In statistics, we often compare two or more group means to check whether they are significantly
different.
If there are:
• Two groups → we use t-test
• More than two groups → we use ANOVA
Meaning of ANOVA
ANOVA stands for Analysis of Variance.
It is a statistical method used to determine whether the means of three or more populations are
equal.
2. Basic Concept
Although we compare means, ANOVA works by analyzing variances.
• If the between-group variance is large compared to within-group variance, the group
means are likely different.
• If the variances are similar, then all group means are probably equal.
Objective of ANOVA
To test whether the differences among sample means are due to random chance or actual differences
in the population.
3. Assumptions of ANOVA
1. All samples are independent.
2. Populations are normally distributed.
3. Populations have equal variances (homoscedasticity).
4. Hypotheses
• Null Hypothesis (H₀):
All population means are equal.
𝐻0 : 𝜇1 = 𝜇2 = 𝜇3 =. . . = 𝜇𝑘
• Alternative Hypothesis (H₁):
At least one mean differs from others.
5. Types of ANOVA
Type Description Example
One-Way One independent variable Comparing average sales across 3 regions
ANOVA (factor)
Two-Way Two independent variables Comparing sales across regions and
ANOVA advertising types
6. Terminologies
Term Meaning
Factor The variable that divides data into groups (e.g., teaching method)
Level Sub-categories within a factor (e.g., Method A, B, C)
SS (Sum of Squares) Measure of total variation
MS (Mean Square) Average of squares (SS divided by df)
F-ratio Ratio of variance between groups to variance within groups
𝑀𝑆𝑏𝑒𝑡𝑤𝑒𝑒𝑛
𝐹=
𝑀𝑆𝑤𝑖𝑡ℎ𝑖𝑛
7. Steps in One-Way ANOVA
1. State Hypotheses (H₀ and H₁)
2. Calculate group means and overall mean
3. Compute Sum of Squares (SS):
• Between Groups (SSB)
• Within Groups (SSW)
4. Compute Mean Squares (MS):
𝑀𝑆𝐵 = 𝑆𝑆𝐵/𝑑𝑓𝐵
𝑀𝑆𝑊 = 𝑆𝑆𝑊/𝑑𝑓𝑊
5. Compute F-ratio:
𝐹 = 𝑀𝑆𝐵/𝑀𝑆𝑊
6. Compare calculated F with table F (F-table)
7. Draw conclusion
Example: One-Way ANOVA
Problem:
A manager wants to know whether three different training programs lead to different employee
performances.
Scores (out of 100) of employees after training are:
Program A Program B Program C
85 88 84
90 86 82
88 91 80
Test at 5% level of significance whether the programs differ in performance.
Step 1: Hypotheses
• 𝐻0 : 𝜇𝐴 = 𝜇𝐵 = 𝜇𝐶 (All means equal)
• 𝐻1 :At least one mean differs.
Step 2: Calculate Means
85 + 90 + 88
𝑋ˉ𝐴 = = 87.67
3
88 + 86 + 91
𝑋ˉ𝐵 = = 88.33
3
84 + 82 + 80
𝑋ˉ𝐶 = = 82.00
3
(85 + 90 + 88 + 88 + 86 + 91 + 84 + 82 + 80)
𝑋ˉ𝑜𝑣𝑒𝑟𝑎𝑙𝑙 = = 86
9
Step 3: Between-Group Variation (SSB)
𝑆𝑆𝐵 = ∑𝑛𝑖 (𝑋ˉ𝑖 − 𝑋ˉ)2
= 3[(87.67 − 86)2 + (88.33 − 86)2 + (82 − 86)2 ]
= 3[(1.67)2 + (2.33)2 + (−4)2 ] = 3(2.79 + 5.43 + 16) = 3(24.22) = 72.66
Step 4: Within-Group Variation (SSW)
Compute deviation of each observation from its group mean:
Group Values Deviations (X - Mean)² Sum
A 85, 90, 88 (–2.67)² + 2.33² + 0.33² = 12.88 12.88
B 88, 86, 91 (–0.33)² + (–2.33)² + 2.67² = 12.88 12.88
C 84, 82, 80 4² + 0² + (–2)² = 20 20
Total SSW 45.76
Step 5: Degrees of Freedom
𝑑𝑓𝐵 = 𝑘 − 1 = 3 − 1 = 2
𝑑𝑓𝑊 = 𝑁 − 𝑘 = 9 − 3 = 6
Step 6: Compute Mean Squares
𝑆𝑆𝐵 72.66
𝑀𝑆𝐵 = = = 36.33
𝑑𝑓𝐵 2
𝑆𝑆𝑊 45.76
𝑀𝑆𝑊 = = = 7.63
𝑑𝑓𝑊 6
Step 7: Compute F-Ratio
𝑀𝑆𝐵 36.33
𝐹= = = 4.76
𝑀𝑆𝑊 7.63
Step 8: Compare with Table Value
From F-table (α = 0.05, df₁ = 2, df₂ = 6):
𝐹0.05 = 5.14
Since 𝐹𝑐𝑎𝑙𝑐𝑢𝑙𝑎𝑡𝑒𝑑 = 4.76 < 𝐹𝑐𝑟𝑖𝑡𝑖𝑐𝑎𝑙 = 5.14
Do not reject H₀
Conclusion:
There is no significant difference in the mean performance of employees trained under the three
programs.
9. Interpretation for Business Students
Area How ANOVA is Used
Marketing Compare mean sales for 3 advertising methods
HR Compare productivity under 3 training programs
Finance Compare average returns of 3 investment types
Operations Compare production rates of 3 machines
10. Key Formulas Summary
Term Formula
SSB ∑𝑛𝑖 (𝑋ˉ𝑖 − 𝑋ˉ)2
SSW ∑(𝑋𝑖𝑗 − 𝑋ˉ𝑖 )2
MSB 𝑆𝑆𝐵/𝑑𝑓𝐵
MSW 𝑆𝑆𝑊/𝑑𝑓𝑊
F 𝑀𝑆𝐵/𝑀𝑆𝑊
Question
A company wants to test whether three different advertising strategies result in different average sales
figures.
The weekly sales (in ₹ thousand) from stores using each strategy are as follows:
Strategy A Strategy B Strategy C
52 48 45
55 50 42
53 47 44
Test at the 5% level of significance whether the mean sales differ among the three strategies.
