SEB.10.11.

(01)

Analytical Tools
Business Statistics Study October 11, 2001 Susan Blouin

PART I ANALYSIS:

Quantitative and Qualitative Statistical Business Analysis: European Management Consultancy Firms

PART II ANALYSIS:

Quantitative Assessment: Statistical Summary A. Stem and Leaf Integers as Stems B. Probability Theory Analysis C. Population Parameters Estimating and Confidence Intervals D. Correlation Analysis

PART I ANALYSIS

Quantitative and Qualitative Statistical Business Analysis:
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European Management Consultancy Firms
INTRODUCTION: The management consultancy landscape is a promising industry for European management consultancy firms deploying their services across the European marketplace. Consolidation in the European management consultancy field shows to be in a positive position for business end users as the consultancy firms have a strong core expertise in areas such as information technology, human resources, operations and strategy. Business end users are at an advantage through the use of a consultancy firms that can provide a variety of expertise in business management. This report examines and provides various key strategic observations based on the collection of quantitative data. Businesses and the general economy manage processes for influencing quantitative data and rely on statistics and analysis as a fundamental part of their business development. Sr. Operating Teams of organizations rely on data results to make critical decisions about company direction or strategic initiative. Statistics has sometimes caused a misconception in the display of data. The importance that statistics has is beyond the results of the data. It’s what the data tells us that is key in making management decisions and in analyzing current trends and situational objectives. This analysis is focused on the data results of European management consultant firms and provides an evaluation that draws conclusions about its current global business, through the summary and interpretation of graphical data.

STATISTICAL BUSINESS ANALYSIS:

Percentage Breakdown of the Turnover generated by European Management Consultancy Firms
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Figure 1 is a pie graph that shows the percentage breakdown of the revenue generated by European management consultancy firms Internationally. The classifications for Western Europe, Eastern Europe and Rest of World represent qualitative variables that show a quantitative observation on the percentage of revenue generation. European management consultancy firms show a primary focus in Western Europe. There is very little business in Eastern Europe and Rest of World. For example, European management consultancy firms generate 87% revenue in Western Europe, 5% generation of revenue in Eastern Europe and 8% revenue generation throughout the rest of the world.
Figure 1

Market by Industry Sector Analysis: Strategy for Market Penetration

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The market by industry sector analysis shows the deployment of business development relative to industry focus by European management consultancy firms in the European marketplace.

The communications and business services share similar focus of market penetration, where the penetration of communications is 12.1% and business services 11.1% of European management consultancy firms business focus. The primary focus is in financial services and insurance, which represents 24.7% of management consultancy business. Subsequent to its primary focus, is manufacturing which represents 21.2% of management consultancy business. Collectively, the manufacturing and the financial services and insurance industries make up almost half of the management consultancy business in the industry sector. Figure 2

The percentage of Market Penetration by Region

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The findings in figure 3 indicate that both Germany and the UK provide the greatest percentage of management consultancy. However, it does not conclusively indicate that a greater percentage of revenue is derived from these regions. Additional information would be required in order to conclude statements on global spend. Figure 3 shows a market by region that is spread unusually thin. Its shows consultancy firms operating in many markets. Management consultancy firms could lower their distribution in the areas that have a smaller percentage of business in order to strengthen the more economical markets similar to Germany and the U.K. However this is not limited to the economical growth of France which represents 8.9% of management consultancy and Nordic at 8%. Both of these regions have more of a demand than Eastern Europe, Belgium, Austria, Swiss, Spain, Portugal, Netherlands, Greece and the percentage shown for other. However if European management consultancy firms continue to grow and provide new initiatives, the smaller percentage market regions could be a vital part of their business growth and stability.

There is a demand fore European management consultancy firms in Germany where 32% is representative of the market and in the U.K. 27.2%. Germany has a powerful economy and provides a need for outside business consulting. The effect of European management consulting shows a critical economic requirement for Germany and the U.K. This could be an indication of a good economy or it could suggest that it is strong since European management consultancy firms could be driving the economy of both Germany and the U.K. The percentage of the management consultancy market demands of the four highest regions, Germany, U.K. France and Nordic, suggests that there is more enlightened management requirements for outside consulting which therefore increases economic spending.
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Figure 3

Market Breakdown by Key Consulting Areas European management consultancy firms are showing to have an established set of services in Human Resource Management, Strategy Planning, Information Technology and Operations. The findings of Figure 4 indicate that Information Technology is the primary strategic focus, representing 44% of consulting services based on the aggregated findings of the 4 key consulting areas. Second, Strategy Planning shows a 27% strategic focus, followed by Operations at 23% and Human Resources Management at 6%.

Figure 4

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The data results of both IT and Operations could show an indication of overlap. IT consulting is known to bring in technology such as business application tools or a network expansion with varying degrees of new technology. The statistics may possibly be unclear due to the role operations plays in operationalizing new technology. A company’s new IT application development could also cause the development of operational techniques, process development and operations management. Recent IT networks that consultant firms formulate for a business plan, could require new provisioning planing activities within operations. A more detailed analysis would need to be provided in order to develop more clear definitions that scope out the elements of IT versus Operations to prevent vagueness in the statistics.

Traditionally, companies have handled HR internally and have relied very little on outside consulting services. The percentage of European management consultancy firms providing Human Resources Management consulting is shown to be 6% of the 4 key consulting areas. Although this number appears low, businesses are continuing to rely on outside consulting for Human Resources
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planning. It could possibly become a key area of growth that evolves in the European business market. Strategic planning is seen as a critical business skill required by the European business markets. It shows that outside knowledge is appropriately required for business firms, and that the European market finds outside knowledge to be essential and useful in providing management techniques in consulting.

CONCLUSION: European management consultancy firms are best positioned in the European market. Possible expansion towards Eastern Europe would be more adaptable for business opportunities than in the rest of the world, since the European consultancy firms have more than likely established practices that are related to the European market. Expansion in Eastern Europe represents a good opportunity for continuous emergence of outsourced services for consulting practices where these practices could be transferable and remodeled. The rest of world presents unclear statistics as to the different global areas. Although it only has 8% of European consultancy efforts, many European firms have a greater opportunity to expand their practice globally. Germany and the U.K. represent a long-term demand for outside firms to engage in consulting. These two regions are economically stable in by means of the management consultant firms. Companies will continue to develop in Europe as the world economy continues to evolve. European management consultancy firms will require evolving their business however; they will need to pose some concern on what the impact of the global economy might have on their business.

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PART II ANALYSIS Quantitative Assessment: Statistical Summary on Business Examples

1. Stem and Leaf “Integers as Stems”

The price earning ratios for 21 stocks in the retail trade category are: 8.3 10.1 11.6 9.6 9.9 9.6 9.5 10.8 8.8 9.1 10.2 8.0 8.8 8.0 10.4 11.2 8.4 9.8 7.7 8.1 9.2

The following analysis will show the above information organized into a stem-and-leaf display. The analysis will also show the following principles: (a) (b) (c) (d) Values that are there less than 9.0 A list of values in the 10.0 up to 10.9 category The middle value What the largest and the smallest price-earnings ratio are

Stem and Leaf Display: The following table displays the above information into an organized stem and leaf display. STEM 7 8 9 10 11 LEAF .7 .0,.0,.1,.3,.4,.8,.8 .1,.2,.5,.6,.8,.9 .1,.2,.4,.8 .2,.6

The above data has only one value that is less than 9.0. That value is 8. The list of values in the 10.0 up to 10.9 category are 10.1, 10.2, 10.4 and 10.8 respectively. The numeric middle value that is also the 11th or median value in the data set, is 9.5. The smallest price earnings shown in the data set is 7.7 and the largest is 11.6.

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2. Probability Theory Analysis Routine physical examinations are conducted annually as part of a health program for General Cement employees. It was discovered that 8 percent of the employees needed corrective shoes, 15 percent need major dental work, and 3 percent need both corrective shoes and major dental work. The following analysis will show probability methods to justify the following measures: (a) The probability that an employee selected at random will need either corrective shoes or major dental work (b) Venn Diagram.

(a) The probability that an employee selected at random will need either corrective shoes or major dental work

The following formulas are described to outline the probability theory that an employee selected at random, where “P” represents a random event. These methods are used to calculate the probability of a particular outcome happening (the probability of an employee selected at random needing either shoes or major dental work), and represents a ratio of the number of times it can happen to the total number of possible outcomes. The probability is expressed as a fraction (or decimal) and is between zero and one. These formulas are considered for one event occurring.

P (need corrective shoes) = 0.08 P (need major dental work) = 0.15 P (need shoes and dental work) = 0.03

In order to find the probability that an employee is selected at random for either corrective shoes or major dental work, the following formula is used: P (need shoes and dental work) = P (need shoes) + P (need dental work) – P (shoes and dental work)
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= 0.08 + 0.15 – 0.03 = 0.2 Therefore, the probability factor is 0.2 that an employee is selected at random for either corrective shoes or major dental work.

(b) Venn Diagram. The following illustration is a Venn diagram that shows the unison of two events, A and B. The surrounding area of the circles represent the sample space. Circle A represents “corrective shoes” and circle B represents “ the need for major dental work”. The intersection of A and B (shown as A and B), represents the event that both A and B occur. The two full circles represent the “union”. Figure 5 – Venn Diagram

Sample Space Need Shoes and Dental Work 0.3= P (∩) Need Shoes 0.08 Need Dental Work

P (shoes ∪ dental) = P (shoes) + P (dental) – P (shoes ∩ dental)

3. Population Parameters Estimating and Confidence Intervals

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The wildlife department is feeding a special food to rainbow trout fingerlings in a pond. The sample of weights of 40 trout revealed that the sample mean is 402.7 grams and the sample standard deviation 8.8 grams. The following analysis will show the following principals: (a) (b) (c) (d) (e) The estimated mean weight of the population and its naming convention; The 99% confidence interval; The 99% confidence limits; The degree of confidence being used; Review on findings.

a. The estimated mean weight of the population and its naming convention

We are giving the following details in the study. Therefore let n= 40 , ξ , = 402.7 grams (sample mean), and S = 8.8 grams (sample standard deviation).

The estimate of the population mean is always the sample mean. Therefore the estimated mean weight is shown as: û = ξ = 402.7 grams.

b. The 99% confidence interval If we took 100 samples, by this technique 99 out of 100 would capture the true mean 99% of the time. A 99% confidence interval implies that the confidence coefficient = .01 and the confidence coefficient divided by 2 = .005. The first measure is in finding the alpha over 2 (the confidence coefficient). The confidence coefficient line item and the Z score once found in the Normal Curve Areas table, are used to calculate the confidence interval1

1 1

Terry Sinch. Business Statistics by Example. Fifth Edition (Upper Saddle River, NJ: Prentice Hall, 1996), p. 1198.table 5

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Figure 6 Standard Normal Curve

Normal Curve and Probability Area

.495
Area under curve

99 % Confidence

3

2

1

00

11 11

2

22

.005 Z confid. Coefficient / 2 = 3 2.575

3
SEH.10.11.(01)

Since the sample size is large there is a 99% confidence interval. What we know in reference to the formula shows the final confidence intervals:
X= 402.7 (sample mean) S= 8.8 (sample standard. deviation) S = 40

Confidence coefficient = .01, confid. Coefficient divided by 2 = .005 X + Ζ x 2 n S

402.7 + or - (2.575)(8.8) 4 0 402.7 + or - 3.583 Page 13.

c. The 99% confidence limits The final 99% confidence limits are (399.117, 406.283). Therefore there is a confidence level with a true mean 99% of the time, and it is between (399.117, 406.283).

d. The degree of confidence being used The degree of confidence equals 99%, which is the confidence coefficient less “one” multiplied by 100%. By using any different level of confidence intervals between 0 and 1, the degree of confidence can be obtained.

e. Review on findings Using this technique we can expect to capture the true mean in our confidence interval 99% of the time.

4. Correlation Analysis Reliable Furniture is a family business that has been selling to retail customers in the Chicago area for many years. They advertise extensively on radio and TV, emphasizing their low prices and easy credit terms. The owner would like to review the relationship between sales and the amount spent on advertising. Below is information on sales and advertising expense for the last 4 months. Month July August September October Advertising Expense ($ million) 2 1 3 4 Sales Revenue ($ million) 7 3 8 10

The following analysis will answer the following key principals: (a) Forecast on sales based on advertising expense – Dependant/Independent Variables (b) Scatter diagram. (c) Determining the coefficient of correlation. (d) Interpreting the strength of the correlation coefficient. (e) Determining the coefficient of determination with Interpretation.

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A. Forecast on sales based on advertising expense – Dependant/Independent Variables

In order for the owner to forecast sales based on advertising expense, the dependant variable and independent variable are required. The dependant variable is “sales”. The independent variable is “advertising”.

b. Scatter diagram The following diagram shows the scattergram of advertising expense as X, for the dependant sales revenue.

Figure 7, Scattergram

Scatter Diagram: Correlation Analysis
12 10 8 6 4 2 0 0 1 2 3 4 5 Advertising

C. Determining the coefficient of correlation
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Sales/Revenue $M

The following Sum of Squares table was used to gather the data for the formulas:
X
2 1 3 4 10 ∑X

Y
7 3 8 10 28 ∑y

X Squared
4 1 9 16 30 ∑x2

Y Squared
49 9 64 100 222 ∑y2

XY
14 3 24 40 81 ∑Xy

Formula for coefficient of correlation: SSxy
R=

SSxx SSyy
(∑ x) (∑y) n

= ∑xy

[∑x 2 (∑x) 2 ∑y 2- (∑y)2 ] ][ n = 81 - (10) (28) 4 [ 30 - (10 ) ] [ 222 - (28 ) 4 = 81 - 70 = (5) (26) R = 0.9647 1 1 130 4
2 2

n

D. Interpreting the strength of the correlation coefficient.

2

2

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The results of the above coefficient of correlation show a strong linear relationship between sales and advertising expense.

E. Determining the coefficient of determination with Interpretation
R2 = (.9647) 2 = .9306

R squared is the percentage of the variability in sales that can be explained by the explanatory variable advertising expense.

Analytical Tools, Business Statistics Study October 11, 2001 S. Blouin

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