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STATISTICS FOR MANAGEMENT

Q: Whats the definition of Statistics ?


A : Statistics are usually defined as:
1. A collection of numerical data that measure something.
2. The science of recording, organising, analysing and reporting quantitative
information.
Q: What are the different components of statistics ?
A: There are four components as per Croxton & Cowden
1. Collection of Data.
2. Presentation of Data
3. Analysis of Data
4. Interpretation of Data
Q: Whats the use of Correlation & Regression ?
A: Correlation & Regression is a statistical tools, are used to measure strength of
relationships between two variables.
Q. What is the need for Statistics?
Statistics gives us a technique to obtain, condense, analyze and relate numerical data.
Statistical methods are of a supreme value in education and psychology.
Q. How is statistics used in everyday life?
Statistics are everywhere, election predictions are statistics, anything food product that
says they x% more or less of a certain ingredient is a statistic. Life expectancy is a
statistic. If you play card games card counting is using statistics. There are tons of
statistics everywhere you look.
Statistical Survey
1. What is statistical survey?
Statistical surveys are used to collect quantitative information about items in a
population. A survey may focus on opinions or factual information depending on its
purpose, and many surveys involve administering questions to individuals. When the
questions are administered by a researcher, the survey is called a structured interview or
a researcher-administered survey. When the questions are administered by
the respondent, the survey is referred to as a questionnaire or a self-administered
survey.
2. What are the advantages of survey?
Efficient way of collecting information
Wide range of information can be collected
Easy to administer
Cheaper to run
3. What are the disadvantages of survey?
Responses may be subjective
Motivation may be low to answer
Errors due to sampling
If the question is not specific, it may lead to vague data.
4. What are the various modes of data collection?
Telephone
Mail
Online surveys
Personal survey
Mall intercept survey
5. What is sampling?
Sampling basically means selecting people/objects from a population in order to test
the population for something. For example, we might want to find out how people are
going to vote at the next election. Obviously we cant ask everyone in the country, so we
ask a sample.
Classification, Tabulation & Presentation of data
1. What are the types of data collection?
Qualitative Data
Nominal, Attributable or Categorical data
Ordinal or Ranked data
Quantitative or Interval data
Discrete data
Continuous measurements
2. What is tabulation of data?
Tabulation refers to the systematic arrangement of the information in rows and
columns. Rows are the horizontal arrangement. In simple words, tabulation is a layout
of figures in rectangular form with appropriate headings to explain different rows and
columns. The main purpose of the table is to simplify the presentation and to facilitate
comparisons.
3. What is presentation of data?
Descriptive statistics can be illustrated in an understandable fashion by presenting them
graphically using statistical and data presentation tools.
4. What are the different elements of tabulation?
Tabulation:
Table Number
Title
Captions and Stubs
Headnotes
Body
Source
5. What are the forms of presentation of the data?
Grouped and ungrouped data may be presented as :
Pie Charts
Frequency Histograms
Frequency Polygons
Ogives
Boxplots
Measures used to summarise data
1. What are the measures of summarizing data?
Measures of Central tendency: Mean, median, mode
Measures of Dispersion: Range, Variance, Standard Deviation
2. Define mean, median, and mode?
Mean: The mean value is what we typically call the average. You calculate the mean by
adding up all of the measurements in a group and then dividing by the number of
measurements.
Median: Median is the middle most value in a series when arranged in ascending or
descending order
Mode: The most repeated value in a series.
3. Which measure of central tendency is to be used?
The measure to be used differs in different contexts. If your results involve categories
instead of continuous numbers, then the best measure of central tendency will probably
be the most frequent outcome (the mode). On the other hand, sometimes it is an
advantage to have a measure of central tendency that is less sensitive to changes in the
extremes of the data.
4. Define range, variance and standard deviation?
The range is defined by the smallest and largest data values in the set.
Variance: The variance (
2
) is a measure of how far each value in the data set is from the
mean.
Standard Deviation: it is the square root of the variance.
5. How can standard deviation be used?
The standard deviation has proven to be an extremely useful measure of spread in part
because it is mathematically tractable.
Probablity
1. What is Probability?
Probability is a way of expressing knowledge or belief that an event will occur or has
occurred.
2. What is a random experiment?
An experiment is said to be a random experiment, if its out-come cant be predicted
with certainty.
3. What is a sample space?
The set of all possible out-comes of an experiment is called the sample space. It is
denoted by S and its number of elements are n(s).
Example; In throwing a dice, the number that appears at top is any one of 1,2,3,4,5,6. So
here:
S ={1,2,3,4,5,6} and n(s) = 6
Similarly in the case of a coin, S={Head,Tail} or {H,T} and n(s)=2.
4. What is an event? What are the different kinds of event?
Event: Every subset of a sample space is an event. It is denoted by E.
Example: In throwing a dice S={1,2,3,4,5,6}, the appearance of an event number will be
the event E={2,4,6}.
Clearly E is a sub set of S.
Simple event: An event, consisting of a single sample point is called a simple event.
Example: In throwing a dice, S={1,2,3,4,5,6}, so each of {1},{2},{3},{4},{5} and {6} are
simple events.
Compound event: A subset of the sample space, which has more than on element is
called a mixed event.
Example: In throwing a dice, the event of appearing of odd numbers is a compound
event, because E={1,3,5} which has 3 elements.
5. What is the definition of probability?
If S be the sample space, then the probability of occurrence of an event E is defined as:
P(E) = n(E)/N(S) =
number of elements in E
number of elements in sample space S
Theoretical Distributions
1. What are theoretical distributions?
Theoretical distributions are based on mathematical formulae and logic. It is used in
statistics to define statistics. When empirical and theoretical distributions correspond,
you can use the theoretical one to determine probabilities of an outcome, which will lead
to inferential statistics.
2. What are the various types of theoretical distributions?
Rectangular distribution (or Uniform Distribution)
Binomial distribution
Normal distribution
3. Define rectangular distribution and binomial distribution?
Rectangular distribution: Distribution in which all possible scores have the same
probability of occurrence.
Binomial distribution: Distribution of the frequency of events that can have only two
possible outcomes.
4. What is normal distribution?
The normal distribution is a bell-shaped theoretical distribution that predicts the
frequency of occurrence of chance events. The probability of an event or a group of
events corresponds to the area of the theoretical distribution associated with the event
or group of event. The distribution is asymptotic: its line continually approaches but
never reaches a specified limit. The curve is symmetrical: half of the total area is to the
left and the other half to the right.
5. What is the central limit theorem?
This theorem states that when an infinite number of successive random samples are
taken from a population, the sampling distribution of the means of those samples will
become approximately normally distributed with mean and standard deviation /
N as the same size (N) becomes larger, irrespective of the shape of the population
distribution.
Sampling & Sampling Distributions
1. What is sampling distribution?
Suppose that we draw all possible samples of size n from a given population. Suppose
further that we compute a statistic (mean, proportion, standard deviation) for each
sample. The probability distribution of this statistic is called Sampling Distribution.
2. What is variability of a sampling distribution?
The variability of sampling distribution is measured by its variance or its standard
deviation. The variability of a sampling distribution depends on three factors:
N: the no. of observations in the population.
n: the no. of observations in the sample
The way that the random sample is chosen.
3. How to create the sampling distribution of the mean?
Suppose that we draw all possible samples of size n from a population of size N. Suppose
further that we compute a mean score for each sample. In this way we create the
sampling distribution of the mean.
We know the following. The mean of the population () is equal to the mean of the
sampling distribution (x). And the standard error of the sampling distribution (x) is
determined by the standard deviation of the population (), the population size, and the
sample size. These relationships are shown in the equations below:
x = and x = * sqrt( 1/n 1/N )
4. What is the sampling distribution of the population?
In a population of size N, suppose that the probability of the occurence of an event
(dubbed a success) is P; and the probability of the events non-occurence (dubbed a
failure) is Q. From this population, suppose that we draw all possible samples of
size n. And finally, within each sample, suppose that we determine the proportion of
successes p and failures q. In this way, we create a sampling distribution of the
proportion.
5. Show the mathematical expression of the sampling distribution of the
population.
We find that the mean of the sampling distribution of the proportion (p) is equal to the
probability of success in the population (P). And the standard error of the sampling
distribution (p) is determined by the standard deviation of the population (), the
population size, and the sample size. These relationships are shown in the equations
below:
p = P and p = * sqrt( 1/n 1/N ) = sqrt[ PQ/n - PQ/N ]
where = sqrt[ PQ ].
Estimation
1. When will the sampling distribution be normally distributed?
Generally, the sampling distribution will be approximately normally distributed if any of
the following conditions apply.
The population distribution is normal.
The sampling distribution is symmetric, unimodal, without outliers, and the sample
size is 15 or less.
The sampling distribution is moderately skewed, unimodal, without outliers, and the
sample size is between 16 and 40.
The sample size is greater than 40, without outliers.
2. Get the variability of the sample mean.
Suppose k possible samples of size n can be selected from a population of size N. The
standard deviation of the sampling distribution is the average deviation between
the ksample means and the true population mean, . The standard deviation of the
sample mean x is:
x = * sqrt{ ( 1/n ) * ( 1 n/N ) * [ N / ( N - 1 ) ] }
where is the standard deviation of the population, N is the population size, and n is the
sample size. When the population size is much larger (at least 10 times larger) than the
sample size, the standard deviation can be approximated by:
x = / sqrt( n )
3. How can standard error of the population calculated?
When the standard deviation of the population is unknown, the standard deviation of
the sampling distribution cannot be calculated. Under these circumstances, use the
standard error. The standard error (SE) provides an unbiased estimate of the standard
deviation. It can be calculated from the equation below.
SEx = s * sqrt{ ( 1/n ) * ( 1 n/N ) * [ N / ( N - 1 ) ] }
where s is the standard deviation of the sample, N is the population size, and n is the
sample size. When the population size is much larger (at least 10 times larger) than the
sample size, the standard error can be approximated by:
SEx = s / sqrt( n )
4. How to find the confidence interval of the mean?
Identify a sample statistic. Use the sample mean to estimate the population mean.
Select a confidence level. The confidence level describes the uncertainty of a sampling
method. Often, researchers choose 90%, 95%, or 99% confidence levels; but any percentage can
be used.
Specify the confidence interval. The range of the confidence interval is defined by the sample
statistic + margin of error. And the uncertainty is denoted by the confidence level.
Testing of Hypothesis in case of large & small samples
1. What is a statistical hypothesis?
A statistical hypothesis is an assumption about a population parameter. This
assumption may or may not be true.
2. What are the types of statistical hypothesis?
There are two types of statistical hypotheses.
Null hypothesis. The null hypothesis, denoted by H0, is usually the hypothesis that
sample observations result purely from chance.
Alternative hypothesis. The alternative hypothesis, denoted by H1 or Ha, is the
hypothesis that sample observations are influenced by some non-random cause.
3. What is hypothesis testing?
Statisticians follow a formal process to determine whether to reject a null hypothesis,
based on sample data. This process is called hypothesis testing.
4. Define the steps of hypothesis testing?
Hypothesis testing consists of four steps.
State the hypotheses. This involves stating the null and alternative hypotheses. The
hypotheses are stated in such a way that they are mutually exclusive. That is, if one is
true, the other must be false.
Formulate an analysis plan. The analysis plan describes how to use sample data to
evaluate the null hypothesis. The evaluation often focuses around a single test
statistic.
Analyze sample data. Find the value of the test statistic (mean score, proportion, t-
score, z-score, etc.) described in the analysis plan.
Interpret results. Apply the decision rule described in the analysis plan. If the value
of the test statistic is unlikely, based on the null hypothesis, reject the null
hypothesis.
5. What are decision errors?
Two types of errors can result from a hypothesis test.
Type I error. A Type I error occurs when the researcher rejects a null hypothesis
when it is true. The probability of committing a Type I error is called
the significance level. This probability is also called alpha, and is often denoted
by .
Type II error. A Type II error occurs when the researcher fails to reject a null
hypothesis that is false. The probability of committing a Type II error is called Beta,
and is often denoted by . The probability of not committing a Type II error is called
the Power of the test.
6. How to arrive at a decision on hypothesis?
The decision rules can be taken in two ways with reference to a P-value or with
reference to a region of acceptance.
P-value. The strength of evidence in support of a null hypothesis is measured by
the P-value. Suppose the test statistic is equal to S. The P-value is the probability of
observing a test statistic as extreme as S, assuming the null hypotheis is true. If the
P-value is less than the significance level, we reject the null hypothesis.
Region of acceptance. The region of acceptance is a range of values. If the test
statistic falls within the region of acceptance, the null hypothesis is not rejected. The
region of acceptance is defined so that the chance of making a Type I error is equal to
the significance level.The set of values outside the region of acceptance is called
the region of rejection. If the test statistic falls within the region of rejection, the
null hypothesis is rejected. In such cases, we say that the hypothesis has been
rejected at the level of significance.
7. Explain one-tailed and two-tailed tests?
A test of a statistical hypothesis, where the region of rejection is on only one side of
the sampling distribution, is called a one-tailed test. For example, suppose the null
hypothesis states that the mean is less than or equal to 10. The alternative hypothesis
would be that the mean is greater than 10. The region of rejection would consist of a
range of numbers located located on the right side of sampling distribution; that is, a set
of numbers greater than 10.
A test of a statistical hypothesis, where the region of rejection is on both sides of the
sampling distribution, is called a two-tailed test. For example, suppose the null
hypothesis states that the mean is equal to 10. The alternative hypothesis would be that
the mean is less than 10 or greater than 10. The region of rejection would consist of a
range of numbers located located on both sides of sampling distribution; that is, the
region of rejection would consist partly of numbers that were less than 10 and partly of
numbers that were greater than 10.

F-Distribution and Analysis of variance (ANOVA)
1. What is ANOVA?
Analysis of variance (ANOVA) is a collection of statistical models and their associated
procedures in which the observed variance is partitioned into components due to
different sources of variation. ANOVA provides a statistical test of whether or not the
means of several groups are all equal.
2. What are the assumption in ANOVA?
The following assumptions are made to perform ANOVA:
Independence of cases this is an assumption of the model that simplifies the
statistical analysis.
Normality the distributions of the residuals are normal.
Equality (or homogeneity) of variances, called homoscedasticity the variance of
data in groups should be the same. Model-based approaches usually assume that the
variance is constant. The constant-variance property also appears in the
randomization (design-based) analysis of randomized experiments, where it is a
necessary consequence of the randomized design and the assumption of unit
treatment additivity (Hinkelmann and Kempthorne): If the responses of a
randomized balanced experiment fail to have constant variance, then the assumption
of unit treatment additivity is necessarily violated. It has been shown, however, that
the F-test is robust to violations of this assumption.
3. What is the logic of ANOVA?
Partitioning of the sum of squares
The fundamental technique is a partitioning of the total sum of squares (abbreviated SS)
into components related to the effects used in the model. For example, we show the
model for a simplified ANOVA with one type of treatment at different levels.

So, the number of degrees of freedom (abbreviated df) can be partitioned in a similar
way and specifies the chi-square distribution which describes the associated sums of
squares.

4. What is the F-test?
The F-test is used for comparisons of the components of the total deviation. For
example, in one-way, or single-factor ANOVA, statistical significance is tested for by
comparing the F test statistic


where
I = number of treatments
and
nT = total number of cases
to the F-distribution with I 1,nT I degrees of freedom. Using the F-distribution is a
natural candidate because the test statistic is the quotient of two mean sums of squares
which have a chi-square distribution.
5. Why is ANOVA helpful?
ANOVAs are helpful because they possess a certain advantage over a two-sample t-test.
Doing multiple two-sample t-tests would result in a largely increased chance of
committing a type I error. For this reason, ANOVAs are useful in comparing three or
more means.
Simple correlation and Regression
1. What is correlation?
Correlation is a measure of association between two variables. The variables are not
designated as dependent or independent.
2. What can be the values for correlation coefficient?
The value of a correlation coefficient can vary from -1 to +1. A -1 indicates a perfect
negative correlation and a +1 indicated a perfect positive correlation. A correlation
coefficient of zero means there is no relationship between the two variables.
3. What is the interpretation of the correlation coefficient values?
When there is a negative correlation between two variables, as the value of one variable
increases, the value of the other variable decreases, and vise versa. In other words, for a
negative correlation, the variables work opposite each other. When there is a positive
correlation between two variables, as the value of one variable increases, the value of the
other variable also increases. The variables move together.
4. What is simple regression?
Simple regression is used to examine the relationship between one dependent and one
independent variable. After performing an analysis, the regression statistics can be used
to predict the dependent variable when the independent variable is known. Regression
goes beyond correlation by adding prediction capabilities.
5. Explain the mathematical analysis of regression?
In the regression equation, y is always the dependent variable and x is always the
independent variable. Here are three equivalent ways to mathematically describe a
linear regression model.
y = intercept + (slope x) + error
y = constant + (coefficient x) + error
y = a + bx + e
The significance of the slope of the regression line is determined from the t-statistic. It is
the probability that the observed correlation coefficient occurred by chance if the true
correlation is zero. Some researchers prefer to report the F-ratio instead of the t-
statistic. The F-ratio is equal to the t-statistic squared.
Business Forecasting
1. What is forecasting?
Forecasting is a prediction of what will occur in the future, and it is an uncertain
process. Because of the uncertainty, the accuracy of a forecast is as important as the
outcome predicted by the forecast.
2. What are the various business forecasting techniques?

3. How to model the Causal time series?
With multiple regressions, we can use more than one predictor. It is always best,
however, to be parsimonious, that is to use as few variables as predictors as necessary to
get a reasonably accurate forecast. Multiple regressions are best modeled with
commercial package such as SAS or SPSS. The forecast takes the form:
Y = 0 + 1X1 + 2X2 + . . .+ nXn,
where 0 is the intercept, 1, 2, . . . n are coefficients representing the contribution of the
independent variables X1, X2,, Xn.
4. What are the various smoothing techniques?
Simple Moving average: The best-known forecasting methods is the moving
averages or simply takes a certain number of past periods and add them together; then
divide by the number of periods. Simple Moving Averages (MA) is effective and efficient
approach provided the time series is stationary in both mean and variance. The
following formula is used in finding the moving average of order n, MA(n) for a period
t+1,
MAt+1 = [Dt + Dt-1 + ... +Dt-n+1] / n
where n is the number of observations used in the calculation.
Weighted Moving Average: Very powerful and economical. They are widely used
where repeated forecasts required-uses methods like sum-of-the-digits and trend
adjustment methods. As an example, a Weighted Moving Averages is:
Weighted MA(3) = w1.Dt + w2.Dt-1 + w3.Dt-2
where the weights are any positive numbers such that: w1 + w2 + w3 = 1.
5. Explain exponential smoothing techniques?
Single Exponential Smoothing: It calculates the smoothed series as a damping
coefficient times the actual series plus 1 minus the damping coefficient times the lagged
value of the smoothed series. The extrapolated smoothed series is a constant, equal to
the last value of the smoothed series during the period when actual data on the
underlying series are available.
Ft+1 = Dt + (1 ) Ft
where:
Dt is the actual value
Ft is the forecasted value
is the weighting factor, which ranges from 0 to 1
t is the current time period.
Double Exponential Smoothing: It applies the process described above three to
account for linear trend. The extrapolated series has a constant growth rate, equal to the
growth of the smoothed series at the end of the data period.
6. What are time series models?
A time series is a set of numbers that measures the status of some activity over time. It is
the historical record of some activity, with measurements taken at equally spaced
intervals (exception: monthly) with a consistency in the activity and the method of
measurement.
Time Series Analysis
1. What is time series forecasting?
The time-series can be represented as a curve that evolve over time. Forecasting the
time-series mean that we extend the historical values into the future where the
measurements are not available yet.
2. What are the different models in time series forecasting?
Simple moving average
Weighted moving average
Simple exponential smoothing
Holts double Exponential smoothing
Winters triple exponential smoothing
Forecast by linear regression
3. Explain simple moving average and weighted moving average models?
Simple Moving average: The best-known forecasting methods is the moving
averages or simply takes a certain number of past periods and add them together; then
divide by the number of periods. Simple Moving Averages (MA) is effective and efficient
approach provided the time series is stationary in both mean and variance. The
following formula is used in finding the moving average of order n, MA(n) for a period
t+1,
MAt+1 = [Dt + Dt-1 + ... +Dt-n+1] / n
where n is the number of observations used in the calculation.
Weighted Moving Average: Very powerful and economical. They are widely used
where repeated forecasts required-uses methods like sum-of-the-digits and trend
adjustment methods. As an example, a Weighted Moving Averages is:
Weighted MA(3) = w1.Dt + w2.Dt-1 + w3.Dt-2
where the weights are any positive numbers such that: w1 + w2 + w3 = 1.
4. Explain the exponential smoothing techniques?
Single Exponential Smoothing: It calculates the smoothed series as a damping
coefficient times the actual series plus 1 minus the damping coefficient times the lagged
value of the smoothed series. The extrapolated smoothed series is a constant, equal to
the last value of the smoothed series during the period when actual data on the
underlying series are available.
Ft+1 = a Dt + (1 a) Ft
where:
Dt is the actual value
Ft is the forecasted value
a is the weighting factor, which ranges from 0 to 1
t is the current time period.
Double Exponential Smoothing: It applies the process described above three to
account for linear trend. The extrapolated series has a constant growth rate, equal to the
growth of the smoothed series at the end of the data period.
Triple exponential Smoothing: It applies the process described above three to
account for nonlinear trend.
5. How should one forecast by linear regression?
Regression is the study of relationships among variables, a principal purpose of which is
to predict, or estimate the value of one variable from known or assumed values of other
variables related to it.
Types of Analysis
Simple Linear Regression: A regression using only one predictor is called a simple
regression.
Multiple Regression: Where there are two or more predictors, multiple regression
analysis is employed.


Index Numbers
1. What are index numbers?
Index numbers are used to measure changes in some quantity which we cannot observe
directly. E.g changes in business activity.
2. Describe the classification of index numbers?
Index numbers are classified in terms of the variables that are intended to measure. In
business, different groups of variables in the measurement of which index number
techniques are commonly used are i) price ii) quantity iii) value iv) Business activity
3. What are simple and composite index numbers?
Simple index numbers: A simple index number is a number that measures a relative
change in a single variable with respect to a base.
Composite index numbers: A composite index number is a number that measures
an average relative change in a group of relative variables with respect to a base.

4. What are price index numbers?
Price index numbers measure the relative changes in the prices of commodities between
two periods. Prices can be retail or wholesale.
5. What are quantity index numbers?
These index numbers are considered to measure changes in the physical quantity of
goods produced, consumed, or sold of an item or a group of items.