McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Applied Statistics in Business & Economics, 4th edition

David P. Doane and Lori E. Seward

Prepared by Lloyd R. Jaisingh

A PowerPoint Presentation Package to Accompany

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Overview of Statistics

Chapter Contents 1.1 What is Statistics? 1.2 Why Study Statistics? 1.3 Uses of Statistics 1.4 Statistical Challenges 1.5 Critical Thinking

Chapter 1

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Overview of Statistics

Chapter Learning Objectives LO1-1: Define statistics and explain some of its uses in business.

LO1-2: List reasons for a business student to study statistics.

LO1-3: State the common challenges facing business professionals using statistics.

LO1-4: List and explain common statistical pitfalls.

Chapter 1

1.1 What is Statistics?

• Statistics is the science of collecting, organizing, analyzing, interpreting, and presenting data.

• A statistic is a single measure (number) used to summarize a sample data set; for example, the average height of students in a university.

LO1-1

Chapter 1

LO1-1: Define statistics and explain some of its uses in business.

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1.1 What is Statistics?

• For the height of students, a graduation gown manufacturer may need to know the average height for the length of the gowns or an architect may need to know the maximum height to design the height of the doorways of the classrooms.

LO1-1

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1.2 Why Study Statistics?

• Knowing statistics will make you a better consumer of other people's data.

• You should know enough to handle everyday data problems, to feel confident that others cannot deceive you with spurious arguments, and to know when you've reached the limits of your expertise.

Chapter 1

LO1-2

LO1-2: List reasons for a business student to study statistics.

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1.2 Why Study Statistics?

• Statistical knowledge gives a company a competitive advantage against organizations that cannot understand their internal or external market data.

• Mastery of basic statistics gives an individual manager a competitive advantage as one works one’s way through the promotion process, or when one moves to a new employer.

• Here are some reasons to study statistics.

Chapter 1

LO1-2

1.2 Why Study Statistics?

Communication

Computer Skills

Understanding the language of statistics facilitates communication and improves problem solving.

The use of spreadsheets for data analysis and word processors or presentation software for reports improves upon your existing skills.

LO1-2

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Information Management

Technical Literacy

Statistics helps summarize small and large amounts of data and reveal underlying relationships.

Career opportunities are in growth industries propelled by advanced technology. The use of statistical software increases your technical literacy.

1.2 Why Study Statistics?

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LO1-2

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Process Improvement

Statistics helps firms oversee their suppliers, monitor their internal operations, and identify problems.

1.2 Why Study Statistics?

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LO1-2

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Two primary kinds of statistics:

Descriptive statistics – the collection, organization, presentation, and summary of data.

Inferential statistics – generalizing from a sample to a population, estimating unknown parameters, drawing conclusions, making decisions.

1.3 Uses of Statistics

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1.3 Uses of Statistics

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LO1-1

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Auditing

Marketing

Sample from over 12,000 invoices to estimate the proportion of incorrectly paid invoices.

Identify likely repeat customers for Amazon.com and suggest co-marketing opportunities based on a database of 5 million Internet purchases.

1.3 Uses of Statistics

Chapter 1

LO1-1

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Health Care

Quality Improvement

Evaluate 100 incoming patients using a 42-item physical and mental assessment questionnaire.

Initiate a triple inspection program, setting penalties for workers who produce poor-quality output.

1.3 Uses of Statistics

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LO1-1

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Purchasing

Medicine

Determine the defect rate of a shipment and whether that rate has changed significantly over time.

Determine whether a new drug is really better than the placebo or if the difference is due to chance.

1.3 Uses of Statistics

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LO1-1

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Operations Management

Product Warranty

Determine the average dollar cost of engine warranty claims on a new hybrid engine.

Manage inventory by forecasting consumer demand.

1.3 Uses of Statistics

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LO1-1

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• Is technically current (e.g., software-wise).

• Communicates well.

• Is proactive.

The Ideal Data Analyst

1.4 Statistical Challenges

Chapter 1

LO1-3: State the common challenges facing business professionals using statistics.

LO1-3

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• Has a broad outlook.

• Is flexible.

• Focuses on the main problem.

• Meets deadlines

The Ideal Data Analyst

1.4 Statistical Challenges

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LO1-3

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• Knows his/her limitations and is willing to ask for help.

• Can deal with imperfect information.

• Has professional integrity.

The Ideal Data Analyst

1.4 Statistical Challenges

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LO1-3

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Imperfect Data and Practical Constraints

State any assumptions and limitations and use generally accepted statistical tests to detect unusual data points or to deal with missing data. You will face constraints on the type and quality of data you can collect.

1.4 Statistical Challenges

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LO1-3

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Business Ethics

Some broad ethical responsibilities of business are

• Treating customers in a fair and honest manner.• Complying with laws that prohibit discrimination.• Ensuring that products and services meet safety regulations.

1.4 Statistical Challenges

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LO1-3

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Business Ethics

Some broad ethical responsibilities of business are (continued)

• Standing behind warranties.• Advertising in a factual and informative manner.• Encouraging employees to ask questions and voice concerns

about the company’s business practices.• Being responsible for accurately reporting information to

management.

1.4 Statistical Challenges

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LO1-3

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Upholding Ethical Standards

Ethical standards for the data analyst:

• Know and follow accepted procedures.• Maintain data integrity.• Carry out accurate calculations.

1.4 Statistical Challenges

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LO1-3

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Upholding Ethical Standards Ethical standards for the data analyst (continued):

• Report procedures faithfully.• Protect confidential information.• Cite sources.• Acknowledge sources of financial support.

1.4 Statistical Challenges

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LO1-3

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Using Consultants

Hire consultants at the beginning of the project, when your team

lacks certain skills or when an unbiased or informed view is needed.

1.4 Statistical Challenges

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LO1-3

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Communicating with Numbers

1.4 Statistical Challenges

• Numbers have meaning only when communicated in the context of a certain situation.

• Presentation should be such that managers will quickly understand the information they need to use in order to make good decisions.

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LO1-3

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Skills Needed for Success in Business(Table 1.1)For initial

job successFor long-range

job successCommon

weaknessesReport-writing Managerial

accountingCommunication skills

Accounting principles

Managerial economics Writing skills

Mathematics Managerial finance ImmaturityStatistics Oral

communicationUnrealistic expectations

1.4 Statistical Challenges

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• Statistics is an essential part of critical thinking because it allows us to test an idea against empirical evidence.

• Empirical data represent data collected through observation and experiments.

• Statistical tools are used to compare prior ideas with empirical data, but pitfalls do occur.

1.5 Critical Thinking

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Pitfall 1: Making Conclusions about a Large Population from a Small Sample

Be careful about making generalizations from small samples (e.g., a group of 10 patients who showed improvement).

1.5 Critical Thinking

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LO1-4

LO1-4: List and explain common statistical pitfalls.

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Pitfall 2: Making Conclusions from Nonrandom Samples

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1.5 Critical Thinking

Be careful about making generalizations from small samples and from retrospective studies of special groups (e.g., studying heart attack patients without defining matched control group).

LO1-4

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Pitfall 3: Conclusions From Rare Events

Pitfall 4: Using Poor Survey Methods

Be careful about drawing strong inferences from events that are not surprising when looking at the entire population (e.g., winning the lottery).

Be careful about using poor sampling methods or vaguely worded questions (e.g., anonymous survey or quiz).

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Pitfall 5: Assuming a Causal Link Based on Observations

Be careful about drawing conclusions when no cause-and-effect link exists (e.g., most shark attacks occur between 12 p.m. and 2 p.m.).

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Pitfall 6: Generalization to Individuals from Observations about Groups

Avoid reading too much into statistical generalizations (e.g., men are taller than women).

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Pitfall 7: Unconscious Bias

Pitfall 8: Significance versus Importance

Be careful about unconsciously or subtly allowing bias to color handling of data (e.g., heart disease in men vs. women).

Statistically significant effects may lack practical importance (e.g., Austrian military recruits born in the spring average 0.6 cm taller than those born in the fall).

Chapter 1

1.5 Critical ThinkingLO1-4

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