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A PowerPoint Presentation Package to Accompany

Applied Statistics in Business & Economics, 4th edition


David P. Doane and Lori E. Seward
Prepared by Lloyd R. Jaisingh

McGraw-Hill/Irwin

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

Chapter 1

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

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Chapter 1

Overview of Statistics
Chapter Learning Objectives
LO1LO1 -1: Define statistics and explain some of its uses in
business.

LO1-2: List reasons for a business student to study statistics. LO1LO1LO1 -3: State the common challenges facing business
professionals using statistics.

LO1LO1 -4: List and explain common statistical pitfalls.

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Chapter 1

LO1LO1 -1

1.1 What is Statistics?

LO1LO1 -1: Define statistics and explain some of


its uses in business.

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.
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LO1LO1 -1

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.

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LO1LO1 -2

1.2 Why Study Statistics?

LO1LO1 -2: List reasons for a business student to 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.

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LO1LO1 -2

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 ones way through the promotion process, or when one moves to a new employer. Here are some reasons to study statistics.

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LO1LO1 -2

1.2 Why Study Statistics?

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

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

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LO1LO1 -2

1.2 Why Study Statistics?

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

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

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LO1LO1 -2

1.2 Why Study Statistics?


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

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1.3 Uses of Statistics


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.

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LO1LO1 -1

1.3 Uses of Statistics

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LO1LO1 -1

1.3 Uses of Statistics

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

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

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LO1LO1 -1

1.3 Uses of Statistics

Health Care
Evaluate 100 incoming patients using a 4242-item physical and mental assessment questionnaire.

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

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LO1LO1 -1

1.3 Uses of Statistics

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

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

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LO1LO1 -1

1.3 Uses of Statistics

Operations Management
Manage inventory by forecasting consumer demand.

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

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LO1LO1 -3

1.4 Statistical Challenges


LO1LO1 -3: State the common challenges facing
business professionals using statistics.

The Ideal Data Analyst


Is technically current (e.g., softwaresoftware-wise). Communicates well. Is proactive.

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LO1LO1 -3

1.4 Statistical Challenges

The Ideal Data Analyst


Has a broad outlook. Is flexible. Focuses on the main problem. Meets deadlines

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LO1LO1 -3

1.4 Statistical Challenges

The Ideal Data Analyst


Knows his/her limitations and is willing to ask for help. Can deal with imperfect information. Has professional integrity.

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LO1LO1 -3

1.4 Statistical Challenges

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.

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LO1LO1 -3

1.4 Statistical Challenges

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.

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LO1LO1 -3

1.4 Statistical Challenges

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 companys business practices. Being responsible for accurately reporting information to management.

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LO1LO1 -3

1.4 Statistical Challenges

Upholding Ethical Standards


Ethical standards for the data analyst: Know and follow accepted procedures. Maintain data integrity. Carry out accurate calculations.

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LO1LO1 -3

1.4 Statistical Challenges

Upholding Ethical Standards


Ethical standards for the data analyst (continued): Report procedures faithfully. Protect confidential information. Cite sources. Acknowledge sources of financial support.

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LO1LO1 -3

1.4 Statistical Challenges

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.

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1.4 Statistical Challenges

Communicating with Numbers


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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LO1LO1 -3

1.4 Statistical Challenges

Skills Needed for Success in Business


For initial job success
ReportReport -writing Accounting principles Mathematics Statistics
(Table 1.1) For long long-range job success

Common weaknesses
Communication skills Writing skills Immaturity Unrealistic expectations
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Managerial accounting Managerial economics Managerial finance Oral communication

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1.5 Critical Thinking


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.

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LO1LO1 -4

1.5 Critical Thinking

LO1LO1 -4: List and explain common statistical pitfalls. pitfalls

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).

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1.5 Critical Thinking

Pitfall 2: Making Conclusions from Nonrandom Samples


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).

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1.5 Critical Thinking

Pitfall 3: Conclusions From Rare Events


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

Pitfall 4: Using Poor Survey Methods


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

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LO1LO1 -4

1.5 Critical Thinking

Pitfall 5: Assuming a Causal Link Based on Observations


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

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LO1LO1 -4

1.5 Critical Thinking


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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1.5 Critical Thinking

Pitfall 7: Unconscious Bias


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

Pitfall 8: Significance versus Importance


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).

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