Business Statistics, 6th ed.

by Ken Black

Chapter 1

What are
Statistics?

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2010John
JohnWiley
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 Statistics in Business

Statistics – science dealing with the collection,

analysis, interpretation, and presentation of
numerical data

Statistics has two types

Descriptive measure – computed from a sample and
used to make a determination
Distribution - used in the analysis of the data

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 Statistics in Business

Branches of statistics
Descriptive – using data gathered on a group to describe
or reach conclusions about the group
Inferential – data gathered from a sample and used to
reach conclusions about the population from which the
data was gathered
Used to draw conclusions about the group or similar groups

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 Population Versus Sample

Population — the whole

a collection of persons, objects, or items under study
Census — gathering data from the entire population
Sample — a portion of the whole/population
a subset of the population; must be large enough to
represent the whole

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 Population

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 Population and Census Data

Identifier Color MPG

RD1 Red 12
RD2 Red 10
RD3 Red 13
RD4 Red 10
RD5 Red 13
BL1 Blue 27
BL2 Blue 24
GR1 Green 35
GR2 Green 35
GY1 Gray 15
GY2 Gray 18
GY3 Gray 17

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 Sample and Sample Data

Identifier Color MPG

RD2 Red 10

RD5 Red 13

GR1 Green 35

GY2 Gray 18

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 Parameter vs. Statistic

Parameter — descriptive measure of the population

Usually represented by Greek letters
Statistic — descriptive measure of a sample
Usually represented by Roman letters

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 Symbols for Population Parameters

 denotes population parameter


2
denotes population variance
 denotes population standard deviation

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 Symbols for Sample Statistics

x denotes sample mean

S
2
denotes sample variance
S denotes sample standard deviation

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 Process of Inferential Statistics

4. Calculate x
to estimate 
1. Population 3. Sample
 x
(parameter ) (statistic )

2. Select a
random sample

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 Statistics in Business

Difference between a parameter and statistic is only

important in the use of inferential statistics
Calculations of parameter can be cost prohibitive
When cost prohibitive, a sample calculates appropriate statistics.
Researchers use the calculation as an estimate of the parameter.

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 Statistics in Business

Inferences about parameters made under conditions

of uncertainty
Uncertainty can be caused by
small sample
lack of knowledge about the source of the inferences
change in conditions not accounted for

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 Statistics in Business

Probability statement – used to estimate the

level of confidence in the probability statement

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 Levels of Data Measurement

Nominal — In nominal measurement the numerical

values just "name" the attribute uniquely.
No ordering of the cases is implied. For example, jersey
numbers in basketball are measures at the nominal level.
A player with number 30 is not more of anything than a
player with number 15, and is certainly not twice
whatever number 15 is.

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 Levels of Data Measurement

Ordinal - A variable is ordinal measurable if ranking is

possible for values of the variable.
For example, a gold medal reflects superior performance to
a silver or bronze medal in the Olympics, or you may prefer
French toast to waffles, and waffles to oat bran muffins.
“First,” “Second” are ordinal measurements.

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 Levels of Data Measurement

Interval - In interval measurement the distance

between attributes does have meaning.
For example, when measuring temperature (in Fahrenheit),
the distance from 30-40 is same as the distance from 70-80.
The interval between values is interpretable.

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 Levels of Data Measurement

Ratio — in ratio measurement there is always an

absolute zero that is meaningful.
This means that you can construct a meaningful fraction
(or ratio) with a ratio variable.
In applied social research most "count" variables are ratio,
for example, the number of clients in past six months.

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 Levels of Data Measurement

Cardinal - A variable is cardinally measurable if a given

interval between measures has a consistent meaning,
i.e., if the measure corresponds to points along a
straight line.
For example, height, output, and income are cardinally
measurable

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 Nominal Level Data

Numbers are used to classify or categorize

Example: Employment Classification
1 for Educator
2 for Construction Worker
3 for Manufacturing Worker

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 Ordinal Level Data

Numbers are used to indicate rank or order

Relative magnitude of numbers is meaningful
Differences between numbers are not comparable
Example: Ranking productivity of employees
Example: Position within an organization
1 for President
2 for Vice President
3 for Plant Manager
4 for Department Supervisor
5 for Employee

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 Ordinal Data

Faculty and staff should receive preferential

treatment for parking space.

Strongly Agree Neutral Disagree Strongly

Agree Disagree

1 2 3 4 5

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 Interval Level Data

Interval Level data - Distances between consecutive

integers are equal
Relative magnitude of numbers is meaningful
Differences between numbers are comparable
Location of origin, zero, is arbitrary
Vertical intercept of unit of measure transform function is
not zero
Example: Fahrenheit Temperature
Example: Monetary Utility

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 Ratio Level Data

Highest level of measurement

Relative magnitude of numbers is meaningful
Differences between numbers are comparable
Location of origin, zero, is absolute (natural)
Vertical intercept of unit of measure transform function
is zero
Examples: Height, Weight, and Volume
Example: Monetary Variables, such as Profit and Loss,
Revenues, Expenses, Financial ratios - such as P/E
Ratio, Inventory Turnover, and Quick Ratio.

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 Ratio Level Data

Parametric statistics – requires that the data be

interval or ration
Non Parametric – used if data are nominal or ordinal
Non parametric statistics can be used to analyze interval
or ratio data

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 Data Level, Operations, and
Statistical Methods
Statistical
Data Level Meaningful Operations
Methods

Nominal Classifying and Counting Nonparametric

Ordinal All of the above plus Ranking Nonparametric

Interval All of the above plus Addition, Parametric

Subtraction, Multiplication, and
Division

Ratio All of the above Parametric

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