John Loucks

.. .
SLIDES BY
.
..
. John Loucks
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. St. Edward’s
.. University
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied
Slide 1
or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 1
Data and Statistics
Statistics
Applications in Business and Economics
Data
Data Sources
Descriptive Statistics
Statistical Inference
Computers and Statistical Analysis
Data Mining
Ethical Guidelines for Statistical Practice
Slide 2
Statistics
The term statistics can refer to numerical facts such as

averages, medians, percents, and index numbers that
help us understand a variety of business and economic
situations.
Statistics can also refer to the art and science of
collecting, analyzing, presenting, and interpreting
data.
Slide 3
Applications in
Business and Economics
Accounting
Public accounting firms use statistical sampling
procedures when conducting audits for their clients.
Economics
Economists use statistical information in making
forecasts about the future of the economy or some
aspect of it.
 Finance
Financial advisors use price-earnings ratios and
dividend yields to guide their investment advice.
Slide 4
Applications in
Business and Economics
Marketing
Electronic point-of-sale scanners at retail checkout
counters are used to collect data for a variety of
marketing research applications.
Production
A variety of statistical quality control charts are used
to monitor the output of a production process.
Information Systems
A variety of statistical information helps administrators
assess the performance of computer networks.
Slide 5
Data and Data Sets
Data are the facts and figures collected, analyzed,

and summarized for presentation and interpretation.
 All the data collected in a particular study are referred

to as the data set for the study.
Slide 6
Elements, Variables, and Observations
 Elements are the entities on which data are collected.

 A variable is a characteristic of interest for the elements.
 The set of measurements obtained for a particular
element is called an observation.
 A data set with n elements contains n observations.
 The total number of data values in a complete data
set is the number of elements multiplied by the
number of variables.
Slide 7
Data, Data Sets,
Elements, Variables, and Observations
Variables
Element
Names Stock Annual Earn/
Company Exchange Sales($M) Share($)
Dataram NQ 73.10 0.86

EnergySouth N 74.00 1.67
Keystone N 365.70 0.86
LandCare NQ 111.40 0.33
Psychemedics N 17.60 0.13
Data Set
Slide 8
Scales of Measurement
Scales of measurement include:

Nominal Interval
Ordinal Ratio
The scale determines the amount of information

contained in the data.
The scale indicates the data summarization and

statistical analyses that are most appropriate.
Slide 9
Nominal
Data are labels or names used to identify an

attribute of the element.
A nonnumeric label or numeric code may be used.
Slide 10
Nominal
Example:
Students of a university are classified by the
school in which they are enrolled using a
nonnumeric label such as Business, Humanities,
Education, and so on.
Alternatively, a numeric code could be used for
the school variable (e.g. 1 denotes Business,
2 denotes Humanities, 3 denotes Education, and
so on).
Slide 11
Ordinal
The data have the properties of nominal data and

the order or rank of the data is meaningful.
A nonnumeric label or numeric code may be used.
Slide 12
Ordinal
Example:
Students of a university are classified by their
class standing using a nonnumeric label such as
Freshman, Sophomore, Junior, or Senior.
Alternatively, a numeric code could be used for
the class standing variable (e.g. 1 denotes
Freshman, 2 denotes Sophomore, and so on).
Slide 13
Interval
The data have the properties of ordinal data, and

the interval between observations is expressed in
terms of a fixed unit of measure.
Interval data are always numeric.
Slide 14
Interval
Example:
Melissa has an SAT score of 1985, while Kevin
has an SAT score of 1880. Melissa scored 105
points more than Kevin.
Slide 15
Ratio
The data have all the properties of interval data

and the ratio of two values is meaningful.
Variables such as distance, height, weight, and time

use the ratio scale.
This scale must contain a zero value that indicates

that nothing exists for the variable at the zero point.
Slide 16
Ratio
Example:
Melissa’s college record shows 36 credit hours
earned, while Kevin’s record shows 72 credit
hours earned. Kevin has twice as many credit
hours earned as Melissa.
Slide 17
Categorical and Quantitative Data
Data can be further classified as being categorical

or quantitative.
The statistical analysis that is appropriate depends

on whether the data for the variable are categorical
or quantitative.
In general, there are more alternatives for statistical

analysis when the data are quantitative.
Slide 18
Categorical Data
Labels or names used to identify an attribute of

each element
Often referred to as qualitative data
Use either the nominal or ordinal scale of

measurement
Can be either numeric or nonnumeric
Appropriate statistical analyses are rather limited
Slide 19
Quantitative Data
Quantitative data indicate how many or how much:
discrete, if measuring how many
continuous, if measuring how much
Quantitative data are always numeric.
Ordinary arithmetic operations are meaningful for

quantitative data.
Slide 20
Data
Categorical Quantitative
Numeric Non-numeric Numeric
Nominal Ordinal Nominal Ordinal Interval Ratio
Slide 21
Cross-Sectional Data
Cross-sectional data are collected at the same or

approximately the same point in time.
Example: data detailing the number of building

permits issued in November 2012 in each of the
counties of Ohio
Slide 22
Time Series Data
Time series data are collected over several time

periods.
Example: data detailing the number of building

permits issued in Lucas County, Ohio in each of
the last 36 months
Graphs of time series help analysts understand

• what happened in the past,
• identify any trends over time, and
• project future levels for the time series
Slide 23
Time Series Data
Graph of Time Series Data

U.S. Average Price Per Gallon
For Conventional Regular Gasoline
Source: Energy Information Administration, U.S. Department of Energy, May 2009.
Slide 24
Data Sources
Existing Sources
Internal company records – almost any department

Business database services – Dow Jones & Co.
Government agencies - U.S. Department of Labor
Industry associations – Travel Industry Association
of America
Special-interest organizations – Graduate Management
Admission Council
Internet – more and more firms
Slide 25
Data Sources
Data Available From Internal Company Records

Record Some of the Data Available
Employee records name, address, social security number
Production records part number, quantity produced,
direct labor cost, material cost
Inventory records part number, quantity in stock,
reorder level, economic order quantity
Sales records product number, sales volume, sales
volume by region
Credit records customer name, credit limit, accounts
receivable balance
Customer profile age, gender, income, household size
Slide 26
Data Sources
Data Available From Selected Government Agencies

Government Agency Some of the Data Available
Census Bureau Population data, number of
www.census.gov households, household income
Federal Reserve Board Data on money supply, exchange
www.federalreserve.gov rates, discount rates
Office of Mgmt. & Budget Data on revenue, expenditures, debt
www.whitehouse.gov/omb of federal government
Department of Commerce Data on business activity, value of
www.doc.gov shipments, profit by industry
Bureau of Labor Statistics Customer spending, unemployment
www.bls.gov rate, hourly earnings, safety record
Slide 27
Data Sources
Statistical Studies - Experimental

In experimental studies the variable of interest is
first identified. Then one or more other variables
are identified and controlled so that data can be
obtained about how they influence the variable of
interest.
The largest experimental study ever conducted is

believed to be the 1954 Public Health Service
experiment for the Salk polio vaccine. Nearly two
million U.S. children (grades 1- 3) were selected.
Slide 28
Data Sources
Statistical Studies - Observational

In observational (nonexperimental) studies no
attempt is made to control or influence the
variables of interest.
a survey is a good example
Studies of smokers and nonsmokers are

observational studies because researchers
do not determine or control
who will smoke and who will not smoke.
Slide 29
Data Acquisition Considerations
Time Requirement
• Searching for information can be time consuming.
• Information may no longer be useful by the time it
is available.
Cost of Acquisition
• Organizations often charge for information even
when it is not their primary business activity.
Data Errors
• Using any data that happen to be available or were
acquired with little care can lead to misleading
information.
Slide 30
Descriptive Statistics
 Most of the statistical information in newspapers,

magazines, company reports, and other publications
consists of data that are summarized and presented
in a form that is easy to understand.
 Such summaries of data, which may be tabular,
graphical, or numerical, are referred to as descriptive
statistics.
Slide 31
Example: Hudson Auto Repair
The manager of Hudson Auto would like to have a

better understanding of the cost of parts used in the
engine tune-ups performed in her shop. She examines
50 customer invoices for tune-ups. The costs of parts,
rounded to the nearest dollar, are listed on the next
slide.
Slide 32
Example: Hudson Auto Repair
Sample of Parts Cost ($) for 50 Tune-ups
91 78 93 57 75 52 99 80 97 62
71 69 72 89 66 75 79 75 72 76
104 74 62 68 97 105 77 65 80 109
85 97 88 68 83 68 71 69 67 74
62 82 98 101 79 105 79 69 62 73
Slide 33
Tabular Summary:
Frequency and Percent Frequency
Example: Hudson Auto
Parts Percent
Cost ($) Frequency Frequency
50-59 2 4
60-69 13 26
(2/50)100
70-79 16 32
80-89 7 14
90-99 7 14
100-109 5 10
50 100
Slide 34
Graphical Summary: Histogram
Example: Hudson Auto

18 Tune-up Parts Cost
16
14
12
Frequency
10
8
6
4
2
Parts
50-59 60-69 70-79 80-89 90-99 100-110 Cost ($)
Slide 35
Numerical Descriptive Statistics
 The most common numerical descriptive statistic

is the average (or mean).
 The average demonstrates a measure of the central
tendency, or central location, of the data for a variable.
 Hudson’s average cost of parts, based on the 50
tune-ups studied, is $79 (found by summing the
50 cost values and then dividing by 50).
Slide 36
Statistical Inference
Population - the set of all elements of interest in a

particular study
Sample - a subset of the population
Statistical inference - the process of using data obtained

from a sample to make estimates
and test hypotheses about the
characteristics of a population
Census - collecting data for the entire population
Sample survey - collecting data for a sample
Slide 37
Process of Statistical Inference
1. Population
consists of all tune- 2. A sample of 50
ups. Average cost of engine tune-ups
parts is unknown. is examined.
3. The sample data

4. The sample average
provide a sample
is used to estimate the average parts cost
population average. of $79 per tune-up.
Slide 38
Computers and Statistical Analysis
 Statisticians often use computer software to perform

the statistical computations required with large
amounts of data.
 Many of the data sets in this book are available on
the website that accompanies the book.
 The data sets can downloaded in either Minitab or
Excel format.
 Also, the Excel add-in StatTools can be downloaded
from the website.
Slide 39
Data Warehousing
 Organizations obtain large amounts of data on a

daily basis by means of magnetic card readers, bar
code scanners, point of sale terminals, and touch
screen monitors.
 Wal-Mart captures data on 20-30 million transactions
per day.
 Visa processes 6,800 payment transactions per second.
 Capturing, storing, and maintaining the data, referred
to as data warehousing, is a significant undertaking.
Slide 40
Data Mining
 Analysis of the data in the warehouse might aid in

decisions that will lead to new strategies and higher
profits for the organization.
 Using a combination of procedures from statistics,
mathematics, and computer science, analysts “mine
the data” to convert it into useful information.
 The most effective data mining systems use automated
procedures to discover relationships in the data and
predict future outcomes, … prompted by only general,
even vague, queries by the user.
Slide 41
Data Mining Applications
 The major applications of data mining have been

made by companies with a strong consumer focus
such as retail, financial, and communication firms.
 Data mining is used to identify related products that
customers who have already purchased a specific
product are also likely to purchase (and then pop-ups
are used to draw attention to those related products).
 As another example, data mining is used to identify
customers who should receive special discount offers
based on their past purchasing volumes.
Slide 42
Data Mining Requirements
 Statistical methodology such as multiple regression,

logistic regression, and correlation are heavily used.
 Also needed are computer science technologies
involving artificial intelligence and machine learning.
 A significant investment in time and money is
required as well.
Slide 43
Data Mining Model Reliability
 Finding a statistical model that works well for a

particular sample of data does not necessarily mean
that it can be reliably applied to other data.
 With the enormous amount of data available, the
data set can be partitioned into a training set (for
model development) and a test set (for validating
the model).
 There is, however, a danger of over fitting the model
to the point that misleading associations and
conclusions appear to exist.
 Careful interpretation of results and extensive testing
is important.
Slide 44
 In a statistical study, unethical behavior can take a

variety of forms including:
• Improper sampling
• Inappropriate analysis of the data
• Development of misleading graphs
• Use of inappropriate summary statistics
• Biased interpretation of the statistical results
 You should strive to be fair, thorough, objective, and
neutral as you collect, analyze, and present data.
 As a consumer of statistics, you should also be aware
of the possibility of unethical behavior by others.
Slide 45
 The American Statistical Association developed the

report “Ethical Guidelines for Statistical Practice”.
 The report contains 67 guidelines organized into
eight topic areas:
•Professionalism
•Responsibilities to Funders, Clients, Employers
•Responsibilities in Publications and Testimony
•Responsibilities to Research Subjects
•Responsibilities to Research Team Colleagues
•Responsibilities to Other Statisticians/Practitioners
•Responsibilities Regarding Allegations of Misconduct
•Responsibilities of Employers Including Organizations,
Individuals, Attorneys, or Other Clients
Slide 46
End of Chapter 1
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.. .

The term statistics can refer to numerical facts such as

Data are the facts and figures collected, analyzed,

 All the data collected in a particular study are referred

 Elements are the entities on which data are collected.

Dataram NQ 73.10 0.86

Scales of measurement include:

The scale determines the amount of information

The scale indicates the data summarization and

Data are labels or names used to identify an

A nonnumeric label or numeric code may be used.

The data have the properties of nominal data and

A nonnumeric label or numeric code may be used.

The data have the properties of ordinal data, and

Interval data are always numeric.

The data have all the properties of interval data

Variables such as distance, height, weight, and time

This scale must contain a zero value that indicates

Data can be further classified as being categorical

The statistical analysis that is appropriate depends

In general, there are more alternatives for statistical

Labels or names used to identify an attribute of

Often referred to as qualitative data

Use either the nominal or ordinal scale of

Can be either numeric or nonnumeric

Appropriate statistical analyses are rather limited

Quantitative data indicate how many or how much:

discrete, if measuring how many

continuous, if measuring how much

Quantitative data are always numeric.

Ordinary arithmetic operations are meaningful for

Numeric Non-numeric Numeric

Nominal Ordinal Nominal Ordinal Interval Ratio

Cross-sectional data are collected at the same or

Example: data detailing the number of building

Time series data are collected over several time

Example: data detailing the number of building

Graphs of time series help analysts understand

Graph of Time Series Data

Source: Energy Information Administration, U.S. Department of Energy, May 2009.

Internal company records – almost any department

Data Available From Internal Company Records

Data Available From Selected Government Agencies

Statistical Studies - Experimental

The largest experimental study ever conducted is

Statistical Studies - Observational

Studies of smokers and nonsmokers are

 Most of the statistical information in newspapers,

The manager of Hudson Auto would like to have a

Sample of Parts Cost ($) for 50 Tune-ups

Example: Hudson Auto

 The most common numerical descriptive statistic

Population - the set of all elements of interest in a

Statistical inference - the process of using data obtained

Sample survey - collecting data for a sample

3. The sample data

 Statisticians often use computer software to perform

 Organizations obtain large amounts of data on a

 Analysis of the data in the warehouse might aid in