Applied Business Statistics, 7th ed.

by Ken Black

Chapter 1

Introduction
to Statistics

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 Learning Objectives

What is statistics?
Become aware of the varied applications of statistics
in business.
Differentiate between descriptive and inferential
statistics.
Identify types of variables.

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 Statistics in Business

Accounting — auditing and cost estimation

Economics — local, regional, national, and international
economic performance
Finance — investments and portfolio management
Management — human resources, compensation, and quality
management
Management Information Systems — performance of systems
which gather, summarize, and disseminate information to
various managerial levels
Marketing — market analysis and consumer research
International Business — market and demographic analysis

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 What is Statistics?

Science of gathering, presenting, analyzing, and

interpreting data
Uses mathematics and probability
Branches of statistics:
Descriptive – graphical or numerical summaries of data
Inferential – making a decision based on data

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 Population Versus Sample

Population — the whole

a collection of all persons, objects, or items under study
Census — gathering data from the entire population
Sample — gathering data on a subset of the population
Use information about the sample to infer about the population

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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

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 Parameter vs. Statistic

Parameter — descriptive measure of the population

Usually represented by Greek letters

 denotes population parameter

 2
denotes population variance
Statistic — descriptive measure of a sample
 denotes population standard deviation
Usually represented by Roman letters

x denotes sample mean

s 2 denotes sample variance
s denotes sample standard deviation
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 Process of Inferential Statistics

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

2. Select a
random sample

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 Statistics in Business

Inferences about parameters made under conditions of

uncertainty (which are always present in statistics)
Uncertainty can be caused by
Randomness in selection of a sample
lack of knowledge about the source of the inferences
change in conditions not accounted for

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 Statistics in Business

Probability is used in statistics

To estimate the level of confidence in a confidence interval
To calculate the p-value in hypothesis testing

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 Levels of Data Measurement

Nominal — In nominal measurement the values just

"name" the attribute uniquely.
No ordering of the cases is implied.
For example, a persons gender is nominal. It doesn’t matter
whether you call them boys vs. girls or males vs. females or XY
vs. XX chromosomes.
Another example is religion – Catholic, Protestant, Muslim, etc.

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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. You can’t say a gold and a bronze medal
average out to a silver medal, though.
Preference scales are typically ordinal – how much do you like this cereal?
Like it a lot, somewhat like it, neutral, somewhat dislike it, dislike it a lot.

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 Levels of Data Measurement

Interval - In interval measurement the distance

between attributes does have meaning.
Numerical data typically fall into this category
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 a reference

point that is meaningful (either 0 for rates or 1 for ratios)
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

Data Level Meaningful Operations

Nominal Classifying and Counting

Ordinal All of the above plus Ranking

Interval All of the above plus Addition,

Subtraction, Multiplication, and
Division (including means,
standard deviations, etc.)

Ratio All of the above

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