Chapter 1

Overview of
Statistics

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 Chapter 1
Chapter Learning Objectives
LO 1-1: Define statistics and explain some of its
uses.
LO 1-2: List reasons for a business student to
study statistics.
LO 1-3: Explain the uses of statistics in business.
LO 1-4: State the common challenges facing
business professionals using statistics.
LO 1-5: List and explain common statistical
pitfalls.

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 Chapter 1
Why Study Statistics? 1

• Increasingly, companies are using statistical

analysis (business analytics) to support decision
making, recognize anomalies that require tactical
action, or gain strategic insight to align business
processes with business objectives.
• Businesses that combine managerial judgment
with statistical analysis are more successful.

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 LO 1-1
What is Statistics? 1

Statistics may be thought of as a collection of

methodologies to summarize, draw valid conclusions,
and make predictions from empirical measurements.
Statistics helps us organize and present information
and extract meaning from raw data.

Plural or Singular?

Statistics The science of collecting, organizing,

analyzing, interpreting, and presenting data.

Statistic A single measure, reported as 4 number, used

to summarize a sample data set.
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 LO 1-1
What is Statistics? 2

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. Both the average and the maximum are
examples of statistics.
There are two primary kinds of statistics.
• Descriptive statistics refers to the collection,
presentation, and summary of data (either using charts
and graphs or using numerical summary).
• Inferential statistics refers to the generalizing from a
sample to a population, estimating unknown population
parameters, drawing conclusions, and making decisions.

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 LO 1-1
What is Statistics? 3

Figure 1.1 Overview of Statistics

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 LO 1-1
What Is Business Analytics?
Analytics is a broad field that uses statistics, mathematics, and
computational tools to extract information from data. Analytics tools
fall into three categories: descriptive, predictive, and prescriptive.
This terminology derived from the questions we are trying to answer.
What happened? Businesses use descriptive analytics tools to
analyze historical data and help them identify trends and patterns.
What is likely to happen next? Businesses use predictive analytics
tools to predict probabilities of future events and help them forecast
consumer behavior.
What actions do we take to achieve our goals? Businesses use
prescriptive analytics tools to help them make decisions on how to
achieve objectives within real-world constraints.

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 LO 1-2
Why Study Statistics? 2

• Knowing statistics will make you a better consumer

of other people’s data analyses.
• 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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 LO 1-2
Why Study Statistics? 3

• Statistical knowledge gives companies 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.

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 LO 1-2
Why Study Statistics? 4

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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 LO 1-2
Why Study Statistics? 5

Information Management
Statistics helps summarize small and large amounts of
information (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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 LO 1-2
Why Study Statistics? 6

Process Improvement
Large firms have formal systems for continuous quality
improvement. Statistics helps firms oversee their
suppliers, monitor their internal operations, and identify
problems. Quality improvement goes far beyond
statistics, but every college graduate is expected to
know enough statistics to understand its role in quality
improvement.

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 LO 1-3
Applying Statistics in Business 1

Auditing
The firm has learned that some invoices are being
paid incorrectly, but it doesn’t know how widespread
the problem is. A sample of invoices can be used to
estimate the proportion of incorrectly paid invoices.

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 LO 1-3
Applying Statistics in Business 2

Marketing
Many companies use Customer Relationship
Management (CRM) to analyze customer data from
multiple sources. With statistical and analytics tools
such as correlation and data mining, they identify
specific needs of different customer groups, and this
helps them market their products and services more
effectively.

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 LO 1-3
Applying Statistics in Business 3

Health Care
Evaluate 100 incoming patients using a 42-item
physical and mental assessment questionnaire.

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

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 LO 1-3
Applying Statistics in Business 4

Purchasing
A food producer purchases plastic containers for
packaging its product. Inspection of the most recent
shipment of 500 containers found that 3 of the
containers were defective. The supplier’s historical
defect rate is .005. Has the defect rate really risen or
is this simply a “bad” batch?

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 LO 1-3
Applying Statistics in Business 5

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

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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 LO 1-4
Statistical Challenges
The ideal data analyst (business professionals using
statistics) should possess these characteristics:

• Is technically current • Focuses on the main

(for example, problem.
software-wise). • Knows his/her limitations
• Communicates well. and is willing to ask for
• Is proactive. help.

• Has a broad outlook. • Can deal with imperfect

information.
• Is flexible.
• Has professional
• Meets deadlines. integrity.
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 LO 1-4
Imperfect Data and Practical Constraints
You will face constraints on the type and quality of data you
can collect.
State any assumptions and limitations and use generally
accepted statistical tests to detect unusual data points or to
deal with missing data.
Constraint Examples:
• Automobile tests can’t use human subjects (too risky).
• Telephone surveys can’t ask a female respondent
whether she has had an abortion (sensitive question).
• We can’t test everyone for HIV (the world is not a
laboratory).

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 LO 1-4
Business Ethics
Some broad ethical responsibilities of business
include the following:
• Treating customers in a fair and honest manner.
• Complying with laws that prohibit discrimination.
• Ensuring that products and services meet safety
regulations.
• Advertising in a factual and informative manner.
• Encouraging employees to ask questions and voice
concerns about the company’s business practices.
• Being responsible for accurately reporting
information to management.
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 LO 1-4
Upholding Ethical Standards
Ethical standards for the data analyst:
• Know and follow accepted procedures.
• Maintain data integrity.
• Carry out accurate calculations.
• Report procedures faithfully.
• Protect confidential information.
• Cite sources.
• Acknowledge sources of financial support.

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 LO 1-4
Working in Teams
Business activity is often handled in teams. Today,
technical experts spend much of their time in
meetings, discussing project milestones, preparing
team reports, and arguing about methodology.
Questions teams face
• What is the best way to organize the team?
• What communication channels will the team use?
• How can the team’s resources best be utilized?
• What is the role of the team leader?
• Do we need a subcommittee?

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 LO 1-4
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.
• Some companies expect their employees to be able
to interpret the results of a statistical analysis, even
if it was completed by an outside consultant.

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 LO 1-4
Communicating with Numbers 1

• 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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 LO 1-4
Communicating with Numbers 2

Compare Table 1.1 and Figure 1.2. Which is more helpful in

understanding U.S. trademark activity in recent years?
Table 1.1 U.S. Trademarks, 2004 to 2010 (Thousands)
2004 2005 2006 2007 2008 2009 2010
Applications Filed 304.5 334.7 362.3 401.0 390.8 351.9 370.2
Trademarks Issued 146.0 154.8 193.7 218.8 233.9 222.1 210.6

Source: U.S. Census Bureau, Statistical Abstract of the United States, 2012, p. 778. A trademark identified
with ®) is a name or symbol identifying a product, registered with the U.S. Patent and Trademark Office and
restricted by law to use by its owner.

Figure 1.2

U.S. Trademarks, 2004 to 2010

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 LO 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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 LO 1-5
Logical Pitfalls 1

Logical pitfalls abound in both the data collection

process and the reasoning process.

Pitfall 1: Conclusions from small samples

Be careful about making generalizations from small
samples (for example, a group of 10 patients who
showed improvement).

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 LO 1-5
Logical Pitfalls 2

Pitfall 2: Conclusions from nonrandom samples

Be careful about making generalizations from small
samples and from retrospective studies of special
groups (for example, studying heart attack patients
without defining matched control group).

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 LO 1-5
Logical Pitfalls 3

Pitfall 3: Conclusions from rare events

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

Pitfall 4: Poor survey methods

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

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 LO 1-5
Logical Pitfalls 4

Pitfall 5: Assuming a causal link

Be careful about drawing conclusions when no cause-
and-effect link exists (for example, teams who play in
named ballparks (Citi Field for the NY Mets) tend to
lose more games than they win). Actually, it is the
players and managers who determine whether a team
wins.

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 LO 1-5
Logical Pitfalls 5

Pitfall 6: Generalization to individuals

Avoid reading too much into statistical generalizations
(for example, men are taller than women). Yes, but
only in a statistical sense. Men are taller on average,
but many women are taller than many men.

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 LO 1-5
Logical Pitfalls 6

Pitfall 7: Unconscious bias

Be careful about unconsciously or subtly allowing bias
to color handling of data (for example, heart disease in
men vs. women). Symptoms in men are more obvious
than in women.
Pitfall 8: Significance versus importance
Statistically significant effects may lack practical
importance (for example, Austrian military recruits
born in the spring average 0.6 cm taller than those
born in the fall). Would anyone notice this difference?

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