1. McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Applied Statistics in Business & Economics, 4 th edition David P. Doane and Lori E. Seward Prepared by Lloyd R. Jaisingh A PowerPoint Presentation Package to Accompany

2. 1-2 Overview of Statistics Chapter Contents 1.1 What is Statistics? 1.1 What is Statistics? 1.2 Why Study Statistics? 1.2 Why Study Statistics? 1.3 Uses of Statistics 1.3 Uses of Statistics 1.4 Statistical Challenges 1.4 Statistical Challenges 1.5 Critical Thinking 1.5 Critical Thinking Chapter 1

3. 1-3 Overview of Statistics Chapter Learning Objectives LO1-1: Define statistics and explain some of its uses in business. business. LO1-2: List reasons for a business student to study statistics. LO1-3: State the common challenges facing business professionals using statistics. professionals using statistics. LO1-4: List and explain common statistical pitfalls. Chapter 1

4. 1.1 What is Statistics? 1.1 What is Statistics? Statisticsis the science of collecting, organizing, analyzing, interpreting, and presenting data.Statistics is the science of collecting, organizing, analyzing, interpreting, and presenting data. Astatisticis a single measure (number) used to summarize a sample data set; for example, the average height of students in a university.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. its uses in business. 1-4

5. 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.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 Chapter 1 1-5

6. 1-6 1.2 Why Study Statistics? Knowing statistics will make you a better consumer of other people's data.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.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 1LO1-2 LO1-2: List reasons for a business student to study statistics.

7. 1-7 1.2 Why Study Statistics? Statistical knowledge gives a company a competitive advantage against organizations that cannot understand their internal or external market data.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.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.Here are some reasons to study statistics. Chapter 1LO1-2

8. 1.2 Why Study Statistics? Communication Communication Computer Skills Computer Skills Understanding the language of statistics facilitates communication and improves problem solving. 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 Chapter 1 1-8

9. Information Management Information Management Technical Literacy 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? Chapter 1LO1-2 1-9

10. Process Improvement Process Improvement Statistics helps firms oversee their suppliers, monitor their internal operations, and identify problems. 1.2 Why Study Statistics? Chapter 1LO1-2 1-10

11. Two primary kinds of statistics: Two primary kinds of statistics: Descriptive statistics the collection, organization, presentation, and summary of data. 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. Inferential statistics – generalizing from a sample to a population, estimating unknown parameters, drawing conclusions, making decisions. 1.3 Uses of Statistics Chapter 1 1-11

12. 1.3 Uses of Statistics Chapter 1LO1-1 1-12

13. Auditing Auditing Marketing 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. Identify likely repeat customers for Amazon.com and suggest co- marketing opportunities based on a database of 5 million Internet purchases.Amazon.com 1.3 Uses of Statistics Chapter 1LO1-1 1-13

14. Health Care Health Care Quality Improvement 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. Initiate a triple inspection program, setting penalties for workers who produce poor-quality output. 1.3 Uses of Statistics Chapter 1LO1-1 1-14

15. Purchasing Purchasing Medicine 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 Chapter 1LO1-1 1-15

16. Operations Management Operations Management Product Warranty Product Warranty Determine the average dollar cost of engine warranty claims on a new hybrid engine. warranty claims on a new hybrid engine. Manage inventory by forecasting consumer demand. 1.3 Uses of Statistics Chapter 1LO1-1 1-16

17. Is technically current (e.g., software-wise).Is technically current (e.g., software-wise). Communicates well.Communicates well. Is proactive.Is proactive. The Ideal Data Analyst The Ideal Data Analyst 1.4 Statistical Challenges Chapter 1 LO1-3: State the common challenges facing business professionals using statistics. business professionals using statistics. LO1-3 1-17

18. Has a broad outlook.Has a broad outlook. Is flexible.Is flexible. Focuses on the main problem.Focuses on the main problem. Meets deadlinesMeets deadlines The Ideal Data Analyst The Ideal Data Analyst 1.4 Statistical Challenges Chapter 1LO1-3 1-18

19. Knows his/her limitations and is willing to ask for help.Knows his/her limitations and is willing to ask for help. Can deal with imperfect information.Can deal with imperfect information. Has professional integrity.Has professional integrity. The Ideal Data Analyst The Ideal Data Analyst 1.4 Statistical Challenges Chapter 1LO1-3 1-19

20. Imperfect Data and Practical Constraints 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 Chapter 1LO1-3 1-20

21. Business Ethics Business Ethics Some broad ethical responsibilities of business are Treating customers in a fair and honest manner.Treating customers in a fair and honest manner. Complying with laws that prohibit discrimination.Complying with laws that prohibit discrimination. Ensuring that products and services meet safety regulations.Ensuring that products and services meet safety regulations. 1.4 Statistical Challenges Chapter 1LO1-3 1-21

22. Business Ethics Business Ethics Some broad ethical responsibilities of business are (continued) Standing behind warranties.Standing behind warranties. Advertising in a factual and informative manner.Advertising in a factual and informative manner. Encouraging employees to ask questions and voice concerns about the company’s business practices.Encouraging employees to ask questions and voice concerns about the company’s business practices. Being responsible for accurately reporting information to management.Being responsible for accurately reporting information to management. 1.4 Statistical Challenges Chapter 1LO1-3 1-22

23. Upholding Ethical Standards Upholding Ethical Standards Ethical standards for the data analyst: Ethical standards for the data analyst: Know and follow accepted procedures.Know and follow accepted procedures. Maintain data integrity.Maintain data integrity. Carry out accurate calculations.Carry out accurate calculations. 1.4 Statistical Challenges Chapter 1LO1-3 1-23

24. Upholding Ethical Standards Upholding Ethical Standards Ethical standards for the data analyst (continued): Report procedures faithfully.Report procedures faithfully. Protect confidential information.Protect confidential information. Cite sources.Cite sources. Acknowledge sources of financial support.Acknowledge sources of financial support. 1.4 Statistical Challenges Chapter 1LO1-3 1-24

25. Using Consultants 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 Chapter 1LO1-3 1-25

26. Communicating with Numbers Communicating with Numbers 1.4 Statistical Challenges Numbers have meaning only when communicated in the context of a certain situation.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.Presentation should be such that managers will quickly understand the information they need to use in order to make good decisions. Chapter 1LO1-3 1-26

27. Skills Needed for Success in Business Skills Needed for Success in Business (Table 1.1) 1.4 Statistical Challenges Chapter 1LO1-3 1-27

28. Statistics is an essential part of critical thinking because it allows us to test an idea against empirical evidence.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.Empirical data represent data collected through observation and experiments. Statistical tools are used to compare prior ideas with empirical data, but pitfalls do occur.Statistical tools are used to compare prior ideas with empirical data, but pitfalls do occur. 1.5 Critical Thinking Chapter 1 1-28

29. Pitfall 1: Making Conclusions about a Large Population from a Small Sample 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 Chapter 1LO1-4 LO1-4: List and explain common statistical pitfalls LO1-4: List and explain common statistical pitfalls. 1-29

30. Pitfall 2: Making Conclusions from Nonrandom Samples Pitfall 2: Making Conclusions from Nonrandom Samples Chapter 1 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 1-30

31. Pitfall 3: Conclusions From Rare Events Pitfall 3: Conclusions From Rare Events Pitfall 4: Using Poor Survey Methods 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 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). Be careful about using poor sampling methods or vaguely worded questions (e.g., anonymous survey or quiz). Chapter 1 1.5 Critical Thinking LO1-4 1-31

32. Pitfall 5: Assuming a Causal Link Based on Observations 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.). Chapter 1 1.5 Critical Thinking LO1-4 1-32

33. Pitfall 6: Generalization to Individuals from Observations about Groups Pitfall 6: Generalization to Individuals from Observations about Groups Avoid reading too much into statistical generalizations (e.g., men are taller than women). Avoid reading too much into statistical generalizations (e.g., men are taller than women). Chapter 1 1.5 Critical Thinking LO1-4 1-33

34. Pitfall 7: Unconscious Bias Pitfall 7: Unconscious Bias Pitfall 8: Significance versus Importance 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 Thinking LO1-4 1-34