Statistics for Managers

Using Microsoft Excel

4th Edition

Chapter 3

Numerical Descriptive Measures

Statistics for Managers Using Microsoft Excel, 4e 2004 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
Find the range, variance, standard deviation, and
coefficient of variation and know what these values mean
Apply the empirical rule and the Bienaym-Chebshev rule
to describe the variation of population values around the
mean
Construct and interpret a box-and-whiskers plot
Compute and explain the correlation coefficient
Use numerical measures along with graphs, charts, and
tables to describe data
Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-2
 Chapter Topics
Measures of central tendency, variation, and
shape
Mean, median, mode, geometric mean
Quartiles
Range, interquartile range, variance and standard
deviation, coefficient of variation
Symmetric and skewed distributions
Population summary measures
Mean, variance, and standard deviation
The empirical rule and Bienaym-Chebyshev rule

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-3
 Chapter Topics
(continued)

Five number summary and box-and-whisker

plots
Covariance and coefficient of correlation
Pitfalls in numerical descriptive measures and
ethical considerations

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-4
 Summary Measures
Describing Data Numerically

Central Tendency Quartiles Variation Shape

Arithmetic Mean Range Skewness

Median Interquartile Range

Mode Variance

Geometric Mean Standard Deviation

Coefficient of Variation

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-5
 Measures of Central Tendency
Overview
Central Tendency

Arithmetic Mean Median Mode Geometric Mean

X i
XG ( X1 X 2 Xn )1/ n

X i1
n Midpoint of Most
ranked frequently
values observed
value

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-6
 Arithmetic Mean
The arithmetic mean (mean) is the most
common measure of central tendency

For a sample of size n:

n

X i
X1 X 2 Xn
X i1

n n

Sample size Observed values

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-7
 Arithmetic Mean
(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

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-8
 Median
In an ordered array, the median is the middle
number (50% above, 50% below)

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

Not affected by extreme values

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-9
 Finding the Median

The location of the median:

n 1
Median position position in the ordered data
2
If the number of values is odd, the median is the middle number
If the number of values is even, the median is the average of
the two middle numbers

n 1
Note that is not the value of the median, only the
2
position of the median in the ranked data

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-10
 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

No Mode
Mode = 9
Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-11
 Review Example

Five houses on a hill by the beach

House Prices:

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

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-12
 Review Example:
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

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-13
 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

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-14
 Geometric Mean
Geometric mean
Used to measure the rate of change of a variable
over time

XG ( X1 X 2 Xn ) 1/ n

Geometric mean rate of return

Measures the status of an investment over time

R G [(1 R1 ) (1 R 2 ) (1 Rn )]1/ n 1
Where Ri is the rate of return in time period i
Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-15
 Example

An investment of $100,000 declined to $50,000 at the

end of year one and rebounded to $100,000 at end
of year two:

X1 $100,000 X 2 $50,000 X3 $100,000

50% decrease 100% increase

The overall two-year return is zero, since it started and

ended at the same level.
Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-16
 Example
(continued)

Use the 1-year returns to compute the arithmetic

mean and the geometric mean:

Arithmetic ( 50%) (100%)

mean rate X 25% Misleading result
2
of return:

Geometric R G [(1 R1 ) (1 R 2 ) (1 Rn )]1/ n 1

mean rate
[(1 ( 50%)) (1 (100%))]1/ 2 1 More
of return:
accurate
[(.50) (2)]1/ 2 1 11/ 2 1 0% result
Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-17
 Quartiles
Quartiles split the ranked data into 4 segments with
an equal number of values per segment

25% 25% 25% 25%

Q1 Q2 Q3
The first quartile, Q1, is the value for which 25% of the
observations are smaller and 75% are larger
Q2 is the same as the median (50% are smaller, 50% are
larger)
Only 25% of the observations are greater than the third
quartile

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-18
 Quartile Formulas

Find a quartile by determining the value in the

appropriate position in the ranked data, where

First quartile position: Q1 = 1(n+1)/4

Second quartile position: Q2 = 2(n+1)/4 (median position)

Third quartile position: Q3 = 3(n+1)/4

where n is the number of observed values

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-19
 Quartiles

Example: Find the first quartile

Sample Data in Ordered Array: 11 12 13 16 16 17 18 21 22

(n = 9)
Q1 = is in the (9+1)/4 = 2.5 position of the ranked data
so use the value half way between the 2nd and 3rd values,

so Q1 = 12.5
Q1 and Q3 are measures of noncentral location
Q2 = median, a measure of central tendency
Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-20
 Measures of Variation
Variation

Range Interquartile Variance Standard Coefficient

Range Deviation of Variation

Measures of variation give

information on the spread
or variability of the data
values.

Same center,
different variation
Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-21
 Range
Simplest measure of variation
Difference between the largest and the smallest
observations:
Range = Xlargest Xsmallest

Example:

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

Range = 14 - 1 = 13

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-22
 Disadvantages of the Range
Ignores the way in which data are distributed

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

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-23
 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

= Q3 Q1

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-24
 Interquartile Range

Example:
Median X
X Q1 Q3 maximum
minimum (Q2)
25% 25% 25% 25%

12 30 45 57 70

Interquartile range
= 57 30 = 27

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-25
 Variance

Average (approximately) of squared deviations

of values from the mean
n
Sample variance:
(X X)
i
2

S
2 i1
n -1
Where X = arithmetic mean
n = sample size
Xi = ith value of the variable X
Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-26
 Standard Deviation
Most commonly used measure of variation
Shows variation about the mean
Has the same units as the original data

Sample standard deviation: n

(X X)

2
i
S i1
n -1

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-27
 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 A measure of the average

4.2426
7 scatter around the mean
Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-28
 Measuring variation

Small standard deviation

Large standard deviation

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-29
 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 = 0.926

Data C
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 S = 4.570

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-30
 Advantages of Variance and
Standard Deviation

Each value in the data set is used in the

calculation

Values far from the mean are given extra

weight
(because deviations from the mean are squared)

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-31
 Coefficient of Variation

Measures relative variation

Always in percentage (%)
Shows variation relative to mean
Can be used to compare two or more sets of
data measured in different units

S
CV 100%

X
Statistics for Managers Using Microsoft Excel, 4e 2004 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%
$50
X 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
Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-33
 Shape of a Distribution

Describes how data is distributed

Measures of shape
Symmetric or skewed

Left-Skewed Symmetric Right-Skewed

Mean < Median Mean = Median Median < Mean

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-34
 Using Microsoft Excel

Descriptive Statistics can be obtained

from Microsoft Excel
Use menu choice:
tools / data analysis / descriptive statistics
Enter details in dialog box

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-35
 Using Excel

Use menu choice:

tools / data analysis /
descriptive statistics

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-36
 Using Excel
(continued)

Enter dialog box

details

Check box for

summary statistics

Click OK

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-37
 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

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-38
 Population Summary Measures
Population summary measures are called parameters
The population mean is the sum of the values in the
population divided by the population size, N

X i
X1 X 2 XN
i1

N N
Where = population mean
N = population size
Xi = ith value of the variable X
Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-39
 Population Variance

Average of squared deviations of values from

the mean
N
Population variance: (X )
i
2

2 i1
N

Where = population mean

N = population size
Xi = ith value of the variable X
Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-40
 Population Standard Deviation
Most commonly used measure of variation
Shows variation about the mean
Has the same units as the original data

Population standard deviation: N

i
(X ) 2

i1
N

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-41
 The Empirical Rule

If the data distribution is bell-shaped, then

the interval:
1
contains about 68% of the values in
the population or the sample

68%

1
Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-42
 The Empirical Rule
2 contains about 95% of the values in
the population or the sample
3 contains about 99.7% of the values
in the population or the sample

95% 99.7%

2 3

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-43
 Bienaym-Chebyshev Rule

Regardless of how the data are distributed,

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

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

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-44
 Exploratory Data Analysis

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

Quartile Quartile

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-45
 Shape of Box-and-Whisker Plots

The Box and central line are centered between the

endpoints if data are symmetric around the median

Min Q1 Median Q3 Max

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

or horizontal format

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-46
 Distribution Shape and
Box-and-Whisker Plot

Left-Skewed Symmetric Right-Skewed

Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-47
 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

0 2 3 5 27
This data is right skewed, as the plot depicts

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-48
 The Sample Covariance
The sample covariance measures the strength of the
linear relationship between two variables (called
bivariate data)

The sample covariance:

n

( X X)( Y Y )
i i
cov ( X , Y ) i1
n 1
Only concerned with the strength of the relationship
No causal effect is implied
Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-49
 Interpreting Covariance

Covariance between two random variables:

cov(X,Y) > 0 X and Y tend to move in the same direction

cov(X,Y) < 0 X and Y tend to move in opposite directions

cov(X,Y) = 0 X and Y are independent

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-50
 Coefficient of Correlation
Measures the relative strength of the linear
relationship between two variables

Sample coefficient of correlation:

n

( X X)( Y Y )
i i
cov ( X , Y )
r i1

n n SX SY
i
( X
i1
X ) 2
i
( Y
i1
Y ) 2

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-51
 Features of
Correlation Coefficient, r
Unit free
Ranges between 1 and 1
The closer to 1, the stronger the negative linear
relationship
The closer to 1, the stronger the positive linear
relationship
The closer to 0, the weaker any positive linear
relationship

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-52
 Scatter Plots of Data with Various
Correlation Coefficients
Y Y Y

X X X
r = -1 r = -.6 r=0
Y
Y Y

X X X
r = +1 r = +.3 r=0
Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-53
 Using Excel to Find
the Correlation Coefficient
Select
Tools/Data Analysis
Choose Correlation from
the selection menu
Click OK . . .

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-54
 Using Excel to Find
the Correlation Coefficient
(continued)

Input data range and select

appropriate options
Click OK to get output

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-55
 Interpreting the Result

r = .733

There is a relatively
strong positive linear
relationship between
test score #1
and test score #2

Students who scored high on the first test tended

to score high on second test

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-56
 Pitfalls in Numerical
Descriptive Measures
Data analysis is objective
Should report the summary measures that best meet
the assumptions about the data set

Data interpretation is subjective

Should be done in fair, neutral and clear manner

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-57
 Ethical Considerations

Numerical descriptive measures:

Should document both good and bad results
Should be presented in a fair, objective and
neutral manner
Should not use inappropriate summary
measures to distort facts

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-58
 Chapter Summary

Described measures of central tendency

Mean, median, mode, geometric mean
Discussed quartiles
Described measures of variation
Range, interquartile range, variance and standard
deviation, coefficient of variation
Illustrated shape of distribution
Symmetric, skewed, box-and-whisker plots

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-59
 Chapter Summary
(continued)

Discussed covariance and correlation

coefficient
Addressed pitfalls in numerical descriptive
measures and ethical considerations

Statistics for Managers Using Microsoft Excel, 4e 2004 Prentice-Hall, Inc. Chap 3-60