrival rates over a
period of time. In statistical quality control, the Poisson distribution is the basis for the c control
chart used to track the number of non-conformances per item or unit.
Characteristics:
• Measures the number of occurrences of a particular event of a discrete random
variable.
• There is a pre-determined time, space or volume interval.
• The average number of occurrences of the event is known or can be determined.
The Poisson question: What is the probability of x occurrences of a given event being observed
in a predetermined time, space or volume interval?
The Poisson formula:
e−aa x
P = for x = 0, 1, 2, 3, …
x!
Where:
a= the mean number of occurrences of a given event of the random variable for a
predetermined time, space or volume interval.
60
e = a mathematical constant x = number of occurrences for

which the probability is required.
Descriptive Statistical Measures of the Poisson distribution
A measure of central location and a measure of dispersion can be calculated for any random
variable that follows a Poisson process using the following formulae:
Mean: =a
Standard deviation: = √a
Study group discussion

Suppose that during the noon hour in the holiday season, a UPS
store averages 2.3 customers every minute and that arrivals at
such a store are Poisson distributed. During such a season and
time, what is the probability that more than four customers will
arrive in a given minute?
5.5.4 Continuous Probability Distribution

These are used to model random variables that take both fractional and whole numbers. i.e.
intervals of x-values. Continuous random variables take on values at every point over a given
interval. Thus continuous random variables have no gaps or unassumed values. It could be
said that continuous random variables are generated from experiments in which things are
“measured” not “counted.”
Example,
If a worker is assembling a product component, the time it takes to accomplish that feat could
be any value within a reasonable range such as 3 minutes 36.4218 seconds or 5 minutes
17.5169 seconds.
A list of measures for which continuous random variables might be generated would include
time, height, weight, and volume.
The following are examples of experiments that could produce continuous random variables:
1. Sampling the volume of liquid nitrogen in a storage tank
2. Determining the time between customer arrivals at a retail outlet
3. Determining the lengths of newly designed automobiles
4. Determining the weight of grain in a grain elevator at different points of time NB* The main
continuous probability random variable is the normal distribution.
5.5.5 Normal Probability Distribution

Probably the most extensively known and used of all distributions is the normal distribution.
It fits many human characteristics, such as height, weight, length, speed, IQ, scholastic
achievement, and years of life expectancy, and many others. Like their human counterparts,
living things in nature, such as trees, animals, insects, and others, have many characteristics
61
that are normally distributed. Many variables in business and industry also are normally
distributed.
Examples
1. The annual cost of household insurance.
2. The cost per square foot of renting warehouse space.
3. Managers' satisfaction with support from ownership on a five-point scale.
In addition, most items produced or filled by machines are normally distributed.
Characteristics:
• It is a smooth bell-shaped curve
• It is symmetrical about the central mean value.
• The tails of the curve are asymptotic.
• The distribution is always described by two parameters, mean & standard deviation
• The total area under the curve will always equal one.
• The probability associated with a particular range of x-values is described by the area
under the curve between the limits of the given x range. ( x1 x x2 )
Finding Probabilities using the normal distribution
Special statistical tables are used to obtain probabilities for a range of values of x.
5.5.6 Standard Normal (z) Probability Distribution

The normal distribution is described or illustrated by two parameters, the mean, μ, and the
standard deviation, σ. That is, every unique set of the values of μ and σ explains a different
normal distribution. Note that every change in a parameter (μ or σ) determines a different
normal distribution. This characteristic of the normal curve (a family of curves) could make
analysis by the normal distribution tedious because volumes of normal curve tables—one for
each different combination of μ and σ— would be required. Fortunately, a method was
established by which all normal distributions can be transformed into a single distribution: the
z distribution. This process produces the standardized normal distribution (or curve). The
changeover formula for any x value of a given normal distribution is as follows.
−
=
, ≠0
A z score is the number of standard deviations that a value, x, is above or below the mean. If
the value of x is less than the mean, the z score is negative; if the value of x is more than the
mean, the z score is positive; and if the value of x equals the mean, the associated z score is
zero. This formula allows transformation of the distance of any x value from its mean into
standard deviation units. A standard z score table can be used to find probabilities for any
normal curve problem that has been converted to z scores. The z distribution is a normal
distribution with a mean of 0 and a standard deviation of 1. Any value of x at the mean of a
normal curve is zero standard deviations from the mean. Any value of x that is one standard
deviation above the mean has a z value of 1.
62
Reading
For an in-depth understanding of probability distribution study the
prescribed textbook T. Wegner Chapter 5, 4th edition p132 - 153
5.5.7 Summary
In this unit, we have explained the three theoretical probability distributions. The binomial and
the Poisson probability distributions are used to find probabilities for discrete numeric random
variables. The normal probability distribution calculates probabilities for continuous numeric
random variables.
The characteristics of each probability distribution were described.
Case study The Cost of Human Resources
What is the human resource cost of hiring and maintaining
employees in a company? Studies conducted by Damelin
Institute, PricewaterhouseCoopers Human Resource Services,
determined that the average cost of hiring an employee is R3,
270, and the average annual human resource expenditure per
employee is R1, 554. The average health benefit payment per
employee is R6, 393, and the average employer cost per
participant is R2, 258. According to a survey conducted by the
South African Society for Training and Development, companies
annually spend an average of R955 per employee on training,
and, on average, an employee receives 32 hours of training
annually. Business researchers have attempted to measure the
cost of employee absenteeism to an organization. A survey
conducted by TTC, Inc., showed that the average annual cost of
unscheduled absenteeism per employee is R660. According to
this survey, 35% of all unscheduled absenteeism is caused by
personal illness.
Think point
The survey conducted by the South African Society for Training
and Development reported that, on average, an employee
receives 32 hours of training per year. Suppose that number of
hours of training is uniformly distributed across all employees
varying from 0 hours to 64 hours. What percentage of employees
receive between 20 and 40 hours of training? What percentage
of employees receive 50 hours or more of training? Studies
conducted by Damelin Institute, PricewaterhouseCoopers
Human Resource Services estimated that, on average, it costs
R3, 270 to hire an employee. Suppose such costs are normally
distributed with a standard deviation of R400. Based on these
figures, what is the probability that a randomly selected hire costs
more than R4, 000? What percentage of employees is hired for
less than $3,000?
63
5.5.8 Revision
Self-check activity
1. Name two regularly used discrete probability
distributions.
2. Specify whether each of the subsequent random
variables is discrete or continuous:
(a) The mass of cans coming off a production line
(b) The number of employees in a company
(c) The number of households in Gauteng that have solar
heating panels
(d) The distance traveled daily by a courier service truck.
3. Use the binomial formula to find each of the following

probabilities: (i) n = 7, p = 0.2 and x = 3
(ii) n = 10, p = 0.2 and x = 4
(iii) n = 12, p = 0.3 and x ≤ 4
(iv) n = 10, p = 0.05 and x = 2 or 3
(v) n = 8, p = 0.25 and x ≥ 3
4. Once a week a merchandiser restock of a particular product
brand in six stores for which she is responsible. Experience has
shown that there is a one-in five chance that a given store will
run out of stock before the merchandiser’s weekly visit.
(a) Which probability distribution is appropriate in this
problem?
Why?
(b) What is the probability that, on a given weekly round, the
merchandiser will find exactly one store out of stock?
(c) What is the probability that, at most, two stores will be out
of stock?
(d) What is the probability that no stores will be out of stock?
(e) What is the mean number of stores out of stock each
week?
Note: Calculate the probabilities in (b)–(d) using the binomial
formula and then the Excel function BINOMDIST.
5.6 Study Unit 6: Sampling and Sampling Distributions
Purpose The purpose of this unit is to review the different methods of sampling
and the concept of sampling distribution. It also explains the
importance of sampling as it has a direct impact on the validity of
inferential findings.
64

Outcomes
• Describe the purpose of inferential statistics.
• Distinguish between a sample and a population.
• Explain the reasons for sampling.
• Explain the different types of sampling methods.
• Explain when it is appropriate to use each sampling method.
• Understand the concept of the sampling distribution.
• Explain the role of the sampling distribution in inferential
statistics.
Time It will take you 6 hours to make your way through this unit.
Important Consists of all the objects which possess data

Population: • values on the random variables which would be
terms and
definitions under study.
it is the gathering of data from random variables

Census • of every member of the target population. e.g.
Population census of South Africa (every
individual in the country is counted)
it is a subset of all the members of the target

population under study. It is used to gather
Sample • data for large or geographically dispersed
populations. e.g. all students in 1st year at
Damelin Randburg Campus
the process of identifying population elements

to form a representative sample of the
Sampling • population.
65
Case study
What Is the Attitude of Maquiladora Workers?
In 1965 Mexico initiated its widely known maquiladora program
that permits corporations from the United States and other
countries to build manufacturing facilities inside the Mexican
border, where the company can import supplies and materials
from outside of Mexico free of duty, assemble or produce
products, and then export the finished items back to the country
of origin. Mexico's establishment of the maquiladora program was
to promote foreign investment and jobs in the poverty-stricken
country and, at the same time, provide a cheaper labor pool to
the participating companies, thereby reducing labor costs so that
companies could more effectively compete on the world market.
After 2006, the Mexican government renamed the Maquila
program the INMEX program.
The maquiladora effort has been quite successful, with more than
3,500 registered companies participating and more than 1.1
million maquiladora workers employed in the program. It has
been estimated that $50 billion has been spent by maquiladora
companies with suppliers. Recently, industry exports were
approaching $65 billion. About 1,600 of the maquiladora plants
are located in the U.S.-Mexico border area, where about 40%
manufacture electronic equipment, materials, and supplies. In
recent years, the maquiladora program has spread to the interior
of Mexico, where maquiladora employment growth has been
nearly 30%. Maquiladora companies also manufacture and
assemble products from the petroleum, metal, transportation, and
medical industries, among others. Whereas most maquiladora
companies in the early year's utilized low-skilled assembly
operations, in more recent years, maquiladoras have been
moving toward sophisticated manufacturing centers. The
maquiladora program now encompasses companies from all over
the world, including Japan, Korea, China, Canada, and European
countries.
What are the Mexican maquiladora workers like? What are their
attitudes toward their jobs and their companies? Are there cultural
gaps between the company and the worker that must be bridged
in order to utilize the human resources more effectively? What
culture- based attitudes and expectations do the maquiladora
laborers bring to the work situation? How does a business
researcher go about surveying workers? Source:
Black (2013)
Think point
If in a study analysts decide to survey maquiladora workers so
as to ascertain the workers' attitudes toward and
expectations of the work environment and the
company. Should the analysts take a census of all
maquiladora workers or just a sample? What could be the
reasons for each?
66
5.6.1 Introduction
This unit focuses on the different sampling methods and concepts of the sampling distribution.
Both methods and the concepts are essential in inferential statistics. Sampling affects the
validity of inferential findings in a great way, while sampling distribution determines the
confidence a manager could have any inferences made.
5.6.2 Sampling and Sampling Methods

Sampling is primarily used in business as means of collecting essential information about the
population under investigation. Data is collected from samples and findings are made about
the population as a part of the process of inferential statistics. When making decisions on
maquiladora workers, a random sample of workers may be taken from a wide selection of
companies in various industries in the key border cities. A cautiously and well thought of
questionnaire formed could be administered to the selected workers to assess work attitudes,
cultural differences and expectation among workers and companies. Analysts could
systematize and analyze the data taken from the responses. Observations and summaries
observations could be drawn about worker culture and outlook in the maquiladora program.
Decision makers could then from the results of the study find ways to improving worker
performance and motivation. Most often, samples allow reasonable means to collect such
important information for decision making that might be otherwise difficult to attain and
expensive
Why we do Sampling?
There are several advantages to taking a sample instead of conducting census advantages.
1. Sample saves money.
2. Sample saves time.
3. The sample can broaden the scope of the study for given resources.
4., the sample can save the product in the case where the research process is destructive.
5. The sample is the only option when if accessing the population is impossible,
For a given number of questions from a survey or a given set of measurements obtained in a
study, taking a sample versus a census can result in a savings of both money and time.
Sampling can produce results quicker considering an example, that when an 8-minute
telephone interview is conducted as part of a survey. Conducting such interviews with a sample
of 100 customers is very less expensive and time-consuming than taking a census of 100,000
customers. If obtaining the outcomes of a study is a matter of urgency. Sampling has an
advantage over a census in terms of turnaround time. If resources allocated to a research are
fixed, more detailed information can be collected by taking a sample than by conducting a
census.
Why Taking a Census?

In some instances, it is preferable conducting a census of the whole population than taking a
sample. There are at least 2 reasons why a business researcher may choose to take a census
over taking a sample, provided there is there are time and money available to carry out such
a census:
67
1. to eliminate the possibility that by chance a randomly selected sample may not be
representative of the population
2. for the safety of the consumer.
A sample should be a representation of all the members of the target population for the results
to be valid
5.6.3 Probability Sampling Methods

These involve the selection of members by chance from the target population. Four different
types of probability sampling methods are discussed below:
Simple Random Sampling

Every member within the population has an equal chance of being chosen into the sample.
Simple random sampling can be thought of as the basis for other random sampling methods.
When carrying out a simple random sampling, each unit of the frame will be numbered from
1 to N (where N is the size of the entire population). A table of random numbers or random
numbers will be generated and then used to select n items into the sample. A random number
generator could be a computer program that allows computer-calculated output to give out
random numbers.
Systematic Random Sampling

In systematic sampling, every k thmember is selected to produce a sample of size n from a
population of size N. The value of k, sometimes called the sampling cycle. As an example of
systematic sampling, analysts wanted to sample the manufacturers in Johannesburg. He had
enough financial support to sample 1,000 companies (n). The Directory of Johannesburg
manufacturers listed about 17,000 total manufacturers in Johannesburg (N) in alphabetical
order. The value of k was 17(17,000/1,000) and the analyst selected every 17th company in
the directory for his sample.
Stratified Random Sampling
In this method, the population is divided into nonoverlapping subpopulations namely strata.
The analyst then takes a random sample from each of the strata. The main purpose for using
stratified random sampling hinges on that it has the potential for reducing sampling error.
Sampling error occurs when, by chance, the sample does not represent the population. The
potential to match the sample closer to the population is greater with stratified random
sampling than it is with simple random sampling because portions of the total sample are
taken from different population subgroups. However, it is generally much costly than simple
random sampling because each unit of the population must be assigned to a stratum before
the random selection process begins.
Cluster Random Sampling

Can be used in situations where the target population is naturally divided into clusters, where
every cluster formed will be similar in profile.
Stage 1
A subset of clusters is then randomly selected for sampling.
Stage 2
68
Simple random samples are taken from each selected cluster.
5.6.4 Non-Probability Sampling Methods

These are sampling techniques were sample members are NOT selected randomly. The
main criterion used is personal opinion or convenience to the researcher. Four types of
non-probability sampling methods are discussed below:
Convenience Sampling
With convenience sampling, members of the sample are chosen on the basis of convenience
of the analyst. The analyst typically selects elements that are readily available, nearby, or
willing to participate. Sample tends to be less variable than the population because in many
instances the extreme elements of the population may not be readily available. The analysts
would choose more members from the middle of the population. For instance, a convenience
sample of homes for door- to-door interviews might include houses where there are people
at home, or may house with no dogs, and near the street, or could be first-floor apartments
only, and maybe where there are friendly people only. While if its random sample it would
require the analyst to collect data only from houses and apartments that have been selected
randomly, regardless of how inconvenient or unfriendly the house or apartment may be. Black
(2013).
Judgment Sampling
With judgment sampling, it occurs when members chosen for the sample are selected by the
judgment of the analyst. In some cases, analyst often believe they can obtain a representative
sample by using sound judgment, which could probably result in saving time and money.
Sometimes ethical, a professional analyst might, believe they can choose a more
representative sample than the random process would provide. That could be right in some
cases but not always the case Black (2013).
Quota Sampling
With quota sampling.it involves the constructing of quotas of sampling units to interview from
certain subgroups of the population. When the quota for any of the subgroup is met, no more
sampling units would be selected from that subgroup for an interview. This potentially
introduces selection bias to the sampling process. For instance, an analyst may set a quota
to interview 40 males and 70 females from the 25- to 40-year age group on savings practices.
When the quota of interviews for anyone subgroup is reached (either males or females), no
more eligible sampling units from that same subgroup are chosen for interview purposes. The
main characteristic of quota sampling is the non- random selection of sampling units to fulfill
the quota limits Black (2013).
Snowball Sampling
It is a non-random sampling method in which survey elements are chosen based on the
referral from other survey respondents. The analyst would identify a person who fits the profile
of subjects wanted for the study underway. The analyst would ask this person for the names
and whereabouts of others who would also fit the profile of elements wanted for the study.
69
Via the referrals, survey elements can be identified efficiently and cheaply, which would
particularly be useful when survey elements are difficult to locate. This main advantage of
snowball sampling; its main disadvantage will be that it is non-random. Snowball sampling is
used in reaching target populations where the sampling units could be difficult to identify.
Each identified subject is asked to identify other sampling units who belong in the same target
population Black (2013).
5.6.5 The Concept of the Sampling Distribution

It shows the relationship between a sample statistic and the corresponding population
parameter, for example, sample mean versus population means. After sample statistics have
been calculated we will always ask how reliable or precise that parameter is. i.e. how close is
it to its population parameter? Sampling distribution describes how a sample statistic varies
about its true population parameter. The relationship through the level of confidence in
estimating the population parameter from a single sample statistic will be established Wegner
(2016).
5.6.6 The Sampling Distribution of the Sample Mean (x̅ )

For any random variable sample mean ̅ is related to the population mean .Sample mean
itself is a random variable since the value of each sample mean will vary from sample to
sample. The mean of
all the k sample means would be equal to the true population mean , This
would imply that the sample mean ̅ is an unbiased estimator of the population mean.
Standard deviation of the k sample means would be a measure of the standard error of the
sample means (sampling error) given by the formula
=
√
Histogram of these k sample means would be normally distributed, this distribution is called
sampling distributions of ̅
Sample mean ̅c an be transformed into a Z value by the formulae
− −
= =
√
5.6.7 Sampling Distribution of the Sample Proportion (ρ)
In some instance, a business analyst would select to use a sample proportion, denoted as as
such data measurable obtain analyst If mean. esampl the to contrast in data of analysis the in ,
income distance and weight the sample mean is often the statistic of choice. While the mean
is computed by averaging a set of values, the sample proportion is computed by dividing the
frequency with which a given characteristic occurs in a sample by the number of items in the
sample. For instance, in a sample of 100 factory workers, 30 workers might belong to Cosatu.
The value of this characteristic, Cosatu membership, is 30/100 = .30. In a sample of 500
businesses in Eastrand malls, if 10 are shoe stores, then the sample proportion of shoe stores
is 10/500 = 0.2. Standard deviation of the sample proportion is a measure of sampling error
called standard error of sample proportions and is calculated by the formula:
70
(1 − )
=√
Sampling distribution of can be transformed to z- distribution by the formula:

− −
= =
(1 − )
√
Reading
On an in-depth coverage of sampling and sampling distributions
study the prescribed textbook, T. Wegner Chapter 6,4th edition
p160 – 174
5.6.8 Summary
In this unit, we have discussed the building blocks of inferential statistics. Inferential statistics
is important because most statistical data is gathered from a sample instead of from the
population as a whole. The different types of sampling methods, such as non-probability and
probability sampling
methods were reviewed. The concept of sampling distribution was briefly discussed.
5.6.9 Revision
Self-check activity
1. Explain the difference between the following terms:
(i) A population and a sample
(ii) A survey and a census
(iii) Probability sampling methods and non-probability
sampling
methods
(iv) Convenience sampling and snowball sampling
(v) List two advantages and two disadvantages of probability
sampling methods
2. What is the purpose of inferential statistics?
3. Describe advantages of stratified sampling
4. Discuss two disadvantages of non-probability sampling
5. Explain the term ‘sampling error’
71
5.7 Study Unit 7: Confidence Interval Estimation

Purpose The purpose of this unit is to is to explain the process of confidence
interval estimation.

Outcomes
• Understand and explain the concept of a confidence interval
• Calculate a confidence interval for a population mean and a
population proportion
• Interpret a confidence interval in a management context
• Identify factors that affect the precision and reliability of
confidence intervals
• Determine sample sizes for desired levels of statistical precision.
Time It will take you 12 rs to make your way through this unit.
hou
Important Point • is a statistic drawn from a sample used to

terms and Estimation estimate a population measure
definitions
Confidence
Interval • is a range of values constructed around the
value of sample statistic within which
population parameter would be expected to lie
with a certain level of confidence
5.7.1 Introduction
Inferential statistics’ role is to use sample evidence to ascertain population parameters. An
important and. reliable procedure to estimate a population measure will be to use the sample
statistic as a reference point and to create intervals of values around it. This would likely cover
the true population parameter with a stated level of confidence and the procedure would be
called confidence interval estimation.
5.7.2 Point Estimation

A point estimate is a statistic drawn from a sample used to estimate a population measure. A
point estimate is as good as the representation of its sample. If some other random samples
are drawn from the population, the point estimates derived from those samples would vary.
Due to this variation in sample statistic, estimating parameters of the population with interval
estimate will be most preferable than using a point estimate. The point estimate is defined as
the value to a single sample statistic, used in representing the true, but unknown value of a
population parameter. For instance, sample mean is utilized to estimate the population mean
measure and sample proportion statistics is used to estimate population proportion measure.
Wegner (2016)
72
5.7.3 Confidence Interval Estimation

Interval estimate (confidence interval) would be a range of values constructed around the
value of sample statistic within which population parameter would be expected to lie with a
certain level of confidence. A confidence would be bounded (upper and lower) of values within
which the analyst may declare, with some confidence, were the population parameter is
thought to be lying. Interval estimates may be two-sided or one-sided. Due to the central limit
theorem, the below z formula for sample means statistic can be used when the population
standard deviation. The parameter is known regardless of the shape of the population when
the sample size is large, or even for small sample sizes if population standard deviation is
known then would imply the population is normally distributed.
Rearranging this formula algebraically to solve for μ gives
Because a sample mean can be greater than or less than the population mean, z can be
positive or negative. Thus the preceding expression takes the following form:
When this expression is rewritten it would yield the confidence interval formula for estimating
μ with large sample sizes when the population standard deviation is known.
100(1-α) % confidence interval to estimate µ, when σ is known:
± α/2
√
Alpha (α) would be the area under the normal curve in the tails of the distribution outside the
area defined by the confidence interval. Here we use α to locate the z value in constructing the
confidence interval. For instance, if we would want to build a 95% confidence interval, the level
of confidence is 95%, or .95. If 100 such intervals are constructed by taking random samples
from the population, it is likely that 95 of the intervals would include the population mean and
5 would not. As the level of confidence is increased, the interval gets wider, provided the
sample size and standard deviation remain constant.
For 95% confidence, α = .0.5 and α/2 = .0.25. The value of zα/2 or z.025 is found by looking
in the standard normal table under .0.5000 = .4750. This area in the table is associated with a
z value of 1.96. Another way can be used to locate the table z value. Because the distribution
is symmetric and the intervals are equal on each side of the population mean, ½(95%), or
.4750, of the area is on each side of the mean. It would yield a z value of 1.96 for this portion
of the normal curve. Thus the z value for a 95% confidence interval is always 1.96. In other
words, of all the possible values along the horizontal axis of the diagram, 95% of them should
be within a z score of 1.96 from the population mean. Figure 7.1 Z scores for confidence
Intervals in Relation to α
73
Source: Black 2013

Figure 7.2 Distribution of Sample Means for 95% Confidence
Source: Black 2013

Figure 7.3 General Structure of a Confidence Interval
Study group
A survey was taken of South African. Companies that do business
with firms in Nigeria. One of the questions on the survey was:
Approximately how many years has your company been trading
with firms in Nigeria? A random sample of 44 responses to this
question yielded a mean of 10.455 years. Suppose the population
standard deviation for this question is 7.7 years. Using this
information, construct a 90% confidence interval for the mean
number of years that a company has been trading in Nigeria for
the population of South Africa. Companies trading with firms in
Nigeria.
74
5.7.4 Confidence Interval for a single population mean: sample standard

deviation is known, n – large (n>30)
Confidence Interval = ̅ ± α/2 √
Where ̅ = Sample mean

z= value from the standard normal
tables deviation standard population
= n = sample size
5.7.5 The Precision of a Confidence Interval

The width of a confidence interval is a measure of its precision, If the confidence interval is
narrower the more precise is the interval estimate, and vice versa.
The width of the confidence interval is influenced by:
• the specified confidence level
• the sample size
• the population standard deviation
Most commonly used confidence intervals are shown in the table below
Confidence Level Z~ Limits
90% ±1.6456
95% ±1.96
99% ±2.58
5.7.6 The Student t-distribution

In the formulas and problems deliberated so far in this unit, sample size was assumed large
(n ≥ 30). In the business world, however, sample sizes are may be small. While the central
limit theorem applies only when sample size is large, the distribution of sample means is
approximately normal even for small sizes if the population is normally distributed Thus, if it
is known that the population from which the sample is being drawn is normally distributed and
if σ is known, the z formulas presented in this previously can still be used to estimate a
population mean even if the sample size is small (n < 30).
Example
Suppose a South Africa. car rental firm wants to estimate the
average number of kms traveled per day by each of its cars
rented in Capetown. A random sample of 20 cars rented in
Capetown reveals that the sample mean travel distance per day
is 85.5 km, with a population standard deviation of 19.3 km.
Compute a 99% confidence interval to estimate μ.
75
Here, n = 20, ̅ = 85.5, and σ = 19.3. For a 99% level of confidence, a z value of 2.575 is
obtained. Assume that number of kms traveled per day is normally distributed in the population.
The confidence interval is
The point estimate indicates that the average number of kms traveled per day by a rental car
in Capetown is 85.5 with a margin of error of 11.1 kms. With 99% confidence, we estimate
that the population means is somewhere between 74.4 and 96.6 kms per day.
5.7.7 Confidence Interval for a Single Population Mean (µ) when the Population
Standard Deviation (σ) is unknown
On many occasions estimating the population mean is useful in business research.
76
Example
1. The manager of human resources in the corporation
may want to estimate the average number of days of work an
employee misses per year because of being sick. If the
corporation has thousands of employees, direct calculation of
a population means such as this may be practically impossible.
Instead, a random sample of employees can be taken, and the
sample means a number of sick days can be used to estimate
the population mean.
2. Suppose another company developed a new process
for elongating the shelf life of a loaf of bread. The company
wants to be able to date each loaf for freshness, but company
officials do not know exactly how long the bread will stay fresh.
By taking a random sample and determining the sample mean
shelf life, they can estimate the average shelf life for the
population of bread.
3. Supposing that a large cellular phone company in

wanting to meet the needs of cell phone users hires a business
research company to estimate the average number of texts
used per month by South Africans in the 18-to-24-years-of-age
category. The research company studies the phone records of
85 randomly sampled South Africans in the 18-to-24-years-of-
age category and computes a sample monthly mean of 1300
texts. This mean, which is a statistic, is used to estimate the
population mean, which is a parameter. If the cellular phone
company uses the sample mean of 1300 texts as an estimate
for the population mean, the same sample mean is used as a
point estimate.
The t distribution would be used instead of the z distribution for performing inferential
statistics on the population mean in cases where the population standard
deviation is unknown and the population is normally distributed. The formula for the t
statistic is:
This formula is essentially the same as the z formula, but the distribution table values are
different.
Confidence interval to estimate : Population Standard deviation unknown and the population
normally distributed,
± , −1
√
77
Example
In the aerospace industry, some companies allow their employees to accumulate extra
working hours beyond their 40-hour week. These extra hours sometimes are referred to as
green time or comp time. Many managers work longer than the eight-hour workday
preparing proposals, overseeing crucial tasks, and taking care of paperwork. Recognition of
such overtime is important. Most managers are usually not paid extra for this work, but a
record is kept of this time and occasionally the manager is allowed to use some of this comp
time as extra leave or vacation time. Suppose a researcher wants to estimate the average
amount of comp time accumulated per week for managers in the aerospace industry. He
randomly samples 18 managers and measures the amount of extra time they work during a
specific week and obtains the results shown (in hours).
Here constructs a 90% confidence interval to estimate the average amount of extra time
per week worked by a manager in the aerospace industry. He assumes that comp time is
normally distributed in the population.
The sample size is 18, so df = 17. A 90% level of confidence results in α/2 = .05 area in each
tail. The table t value is
t.05, 17 =1,740
The subscripts in the t value denote to other researchers the area in the right tail of the t
distribution (for confidence intervals α/2) and the number of degrees of freedom. The sample
mean is 13.56 hours, and the sample standard deviation is 7.80 hours. The confidence
interval is computed from this information as
The point estimate for this problem is 13.56 hours, with a margin of error of ±3.20 hours. The
researcher is 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. From these figures, aerospace
managers 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.
5.7.8 Confidence Interval for the Population Proportion (π)

Business decision makers and researchers often need to be able to estimate a population
proportion.
78
Example
What proportion of the market does our company control (market
share)? What proportion of our products is defective? What
proportion of customers will call customer service with
complaints? What proportion of our customers is in the 20-to-30
age group? What proportion of our workers speaks Xhosa as a
first language? Techniques similar to those previously discussed
can be used to estimate the population proportion.
The central limit theorem for sample proportions leads to the following formula
Standard error of sample proportion p is calculated using
ρ(1 − ρ)
≈√
n
Confidence Interval to estimate p:
.
- √
79
Case study THINKING CRITICALLY

ABOUT STATISTICS IN BUSINESS TODAY
Coffee Consumption in South Africa
What is the state of coffee consumption in South Africa
today? A survey conducted by the National Coffee
Association revealed that 80% of South Africans now drink
coffee at least occasionally, and over 50% drink coffee every
day. Out-of- home consumption is now 39%. Daily
consumption among 18-to-24-year-olds is 31% compared to
74% of the over-60-year-olds. The average consumption
per drinker rose to 3.3 cups per day. However, the 18-to-
24-year-olds who drink coffee average 4.6 cups per day,
whereas the over-60-year-olds average only 2.8 cups.
Coffee consumption also varies by geographic region.
Fifty- three percent of Capetonians surveyed had drunk
coffee the previous day compared to 47% of Durbanites.
Only 16% of Capetonians drink their coffee black compared
to 33% of Durbanites and 42% of people in the North
Central region. How does South African? consumption of
coffee compared to other countries? The South
African. per capita consumption of coffee is 4 kilograms,
compared to 5.56 kilograms in Europe in general and 11
kilograms in Finland. Most likely what is presented here as
coffee population statistics are actually pointing
estimates. Using the sample size (3,300) and a level of
confidence, confidence intervals can be constructed for the
proportions.
Confidence intervals for means can be constructed from
these point estimates if the value of the standard deviation
can be determined. Source: Black (2013)
Think point
What may be some of the reasons a lower percentage of
young adults drink coffee than do older adults? Of the young
adults who do drink coffee, consumption is higher than for
other groups. Why might this be? The percentages of consumers who drink coffee
black vary by region in South Africa. How might that affect the marketing of various
coffee cream products?
80
Example
A study of 87 randomly selected companies with a telemarketing
operation revealed that 39% of the sampled companies used
telemarketing to assist them in order processing. Using this
information, how could An analyst estimate the population
proportion of telemarketing companies that use their
telemarketing operation to assist them in order processing?
For n = 87 and p = .39, a 95% confidence interval can be
computed to determine the interval estimation of p. The z value
for 95% confidence is 1.96.
The confidence interval estimate is computed as follows
This interval suggests that the population proportion of telemarketing firms that use their
operation to assist order processing is somewhere between .29 and .49, based on the point
estimate of .39 with a margin of error of ±.10. This result has a 95% level of confidence
Reading
An extensive study on confidence interval can be done from the
prescribed textbook T. Wegner Chapter 7, p176- 190
5.7.9 Summary
In this unit, we have clarified on the estimation of population parameters using confidence
intervals.
Two population parameters – the population mean and the population proportion was
estimated. In cases where the population standard deviation is known (sample size is large),
the z-distribution is used. In cases where the population standard deviation is unknown
(sample size is small), the t- distribution is used
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Case study
Batteries: How Long Do They Last?
What is the average life of a battery? As you can imagine,
the answer depends on the type of battery, what it is used
for, and how it is used. Car batteries are different from iPhone
batteries, which are different from flashlight batteries.
Nevertheless, a few statistics are available on the life of
batteries. For example, according to Apple, an iPhone 4 has
up to 300 hours of life if kept on standby, without making
any calls or running any applications. In a PC World study,
several smartphones were tested to determine battery
life. In the tests, a video file was played at maximum
brightness looped over and over with the audio set played
very loud. As a result, the average battery life without recharge
for the brand with the top battery life was 7.37 hours, with
other brands varying from 4.23 hours to 6.55 hours.
According to another study, the average battery life of a tablet
computer is 8.78 hours. Overall, a laptop computer battery
should last through around 1,000 charges. Source: Black
(2013)
Think point
In the study mentioned above, the average battery life of a
tablet computer is given as 8.78 hrs. The figure came
through testing the sample of tablet computers. If 8.78 hrs
average was founded through sampling 60 tablet computers.
Suppose another second 60 tablet computers sample is
chosen would the average battery life also be 8.78 hours?
How can this number be utilized to also approximate the
average battery life of all the tablet computers? 7.2 Point
Estimation
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5.7.10 Revision
Self-check activity
1. What is the aim of a confidence interval?

2. If x = 85, σ = 8 and n = 64, set up a 95% confidence
interval estimate of the population mean, μ.
3. If the population standard deviation, σ, is not known, what
standardised statistic used to construct a confidence interval?
4. If x = 54, s = 6 and n = 25, set up a 90% confidence
interval estimate of the population mean, μ.
5. The Department of Trade and Industry (DTI) conducted a
survey to estimate the average number of employees per small
and medium-sized enterprises (SME) in Gauteng. A random
sample of 144 SMEs in Gauteng found that the average number
was 24.4 employees. Assume that the population standard
deviation is: 8
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5.8 Study Unit 8: Hypotheses Tests – Single Population (Proportions &

Means)
Purpose The purpose of this unit is to explain the process to test the validity
of a manager’s claim using a sample evidence. This unit only
covers the hypothesis testing for single population mean and
single population proportion
Outcomes
• Understand the concept of hypothesis testing
• Perform hypothesis tests for a single population mean
• Perform hypothesis tests for a single population proportion
• Distinguish when to use the z-test statistic or the t-test statistic
• Correctly interpret the results of a hypothesis test
• Correctly translate the statistical results into management
conclusions.
Time It will take you 12 rs to make your way through this unit.
hou
Important The • is a statistical rigorous process of testing for the

terms and hypothesis closeness of a sample statistics to a
definitions testing hypothesized population parameter
p-value
• is another way to reach a statistical conclusion
approach
in hypothesis testing problems
5.8.1 Introduction
In this unit, we focus on another approach of inferential statistics, where a claim made about
the true value of a population parameter is assessed for validity. The hypothesis testing is a
statistical process to test the validity of such claims using sample evidence.
5.8.2 The Process of Hypothesis Testing

The hypothesis testing is a statistical rigorous process of testing for the closeness of a sample
statistics to a hypothesized population parameter.
General Procedure:
Step 1: Formulation of the statistical hypotheses (Null & alternative)
Step 2: Computing of the sample test statistic
Step 3: Determining the rejection criteria
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Step4: Comparing the sample test statistic to the rejection criteria and make a
conclusion.
Step 5: Make statistical and management conclusions
5.8.3 Hypothesis Test for a Single Population Mean (µ) – Population

Standard Deviation (σ) is known
The most basic hypothesis test is a test about a population mean. A business analyst might
be
interested in testing to find out whether an established or accepted mean value for an industry
is still
true or in testing a hypothesized mean value for a new theory
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5.8.4 Hypothesis Test for a Single Population Mean (µ) – Population

Standard Deviation (σ) is Unknown
Most of the times when a business analyst is gathering data to test hypotheses about a single
population mean, the value of the population standard deviation is unknown and the analyst
must use the sample standard deviation as an estimate of it. In such cases, the z test cannot
be used. In the previous study unit, the t distribution was presented which can be used to
analyse hypotheses about a single population mean when σ is unknown if the population is
normally distributed for the measurement being studied. In this part of the unit, the t-test is
discussed for a single population mean. More often, the t-test is applicable whenever the
analyst is drawing a single random sample to test the value of a population mean (μ), the
population standard deviation is unknown, and the population is normally distributed for the
measurement of interest.
The formula for testing such hypotheses follows.
5.8.5 Hypothesis Test for a Single Population Proportion (π)

Data analysis used in decision making often contains proportions to describe such aspects as
a consumer makeup, quality defects, market share, on-time delivery rate, profitable stocks
etc. Most often business surveys produce information expressed in proportion form, such as
.35 of all businesses offer flexible hours to its employees or .78 of all businesses have social
networks for customers. The business analyst would conduct hypothesis tests about such
proportions to determine whether they have changed in some way.
Example
1. Suppose a company held a 36%, or .36, share of the
market for several years. Resulting from a massive marketing
effort and improved product quality, company officials believe
that the market share increased, and they want to prove it.
2. A market researcher analyst wishes to test to determine
whether the proportion of old car purchasers who are female
has increased.
3. A financial analyst wants to test to determine whether
the proportion of companies that were profitable last year in
the average investment officer's portfolio is 0.50.
4. A quality assurance manager for a large manufacturing
firm wishes to test to determine whether the proportion of
defective items in a batch is less than 0.04.
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The formula below makes possible the testing of hypotheses about the population proportion
in a manner similar to that of the formula used to test sample means
−
− =
(1 − )
√
5.8.6 The p-value approach to hypothesis testing

P-value method is another way to reach a statistical conclusion in hypothesis testing problems.
The p- value technique tests hypotheses in where there is no preset level or critical values of
the test statistic. Decisions to reject or fail to reject the null hypothesis are made using a p-
value technique, which is the probability of getting a test statistic at least as extreme as the
observed test statistic computed under the assumption that the null hypothesis is true. P-value
is sometimes referred to as the observed significance level. The p-value technique has grown
in importance with the increasing use of statistical computer packages to test hypotheses. The
good thing about this method is that most computer statistical packages yield a p-value for
every analysis. The p-value defines the smallest value of alpha for which the null hypothesis
could be rejected.
Example
Suppose the p-value of a test is 0.038, the null hypothesis cannot
be rejected at α = 0.01 because 0.038 is the smallest value of
alpha for which the null hypothesis can be rejected and is larger
than 0.01. However, the null hypothesis can be rejected for α =
0.05 because the p-value = 0.038 is smaller than α = 0.05.
Manually solving for a p-value

Suppose an analyst is conducting a one-tailed test with a rejection region in the upper tail, and
the analyst obtains an observed test statistic of z = 2.04 from the sample data. Using the
standard normal table, we find that the probability of randomly obtaining a z value this great
or greater by chance is 0.5000− 0.4793 = 0.0207. Thus, the p-value for this problem is 0.0207.
Using this information, the analyst would reject the null hypothesis for α = 0.05 or 0.10 or any
value larger than 0.0207. The analyst would not reject the null hypothesis for any alpha value
less than 0.0207 (in particular, α = 0.01, 0.001, etc.). When conducting two-tailed tests,
remember that alpha is split to determine the critical value of the test statistic. For the two-
tailed test, the p-value can be compared to α/2 to reach a statistical conclusion. If the p-value
is less than α/2, the decision would be to reject the null hypothesis.
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Reading
For a comprehensive study on the topic hypothesis testing,
single populations (means and proportions read prescribed
textbook T. Wegner Chapter 8, p199- 225.
5.8.7 Summary
In this unit, we have explained the concept of hypothesis testing as a process by which claims
or assertions that are made about population parameter central location values can be tested
statistically. The five steps of hypothesis testing were identified and explained. The process
of
identifying the correct nature of the hypothesis test – whether the test is two-tailed, one-sided
lower tailed or one-sided upper-tailed was emphasized.
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Case study
Testing hypotheses about commuting

How do South African commute to work? A National Public
Transportation survey taken a few years ago indicated that
almost 80% of South African. Commuters drive alone to work,
more than 11% carpool, and approximately 5% use public
transportation. Using hypothesis testing methodology presented
in this unit, Analyst can test whether these proportions still hold
true today as well as how these figures vary by region. For
example, in Johannesburg, it is almost certain that the proportion
of commuters using public transportation is much higher than
5%. In rural parts of the country where public transportation is
unavailable, the proportion of commuters using public
transportation would be zero. What is the average travel time of
a commute to work in South Africa? According to the National
Public Transportation Survey, travel time varies according to the
type of transportation used. For instance, the average travel time
of a commute using a private vehicle is 20 minutes as compared
to 42 minutes using public transportation? In part, this difference
can be accounted for by the travel speed in km per hour: private
vehicles average 55 km per hour over a commute compared to
25 km per hour averaged by public transportation vehicles. It is
possible to test any of these means using hypothesis testing
techniques presented in this unit to either validate the figures or
to determine whether the figures are no longer true. Source:
Black (2013)
Think point
The statistics presented here, show that 80% of South African.
Commuters drive alone to work. Why is this so? What are some
reasons why South Africans drive to work alone? Is it a good
thing that South Africans drive to work alone? What are some
reasons why South Africans might not want to drive to work
alone? The mean commute time for a private vehicle in South
Africa is about 20 minutes. Can you think of some reasons why
South Africans might want to reduce this figure? What are some
ways that this figure might be reduced?
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Case study Chevron SA: Refining and Retailing

The South African Chevron, a Fortune 500 company based in
Capetown, is a major success story both in refining and in
retailing. Chevron has a combined throughput capacity of
approximately 3 million barrels per day. Its refinery products are
used in dozens of diversified industries, ranging from health
care and plastics to transportation, beauty products, and
manufacturing
Presently, Chevron has a workforce of over 21,000 employees.
In addition to its rapid growth in refining, Chevron has developed
an impressive assembly of almost 7,000 retail gas stations in
South Africa Chevron retail stores typically sell a large variety of
convenience store goods. Chevron entry into retailing did not
begin until the year 2000 when it acquired a 270-store retail
distribution chain and 80 company- operated sites in the
Province. On December 31, 2001, While Chevron branding is
taking over most of these sites in South Africa, In 2007, Chevron
introduced its updated “Corner Store” retail concept by opening
its first 5,500-square-foot prototype in Capetown. The Corner
Store concept includes a variety of family products, fresh (hot)
Cibolo Mountain Premium Blend coffee, fresh doughnuts and
pastries baked daily, and hot sandwiches and hot dogs, among
other items. Source: Black (2013)
Think point
The defining attribute of Chevron Company brings to mind the
fact that there are many possible research hypotheses that may
be generated in the oil-refining business. For instance, if it was
determined that oil refineries have been running below capacity
for the last 2 months. What are at least four research hypotheses
that could explain this? According to the National Association of
Convenience Stores, 62% of all convenience stores in South
Africa are owned and operated by someone who has only one
store. Supposedly you live in a city that seems to have fewer
entrepreneurs and more corporate influence and you believe that
in your city, significantly fewer than 62% of all convenience stores
are owned and operated by someone who has only one store.
You are determined to “prove” your theory by taking some
random sample of 328 convenience stores; it turns out that 187
of them are owned and operated by someone who has only one
store. Would this be enough evidence to conclude that in your
city, a
significantly lower percentage of these convenience stores are
owned and operated by someone who has only one store?
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5.8.8 Revision
Self-check activity
1. What is meant by the term ‘hypothesis testing’?
2. What determines whether a claim about a population
parameter value is accepted as probably true or rejected as
probably false?
3. Name the five steps of hypothesis testing.
4. What information is required to determine the critical
limits for the region of acceptance of a null hypothesis?
5. If −1.96 ≤ z ≤ 1.96 defines the limits for the region of
acceptance of a two-tailed hypothesis test and z-stat = 2.44, what
statistical conclusion can be drawn from these findings?
91
5.9 Study Unit 9: Chi-Squared Hypotheses Tests

Purpose The purpose of this unit is to explain the process of examining
whether two categorical variables that are shown in a cross tabulation
table are statistically associated.

Outcomes
• Understand the concept and rationale of the chi-squared
statistic
• Understand the use of the chi-squared statistic in market
research
• Perform independence of association hypothesis tests using the
chi- squared statistic
• Perform equality of multiple proportions hypothesis tests using
the chi-squared statistic
• perform goodness-of-fit hypothesis tests using the chi-squared
statistic
• Interpret the results of the various chi-squared tests.
Important
terms and
definitions
Goodness
of Fit Test
• be used to provide a measure of the goodness

of fit between observed frequency distribution
of a random variable derived from sample data
2.1.1. Introduction
In this unit, we discuss the Chi-Squared statistic ( 2) which is a statistical measure used to
test hypotheses on patterns of outcomes of a random variable in a population. The patterns
of outcomes are based on frequency counts of categorical random variables. It can be used
on the following three scenarios in inferential statistics:
Test for independence of association
Test for equality of proportions in 2 or more populations
Goodness of fit tests
5.9.1 The Chi-Squared Test for Independence of

Association
The general procedure involves five steps as shown below:
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Step 1
Define the Null and alternative hypotheses
i.e. There is no association between the two variables
There is association between the two variables
Step 2
Computing the sample statistic
Where = observed frequency = expected frequency
Step 3
Decision Rule (Value from table)
If number of rows = 2, number of columns = 3, level of significance = 10%.
Degrees of freedom = (2-1) (3-1) = 1x2 = 2
Step 4
Comparison
>: Reject Null Hypothesis
< : Accept Null Hypothesis
Step 5
Conclusion
The conclusion is based on results of step 4.
5.9.2 Hypothesis Test for Equality of Several Proportions
Test for Equality of Proportions in 2 or more Populations

Step 1
i.e. At least one population proportion is different
Step 2
Compute the sample statistic ( )
Where = observed frequency = expected frequency
Step 3
If number of rows = 2, number of columns = 3, level of significance = 10%.
Degrees of freedom = (2-1) (3-1) = 1x2 = 2
Step 4
Comparison
> : Reject Null Hypothesis
Step 5
Conclusion
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5.9.3 Chi-Squared Goodness-of-Fit Test

Goodness of Fit Test
The Chi-Squared can be used to provide a measure of the goodness of fit between observed
frequency distribution of a random variable derived from sample data and an expected
frequency distribution.
Step 1
i.e. The observed data fits the proposed theoretical pattern of outcomes
The observed data does not fit the proposed theoretical pattern of
outcomes.
Step 2
Compute the sample statistic ( )
Where = observed frequency, = expected frequency
Step 3
Degrees of freedom = k-m-1, where k= number of classes, m= number of population
parameters to estimate from the sample data. E.g. If Level of significance = 5%, k = 4, m =
1, d.f = 4-1-1 = 2 Step 4
Comparison
> : Reject Null Hypothesis
Step 5
Conclusion
Reading
For in-depth coverage of the topic on Chi-squared and
hypothesis tests refer to the prescribed textbook T. Wegner
Chapter 10, 4th edition p272 – 273
Case study
Students at Damelin Engineering Department studied which
vehicles come to a complete stop at an intersection with four-way
stop signs, selecting at random the cars to observe. They looked
at several factors to see which (if any) were associated with
coming to a complete stop. (They defined a complete stop as “the
speed of the vehicle will become zero at least for an [instant]”).
Some of these variables included the age of the driver, how many
passengers were in the vehicle, and type of vehicle. The variable
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we are going to investigate is the arrival position of vehicles

approaching an intersection all traveling in the same direction.
They classified this arrival pattern into three groups: whether the
vehicle arrives alone, is the lead in a group of vehicles, or is a
follower in a group of vehicles. The students studied one specific
intersection in Northern Johannesburg at a variety of different
times. Because random assignment was not used, this is an
observational study. Also, note that no vehicle from one group is
paired with a vehicle from another group. In other words, there is
independence between the different groups of vehicles.
Think point
Could there an association between the arrival position of the vehicle
and whether or not it comes to a complete stop? Is a dependency
between the arrival position of the vehicle and whether or not it comes
to a complete stop?
5.9.4 Summary
In this unit, we have explained the chi-squared test statistic. It is used to test whether the
observed pattern of outcomes of a random variable follows a specific hypothesized pattern.
The chi-square test for equality of proportions was explained. The chi-square test for
goodness of fit also was explained. The chi-square test for independence of association
was also explained.
5.9.5 Revision
Self-check activity
1. What is the purpose of a chi-squared test for
independence of association?
2. What type of data (categorical or numerical) is
appropriate for a chi-squared test for independence of
association?
3. What does the null hypothesis say in a test for
independence of association?
4. What is the role of the expected frequencies in chi-
squared tests?
5. In three rows by four columns cross-tabulation table of a
chi- squared test for independence of association, what is the
critical chi-squared value (χ2-crit) in a hypothesis test conducted
(a) At the 5% level of significance?
(b) At the 10% level of significance?
95
5.10 Study Unit 10: Simple Linear Regression and Correlation Analysis
Purpose The purpose of this unit is to explain the technique used to quantify
the relationship between variables and also identify the strength of
the relationship as well as pointing out the significant variable in the
prediction
Outcomes
• Explain the meaning of regression analysis
• Identify practical examples where regression analysis can be
used construct a simple linear regression model
• Use the regression line for prediction purposes
• Calculate and interpret the correlation coefficient
• Calculate and interpret the coefficient of determination
• Conduct a hypothesis test on the regression model to test for
significance.
Time It will take you 9 to make your way through this unit.
hours
Important Regression • is the process of developing a mathematical

terms and analysis
model or function that can be used to predict
definitions or determine one variable by another variable
or other variables
Scatter Plot • Graphing the data in this way yields
preliminary information about the spread and
shape of the data
Correlation
• measures the degree of relatedness of these
Analysis variables.
Coefficient of
Determination • measures the proportion (or percentage) of
variation in the dependent variable, y, that is
explained by the independent variable, x.
2.1.1. Introduction
Business decisions most often are made through predicting the unknown values of numeric
variables using other numeric variables that may be related to it and for which values could
be known. A statistical method that quantifies the relationship between a single response
variable and one or more predictor variables is called regression analysis. This relationship,
which is referred to as a statistical model, is used for prediction purposes. Correlation analysis,
on the other hand, determines the strength of the relationships and determines which variables
are useful in predicting the response variable.
96
5.10.1 Simple Linear Regression

Regression analysis is the process of developing a mathematical model or function that can
be used to predict or determine one variable by another variable or other variables. The
simplest regression model is called simple regression or bivariate regression involving two
variables in which just one variable is predicted by just one other variable. In simple linear
regression, the variable to be predicted is referred to as the dependent variable (y). The
predictor is referred to as the independent variable, or explanatory variable, (x). In simple
linear regression analysis, only a straight-line relationship between two variables is assessed
Nonlinear relationships and regression models with more than one independent variable can
be explored by using multiple regression models which are beyond the scope of this module.
Independent variable (X): influences the outcome of the other variable
Dependent variable (Y): influenced by the independent variable
5.10.2 Scatter Plot

Usually, the first step in simple linear regression analysis is to develop a scatter plot (scatter
diagram), Graphing the data in this way yields preliminary information about the spread and
shape of the data. Figure 10.1 and Figure 10.2 is excel scatter plot of some data. In the case
of the scatter diagrams below try to imagine a line passing through the points. Is a linear fit
possible? Would a curve fit the data better? The scatter plot would give some rough idea of
how well a regression line fits the data.
Figure 10.1 Scatter Plot of Airline Cost Data
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Determining the equation of a straight line

The first step in determining the equation of the regression line that passes through the sample
data is to establish the equation's form. In regression analysis, analysts use the slope-intercept
equation of a line. In statistics, the slope-intercept form of the equation of the regression line
through the population points is:
= 0− 1
Where
ŷ = the predicted value of y b0 =
y-intercept coefficient
x =values of the independent
b1 = the population slope (gradient)
To construct the equation of the regression line for a sample of data, the analyst must
determine the values for b0 and b1. This procedure is sometimes referred to as least squares
analysis. Least squares analysis is a procedure whereby a regression model is constructed
by obtaining the minimum sum of the squared errors. On the basis of this premise and
calculus, a particular set of equations has been developed to produce components of the
regression model.
98
Figure 10.3 Regression Line
0 =
∑ − 1∑
99
Figure 10.4 Five Correlations

Figure 10.4 depicts five different degrees of correlation: (a) represents strong negative
correlation, (b) represents moderate negative correlation, (c) represents moderate positive
correlation, (d) represents strong positive correlation, and (e) contains no correlation
Fig 10.4 are graphical displays of all pairs of data values of the independent and dependent
variables on an X-Y axis (Cartesian plane). Estimating y-values using the regression equation
is done by substituting a given value of x into the regression equation.
100
5.10.3 Correlation Analysis

In our case of examining two related variables, correlation measures the degree of relatedness
of these variables. It can help business analysts determine,
Example
1. Do the stocks of two airlines rise and fall in any related
manner. For a sample of pairs of data, correlation analysis can
yield a numerical value that represents the degree of
relatedness of the two stock prices over time.
2. In the transportation industry, is a correlation evident
between the price of transportation and the weight of the
object being shipped? If so, how strong are the correlations?
3. In economics, how strong is the correlation between the
producer price index and the unemployment rate?
4. In retail sales, are sales related to population density,
number of competitors, size of the store, amount of
advertising, or other variables?
Several measures of correlation are available, the selection of which depends mostly on the
level of data being analyzed. Ideally, analysts would like to solve for ρ, the population
coefficient of correlation. However, because analysts virtually always deal with sample data,
this unit introduces a widely used sample coefficient of correlation, r
The term r is a measure of the linear correlation of two variables, it ranges between −1 and
+1, representing the strength of the relationship between the variables. For r-value of +1
denotes a perfect positive relationship between two variables. For r-value of −1 denotes a
perfect negative correlation, indicating an inverse relationship between two variables: as one
variable gets increases, the other decreases. For r-value of 0 means, no linear relationship is
present between the two variables. It measures the strength of the linear association between
X and Y. Pearson’s Correlation Coefficient (r) measures the correlation between two ratio-
scaled random variables.
Formula
∑( − )̅ ( − )̅
=
√∑( − )̅ 2 ∑( − )̅ 2
5.10.4 The Coefficient of Determination (r2)
Suppose the sample correlation coefficient, r, is squared (r2), the resulting measure is called
the coefficient of determination. The coefficient of determination measures the proportion (or
percentage) of variation in the dependent variable, y, that is explained by the independent
variable,
x. The coefficient of determination values ranges between 0 and 1 (or 0% and 100%). 0 ≤ r2≤
1 or 0%
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≤ r2 ≤ 100% r2 is an important indicator of the usefulness of the regression equation because

it measures how strongly x and y are associated. The closer r² is to 1 (or 100%), the stronger
the association between x and y. alternatively, the closer r² is to 0, the weaker the association
between x and y.
5.10.5 Testing the Regression Model for Significance

The important questions in regression analysis will the following:
‘Does the statistical relationship between the variables x and y, as given by the regression
model, a true relationship or it is just purely by chance?’ Since the regression equation is
obtained from sample data, it is possible that there might be no genuine relationship between
the x and y variables in the population and that any observed relationship from the sample is
purely by chance. A hypothesis test can be carried to find out whether the sample-based
regression relationship is genuine or not. To test the regression model for significance, the
sample correlation coefficient, r, is tested against its population correlation coefficient, ρ,
which is hypothesised to be 0. In the test, the null hypothesis states that there is no
relationship between x and y in the population. See prescribed textbook pages 340to 342 for
a comprehensive example testing for model significance.
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103
5.10.6 Summary
In this unit, we have described the simple linear regression as a procedure that builds a
straight-line relationship between a single independent variable, x, and a dependent variable,
y. The resolve of the regression equation is to estimate y-values from known, or assumed, x-
values by substituting the x- value into a regression equation. The method of least squares is
used to find the best-fit equation. The coefficients of the regression equations, b0, and b1, are
weights that measure the significance of each of the independent variables in estimating the
y-variable. Two descriptive statistical measures were identified to indicate the usefulness of
the regression equation to estimate y-values. They are the coefficient of correlation, r, and the
coefficient of determination, r2.
Reading
For comprehensive coverage of this topic read prescribed
textbook pages 328-345 from Wegner T, (2016) 4thEdition
5.10.7 Revision
Self-check activity
1. What is regression analysis? What is correlation
analysis?
2. What name is given to the variable that is being estimated
in a regression equation?
3. What is the purpose of an independent variable in
regression analysis?
4. What is the name of the graph that is used to display the
relationship between the dependent variable and the independent
variable?
5. What is the name given to the method used to find the
regression coefficients?
6. Explain the strength and direction of the association
between two variables, x, and y that have a correlation coefficient
of −0.78.
5.11 Study Unit 10: Time Series Analysis: A Forecasting Tool
Purpose The purpose of this unit is to explain how to treat time series data and
how to prepare forecasts of future levels of activities
104

Outcomes
• Explain the difference between cross-sectional (survey) and time
series data
• Explain the purpose of time series analysis
• Identify and explain the components in time series analysis
• Calculate and interpret the trend values in a time series
• Calculate and interpret the seasonal influence in a time series
• De-seasonalise a time series and explain its value
• Prepare seasonally adjusted forecast values of a time series
Time It will take you 3 to make your way through this unit.
hours
Important Time Series • is comprised of four components: trend, cycles,

terms and seasonal effects, and irregular fluctuations
definitions
Seasonal
Analysis • are patterns of data trait that ensue in periods of
time of less than one year.
Moving
average • is a smoother series than the original time series
values. It has removed the effect of short-term
fluctuations
2.1.1. Introduction
Data collected on a given phenomenon over a period of time at systematic intervals is known
as time- series data. Time-series forecasting methods endeavors to account for changes over
time by studying patterns, trends, or cycle, or making use of information about previous time
periods to predict the outcome for a future time period. Time-series methods include naïve
methods, averaging, smoothing, regression trend analysis, and the decomposition of the
possible time-series factors. Most data used in the statistical analysis is known as cross-
sectional data, meaning that it is gathered from sample surveys at one point in time.
Conversely, data can also be collected over time. For instance, when a business collects its
daily, weekly or monthly gross revenue; or when a household records their daily or monthly
electricity usage, they are gathering a time series of data.
5.11.1 The Components of a Time Series
The general conviction is that time-series data is comprised of four components: trend, cycles,
seasonal effects, and irregular fluctuations. Not all time-series data have all these features.
105

Bond yield data portrayed in Figure 11.1. The general trend appears to move downward and
comprises two cycles. Each of the cycles passes through approximately 5 to 8 years. It is
possible, although not presented here, that seasonal periods of highs and lows within each
year result in seasonal bond yields. In addition, irregular daily variations of bond yield rates
may occur but are unexplainable. Time- series data that comprise of no trend, cyclical or
seasonal effects are thought to be stationary. Approaches used to forecast stationary data
analyze only the irregular fluctuation effects.
106
Figure 11.2 Time Series Effects

Figure 11.2, which shows the effects of these time-series elements on data over a period of
13 years. The long-term general direction of data is referred to as a trend. Notice that even
though the data move through upward and downward periods, the general direction or trend
is increasing Cycles are patterns of highs and lows through which data move over time
periods usually of more than a year. Notice that the data in Figure 11.2 apparently move
through two periods or cycles of highs and lows over a 13-year period. Time-series data that
do not extend over a long period of time may not have enough “history” to show cyclical
effects. Seasonal effects, on the other hand, are shorter cycles, which generally occur in time
periods of less than one year. Every so often seasonal effects are measured by the month,
but they may occur by a quarter or may be measured in as small a time frame as a week or
even a day. Note the seasonal effects shown in Figure 11.2 as up and down cycles, many of
which occur during a 1-year period. Irregular variations are rapid changes or “bleeps” in the
data, which ensue in even shorter time frames than seasonal effects. Irregular fluctuations
can happen as often as day to day. They are subject to momentary change and are often
unexplained. Note the irregular fluxes in the data of Figure 11.2.
5.11.2 Decomposition of a Time Series

Time series methods wish to separate the effects of each of the four factors on the actual time
series.
Time series models are used on the basis for assessing the influence of these four components
assumes a multiplicative relationship between them. The multiplicative time series model is
expressed algebraically as:
y= T× C× S× I
Where,
107
T =trend
C =cycles
S =seasonal effects
I =irregular fluctuations
In this section of the unit, we examine statistical approaches to quantify trend and seasonal
variations only. These two components account for the most significant proportion of an
actual value in a time series. By isolating them, most of an actual time series value will be
explained.
5.11.3 Trend Analysis

The long-term trend in a time series may be isolated by removing the medium- and short-
term fluctuations (i.e. cycles, seasonal and random) in the series. This results in either a
smooth curve or a straight line, depending on the method selected.
Two procedures for trend isolation could be:
• moving average method, which produces a smooth curve
• Regression analysis, which results in a straight-line trend.
The moving average time series is a smoother series than the original time series values.
It has removed the effect of short-term fluctuations (i.e. seasonal and irregular fluctuations)
from the original observations, y, by averaging over these short-term fluctuations. The
moving average value can be seen as reflecting mainly the combined trend and cyclical
movements.
In symbol terms for the multiplicative model:
Moving average = T × C × S × I S × I = T × C
The moving average technique is an average that is updated or recomputed for every new
time period being considered. The most recent information is utilized in each new moving
average. This advantage is offset by the disadvantages that:
1. it is difficult to choose the optimal length of time for which to compute the moving
average, and
2. moving averages do not usually adjust for such time-series effects as trend, cycles, or
seasonality.
To determine the more optimal lengths for which to compute the moving averages, we would
need to forecast with several different average lengths and compare the errors produced by
them.
5.11.4 Seasonal Analysis
Seasonal effects are patterns of data trait that ensue in periods of time of less than one year.
How can we separate out seasonal effects? The ratio-to-moving-average method is used to
measure and quantify these seasonal effects. This method asserts the seasonal influence as
an index number. It measures the percentage digression of the actual values of the time
series, y, from a base value that disregards the short-term seasonal effects. These base
values of a time series represent the trend/cyclical impacts only.
108
5.11.5 Uses of Time Series Indicators

Time series indicators are important planning aids to managers in two ways:
1. To de-seasonalise a time series (i.e. exclusion of seasonal influences), and so
afford a clearer vision of the longer-term trend/cyclical movements surfaces
2. To create seasonally adjusted trend forecasts of future values of a time series.

Shown below are shipments (in millions of dollars) for electric
lighting and wiring equipment over a 12-month period. Use
these data to compute a 4-month moving average for all
available
Months Shipments
January 1056
February 1314
March 1381
April 1191 Reading
For comprehensive coverage of this
May 1259 topic read prescribed Chapter 15
textbook pages 410-429 from
June 1361 Wegner T, (2016) 4thEdition
July 1110
August 1334
5.11.6 Summary
This unit September 1416 deliberated on the tactic to
investigate time series data as
October 1282 opposed to cross-sectional data.
The November 1341 exploration and harnessing of time
series data are used for short- to medium-
term December 1382 forecasting. This unit identified and
defined the nature of each of four possible
effects on the values of a time series, y. These forces were
identified as a trend, cyclical, seasonal and irregular influences. Time series analysis is used
to decompose a time series into these four constituent components, using a multiplicative
model. Trend analysis can be performed using either the method of moving averages or by
fitting a straight line using the method of least squares from the regression analysis. The
seasonal
component is described by finding seasonal indexes using the ratio-to-moving average
approach. The interpretation of these seasonal indexes was also given in the unit.
109
5.11.7 Revision
110
Think point
From the data gathered given could it be possible to forecast the
emissions of nitrogen oxides or carbon monoxide for the years
2013, 2017, or even 2025? What could be the possible
techniques best suited to forecast the emissions of nitrogen
oxides or carbon monoxide for future years from the data given?
111
6. REFERENCES
Bergquist, T., Jones, S. and Freed, N (2013) Understanding Business Statistics. John Wiley
& Sons
Black K (2013). Business Statistics: For Contemporary Decision Making, 7th Edition.
Wegner, T, (2016) Applied Business Statistics: Methods and Excel-based Applications, 4th
ed. Juta.
Cape Town South Africa
112
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2. OUR TEACHING AND LEARNING METHODOLOGY

Damelin strives to promote a learning-centred and knowledge-based teaching and learning

Knowledge acquisition at a higher level that requires self -insight, self-regulation

• Community service learning that leads to collaborative and mutual acquisition of

Study group / Online forum discussion

3. INTRODUCTION TO THE MODULE

3.2 Module Purpose

• Understanding the basic concepts of probability to help a manager to understand and

• Describe normal distribution, student’s distribution, binomial distribution, Poisson

• Describe the concepts of multiple correlation and regression.

What equipment will I need? • Access to a personal computer and internet.

4.1 Prescribed Book

Applied business Wegner, T, 2016 Juta. Cape 978-1-48511-193-1

4.3 Recommended Multimedia

Unit1: STATISTICIN MANAGEMENT

By the end of this unit, you will be able to:

Date constitute of individual values, for instance,

It is a set of mathematically-based methods

is any attribute or characteristic being

• represents every possible item that contains a data

• is a subset of items drawn from a population

• condense large volumes of data into summary

• sample findings can be generalized to the broader

• builds relationships between variables to make

5.1.2 Statistics in Management

Management Decision Making

It is a set of mathematically-based methods and techniques which transform small or large

(Data) (Statistical Analysis) (Inf ormation) (Management decision

Source: Wegner 2016)

Source: Black (2013)

Age of students at a All students at Damelin College A registered 1000 randomly

Source: Wegner (2016)

5.1.4 Components of Statistics

• According to an Electronics wholesale survey, the average amount spent by a shopper

5.1.7 Data and Data Quality

5.1.8 Data Types

Randomvariable Categories Codes

Source: Examiner’s compilation

▪ Categorical data (qualitative): refers to data representing categories of outcomes of a

Classification 2: Nominal, Ordinal, Interval and Ratio Scales of Measurement

Source: Black (2013)

▪ Nominal-scaled data: used on categorical data of equal importance e.g. gender –

Study group / Online forum discussion

Government Agencies and Private-Sector

Primary versus Secondary Sources

Data Collection Methods

5.1.10 Ethics in Statistics

Case study/Caselet State of Business in India's Countryside

d) Not at All Important

By the end of this unit, you will be able to:

• is a cumulative frequency polygon

5.2.2 Summarising Categorical Data

Source: Examiner’s own compilation

Figure 2.1 Simple Chart for Table 2.1

Source: Examiner’s own compilation

Dorm Furnishings R90.90

School Supplies R68.47

Source: Black (2013)

Source: Black (2013)

Table 2.3 Type of Car at Company X 2007 & 2008

Source: Black (2013)

Source: Examiners’ own compilation

Mazda Toyota Nissan Isuzu