Business Statistics:

A Decision-Making Approach
6th Edition

Chapter 3
Describing Data Using
Numerical Measures

Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-1

 Chapter Goals
After completing this chapter, you should be able to:
 Compute and interpret the mean, median, and mode for a
set of data
 Compute the range, variance, and standard deviation and
know what these values mean
 Construct and interpret a box and whiskers plot
 Compute and explain the coefficient of variation and
z scores
 Use numerical measures along with graphs, charts, and
tables to describe data
Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-2
 Chapter Topics
 Measures of Center and Location
 Mean, median, mode, geometric mean,
midrange, weighted mean
 Other measures of Location
 percentiles, quartiles
 Measures of Variation
 Range, interquartile range, variance and
standard deviation, coefficient of variation

Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-3

 Summary Measures

Describing Data Numerically

Center and Location Other Measures Variation

of Location
Mean Range
Percentiles
Median Interquartile Range
Quartiles
Mode
Variance
Weighted Mean
Standard Deviation

Coefficient of
Variation
Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-4
 Measures of Center and Location
Overview
Center and Location

Mean Median Mode Weighted Mean


n

x i
XW 
wx i i
x
w
i1
n i

x
N

i W 
 wxi i

 i1
N
w i
Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-5
 Mean (Arithmetic Average)
 The Mean is the arithmetic average of data
values
n = Sample Size
 Sample mean n

x i
x1  x 2    x n
x i1

n n
 Population mean N = Population Size
N

x
x1  x 2    x N i
  i1
N N
Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-6
 Mean (Arithmetic Average)
(continued)

 The most common measure of central tendency

 Mean = sum of values divided by the number of values
 Affected by extreme values (outliers)

0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10

Mean = 3 Mean = 4
1  2  3  4  5 15 1  2  3  4  10 20
 3  4
5 5 5 5
Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-7
 Median
 Not affected by extreme values

0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10

Median = 3 Median = 3
 In an ordered array, the median is the “middle”
number
 If n or N is odd, the median is the middle number
 If n or N is even, the median is the average of the
two middle numbers
Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-8
 Mode
 A measure of central tendency
 Value that occurs most often
 Not affected by extreme values
 Used for either numerical or categorical data
 There may may be no mode
 There may be several modes

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 0 1 2 3 4 5 6

Mode = 5 No Mode
Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-9
 Weighted Mean

 Used when values are grouped by frequency or

relative importance

Example: Sample of
26 Repair Projects
Weighted Mean Days
Days to
Frequency to Complete:
Complete
5 4 XW 
 wx i i

(4  5)  (12  6)  (8  7)  (2  8)
6 12 w i 4  12  8  2
7 8 164
  6.31 days
8 2 26

Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-10

 Review Example

 Five houses on a hill by the beach

$2,000 K
House Prices:

$2,000,000
500,000 $500 K
300,000 $300 K
100,000
100,000

$100 K

$100 K

Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-11

 Summary Statistics

House Prices:
 Mean: ($3,000,000/5)
$2,000,000 = $600,000
500,000
300,000
100,000
100,000
 Median: middle value of ranked data
Sum 3,000,000
= $300,000

 Mode: most frequent value

= $100,000

Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-12

 Which measure of location
is the “best”?
 Mean is generally used, unless
extreme values (outliers) exist
 Then median is often used, since
the median is not sensitive to
extreme values.
 Example: Median home prices may be
reported for a region – less sensitive to
outliers

Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-13

 Shape of a Distribution
 Describes how data is distributed
 Symmetric or skewed

Left-Skewed Symmetric Right-Skewed

Mean < Median < Mode Mean = Median = Mode < Median < Mean
(Longer tail extends to left)
Mode (Longer tail extends to right)
Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-14
 Other Location Measures
Other Measures
of Location

Percentiles Quartiles

The pth percentile in a data array:  1st quartile = 25th percentile

 p% are less than or equal to this
value  2nd quartile = 50th percentile
 (100 – p)% are greater than or = median
equal to this value
(where 0 ≤ p ≤ 100)  3rd quartile = 75th percentile

Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-15

 Percentiles

 The pth percentile in an ordered array of n

values is the value in ith position, where
p
i (n  1)
100
 Example: The 60th percentile in an ordered array of 19
values is the value in 12th position:
p 60
i (n  1)  (19  1)  12
100 100
Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-16
 Quartiles
 Quartiles split the ranked data into 4 equal
groups
25% 25% 25% 25%

Q1 Q2 Q3
 Example: Find the first quartile
Sample Data in Ordered Array: 11 12 13 16 16 17 18 21 22
(n = 9)
Q1 = 25th percentile, so find the 25 (9+1) = 2.5 position
100
so use the value half way between the 2nd and 3rd values,
so Q1 = 12.5
Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-17
 Box and Whisker Plot
 A Graphical display of data using 5-number
summary:
Minimum -- Q1 -- Median -- Q3 -- Maximum

Example:

25% 25% 25% 25%

Minimum 1st Median 3rd Maximum

Minimum Quartile
1st Median Quartile
3rd Maximum
Quartile Quartile

Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-18

 Shape of Box and Whisker Plots

 The Box and central line are centered between the

endpoints if data is symmetric around the median

 A Box and Whisker plot can be shown in either vertical

or horizontal format

Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-19

 Distribution Shape and
Box and Whisker Plot

Left-Skewed Symmetric Right-Skewed

Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3

Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-20

 Box-and-Whisker Plot Example

 Below is a Box-and-Whisker plot for the following

data:
Min Q1 Q2 Q3 Max
0 2 2 2 3 3 4 5 5 10 27

00 22 33 55 27
27
 This data is very right skewed, as the plot depicts

Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-21

 Measures of Variation
Variation

Range Variance Standard Deviation Coefficient of

Variation
Population Population
Interquartile
Variance Standard
Range
Deviation

Sample Sample
Variance Standard
Deviation

Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-22

 Variation

 Measures of variation give information on

the spread or variability of the data
values.

Same center,
different variation

Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-23

 Range
 Simplest measure of variation
 Difference between the largest and the smallest
observations:

Range = xmaximum – xminimum

Example:

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Range = 14 - 1 = 13
Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-24
 Disadvantages of the Range
 Ignores the way in which data are distributed

7 8 9 10 11 7 8 9 10 11
12 Range = 12 - 7 = 5 12 Range = 12 - 7 = 5

 Sensitive to outliers
1,1,1,1,1,1,1,1,1,1,1,2,2,2,2,2,2,2,2,3,3,3,3,4,5
Range = 5 - 1 = 4

1,1,1,1,1,1,1,1,1,1,1,2,2,2,2,2,2,2,2,3,3,3,3,4,120
Range = 120 - 1 = 119
Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-25
 Interquartile Range

 Can eliminate some outlier problems by using

the interquartile range

 Eliminate some high-and low-valued

observations and calculate the range from the
remaining values.

 Interquartile range = 3rd quartile – 1st quartile

Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-26

 Interquartile Range

Example:
X Median X
minimum Q1 (Q2) Q3 maximum

25% 25% 25% 25%

12 30 45 57 70

Interquartile range
= 57 – 30 = 27

Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-27

 Variance
 Average of squared deviations of values from
the mean
 Sample variance: n

 (x i  x) 2

s2  i1
n -1

 Population variance: N

 (x i  μ) 2

σ2  i1
N
Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-28
 Standard Deviation
 Most commonly used measure of variation
 Shows variation about the mean
 Has the same units as the original data
n
Sample standard deviation:
 i

(x  x ) 2

s i1
n -1

N
 Population standard deviation:
 i
(x  μ) 2

σ i 1
N
Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-29
 Calculation Example:
Sample Standard Deviation
Sample
Data (Xi) : 10 12 14 15 17 18 18 24
n=8 Mean = x = 16

(10  x )2  (12  x )2  (14  x )2    (24  x )2

s 
n 1

(10  16)2  (12  16)2  (14  16)2    (24  16)2


8 1

126
  4.2426
7
Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-30
 Comparing Standard Deviations

Data A
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 s = 3.338

Data B
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 s = .9258

Data C
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 s = 4.57

Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-31

 Coefficient of Variation
 Measures relative variation
 Always in percentage (%)
 Shows variation relative to mean
 Is used to compare two or more sets of data
measured in different units

Population Sample
σ  s 
CV  
μ
  100% CV  
x 
  100%
   
Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-32
 Comparing Coefficient
of Variation
 Stock A:
 Average price last year = $50

 Standard deviation = $5

s  $5
CVA     100% 
  100%  10%
x  $50 Both stocks
have the same
 Stock B: standard
 Average price last year = $100 deviation, but
stock B is less
 Standard deviation = $5
variable relative
to its price
s  $5
CVB     100% 
  100%  5%
x  $100
Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-33
 The Empirical Rule
 If the data distribution is bell-shaped, then
the interval:
 μ  1σ contains about 68% of the values in
the population or the sample

68%

μ
μ  1σ
Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-34
 The Empirical Rule
 μ  2σ contains about 95% of the values in
the population or the sample
 μ  3σ contains about 99.7% of the values
in the population or the sample

95% 99.7%

μ  2σ μ  3σ

Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-35

 Tchebysheff’s Theorem

 Regardless of how the data are distributed,

at least (1 - 1/k2) of the values will fall within
k standard deviations of the mean

 Examples:
At least within
(1 - 1/12) = 0% ……..... k=1 (μ ± 1σ)
(1 - 1/22) = 75% …........ k=2 (μ ± 2σ)
(1 - 1/32) = 89% ………. k=3 (μ ± 3σ)

Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-36

 Standardized Data Values

 A standardized data value refers to

the number of standard deviations a
value is from the mean

 Standardized data values are

sometimes referred to as z-scores

Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-37

 Standardized Population Values

x μ
z
σ
where:
 x = original data value

 μ = population mean

 σ = population standard deviation

 z = standard score

(number of standard deviations x is from μ)

Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-38

 Standardized Sample Values

xx
z
s
where:
 x = original data value

 x = sample mean

 s = sample standard deviation

 z = standard score

(number of standard deviations x is from μ)

Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-39

 Using Microsoft Excel

 Descriptive Statistics are easy to obtain

from Microsoft Excel

 Use menu choice:

tools / data analysis / descriptive statistics

 Enter details in dialog box

Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-40

 Using Excel

Use menu choice:

tools / data analysis /
descriptive statistics

Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-41

 Using Excel
(continued)

 Enter dialog box

details

 Check box for

summary statistics

 Click OK

Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-42

 Excel output

Microsoft Excel
descriptive statistics output,
using the house price data:
House Prices:

$2,000,000
500,000
300,000
100,000
100,000

Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-43

 Chapter Summary

 Described measures of center and location

 Mean, median, mode, geometric mean, midrange
 Discussed percentiles and quartiles
 Described measure of variation
 Range, interquartile range, variance,
standard deviation, coefficient of variation
 Created Box and Whisker Plots

Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-44

 Chapter Summary
(continued)

 Illustrated distribution shapes

 Symmetric, skewed
 Discussed Tchebysheff’s Theorem
 Calculated standardized data values

Business Statistics: A Decision-Making Approach, 6e © 2005 Prentice-Hall, Inc. Chap 3-45