Business Statistics

Why statistics?
Decision making is often based on
analysis of data.
Statistics helps you to make sense of the
data by using tools that summarize,
present and analyze the data.
Decision maker can also ascertain the
confidence in the decisions.

Examples
How many newspapers should the vendor stock
to maximize revenue?
Depends on the probability distribution of demand and
expected profit

Are two or more market segments significantly

different?
Hypothesis testing

What proportion of people are happy with the

Sixth-pay commission report?
Parameter estimation

Sample vs. Population

Population is the entire group/collection of
individuals/objects/things that we want
information about.
Sample is part of the population that we actually
examine to gather information.
Example
We wish to find the average dividend percentage of
all companies traded at NSE.
All stocks traded at NSE comprises population
10% of the stocks selected for gathering information is the
sample

Subdivision within Statistics

Descriptive Statistics
Collect
Organize
Summarize
Display
Analyze

Inferential Statistics
Predict and forecast
values of population
parameters
Test hypotheses about
values of population
parameters
Make decisions

Descriptive statistics
- data and frequency distribution
The following are the departure delay in minutes of 42 flights selected
at random from a particular airport.
10

12

45

13

40

13

20

45

95

38

67

47

55

56

45

50

27

50

15

26

34

12

25

48

40

25

50

42

48

53

44

23

56

46

22

Frequency Distribution

Table with two columns listing:

Each and every group or class or interval of values
Associated frequency of each group
Number of observations assigned to each group
Sum of frequencies is number of observations
Class midpoint is the middle value of a group or class or
interval
Relative frequency is the percentage/proportion of total
observations in each class
Sum of relative frequencies = 1

Frequency distribution
Delay in
minutes

Frequency

Relative
frequency

015

12

0.286

15 - 30

0.190

30 45

0.143

45 60

14

0.333

0.048

42

60 or more
Total

Frequency distribution- histogram

Two variable frequency distribution

-cross tabulation

A joint frequency distribution of two variables (e.g. ownership of airline, delay

in minutes)

Descriptive statistics - measures

Measures of Location
Measures of Variability
Skewness and Kurtosis

Association between two variables

Measures of Location

Arithmetic Mean
Median
Mode
Percentiles
Quartiles

Arithmetic mean
The mean of a data set is the average
of all the data values.
xi
x
n
xi

Sample mean

Population mean

Mean example
Average delay in flight departure

1354/42 = 32.2381 minutes

Median
It is the middle item in a data set that is
arranged in ascending/descending order
If there are n observations then the
Median = (n+1)/2 th observation.
computation rule
if n is odd then (n+1)/2 is an integer

if n is even then use average of n/2 and n/2 +1 th

observation

Example
Sorted 42
observations
median is average of
21st and 22nd
observation
= (34+38)/2
= 36

22

45

23

46

25

47

25

48

26

48

27

50

34

50

10

38

50

12

40

53

12

40

55

13

42

56

13

44

56

15

45

67

20

45

95

Mode
Mode is the highest occurring observation
mode in the example is 0

The greatest frequency can occur at two

or more different values.
If the data have exactly two modes, the
data are bimodal.
If the data have more than two modes, the
data are multimodal.

Percentiles and Quartiles

Given any set of ordered numerical

observations

The Pth percentile in the ordered set is that

value below which lie P% (P percent) of the
observations in the set.
The position of the Pth percentile is given by (n +
1)P/100, where n is the number of observations in
the set.

Example
Calculate 45th percentile of the airline
delay data
the position of 45th percentile is
45*(42+1)/100 = 19.35th
value of 45th percentile
= 19th observation + 0.35 of (20 19)th
observation
= 26.35 (26 + 0.35(27-26))

Quartiles

Quartiles are special names to percentiles

Q1 = 25th percentile
Q2 = 50th percentile = median
Q3 = 75th percentile

Measures of Variability

Range
Interquartile Range
Variance
Standard Deviation
Coefficient of Variation

Range
The range of a data set is the difference
between the largest and smallest data values.
It is the simplest measure of variability.
It is very sensitive to the smallest and largest
data values.
Example from airline delay data
Range = 95 0 = 95 minutes

Interquartile range
The interquartile range of a data set is the
difference between the third quartile and the first
quartile.
It is the range for the middle 50% of the data.
It overcomes the sensitivity to extreme data
values.

Variance
The variance is a measure of variability
that utilizes all the data.
It is based on the difference between the
value of each observation (xi) and the
mean (x for a sample, for a population).
2
2 ( xi )

N

< - Population variance

Sample variance - >

2
(
x

x
)

i
s2
n 1

Standard deviation
The standard deviation of a data set is the
positive square root of the variance.
It is measured in the same units as the
data, making it more easily comparable,
than the variance, to the mean.
If the data set is a sample, the standard
deviation is denoted s.
If the data set is a population, the standard
deviation is denoted (sigma).

Coefficient of Variation
The coefficient of variation indicates how large the
standard deviation is in relation to the mean.
If the data set is a sample, the coefficient of variation
is computed as follows:

s s (100)
(
100
)
xx

If the data set is a population, the coefficient of

variation is computed as follows:

(100)

Example
Variance
= 465.89 minutes square
Standard Deviation
= 21.585 minutes
Coefficient of Variation =
= 21.584/32.2381 (100) = 66.95%

Skewness

Skewness
Skewness characterizes the degree of
asymmetry of a distribution around its
mean
Positively skewed
Symmetric or unskewed
Negatively skewed

Skewness
Negatively skewed

Skewness
Symmetric

Skewness
Positively Skewed

Skewness - measure
Skewness of a distribution is measured by

( X ) 3
1
N 3
For a given data set you may use

Kurtosis
Kurtosis characterizes the relative
peakedness or flatness of a symmetric
distribution compared to the normal
distribution
Platykurtic (relatively flat)
Mesokurtic (normal)
Leptokurtic (relatively peaked)

Kurtosis
Platykurtic - flat distribution

Kurtosis
Mesokurtic - not too flat and not too peaked

Kurtosis
Leptokurtic - peaked distribution

Kurtosis - measure
Kurtosis for a distribution is measured by

2 3
where

( X ) 4
2
N 4

For a given data set you may use

Association between two variables

Delay

Passengers

Delay

Passengers

Delay

Passengers

53

65

56

51

50

68

40

61

42

50

72

46

53

25

57

38

74

65

13

57

55

68

22

45

40

54

45

73

58

54

15

63

44

68

27

65

48

68

12

65

67

57

55

12

56

48

62

10

45

25

50

50

50

71

13

70

45

61

56

64

50

73

59

26

60

45

63

34

63

47

61

23

56

95

49

20

48

Association between two variables

Scatter plot
Covariance
Correlation Coefficient

Scatter Plot
Scatter Plots are used to identify any
underlying relationships among pairs of
data sets.
The plot consists of a scatter of points,
each point representing an observation.

Scatter Plot

Covariance
The covariance is a measure of the linear
association between two variables.
Positive values indicate a positive
relationship.
Negative values indicate a negative
relationship

Covariance
If the data sets are samples, the covariance
is denoted by
sxy

( xi x )( yi y )

n 1

If the data sets are populations, the

covariance is denoted by
( xi x )( yi y )
xy
N

= 20.42 in the
Airline
example

Correlation Coefficient

The coefficient can take on values between -1 and +1.

Values near -1 indicate a strong negative linear relationship.
Values near +1 indicate a strong positive linear relationship.

If the data sets are samples, the coefficient is

sxy
= 0.121 in Airline
rxy
example
sx s y
If the data sets are populations, the coefficient is
xy
xy
x y