BUSINESS STATISTICS:

A DECISION – MAKING APPROACH

6th EDITION

Chapter 3
Describing Data Using Numerical
Measures
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

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Chapter Topics
• Measures of Center and Location
o Mean, median, mode, geometric mean, midrange
• Other measures of Location
o Weighted mean, percentiles, quartiles
• Measures of Variation
o Range, interquartile range, variance and standard deviation, coefficient of
variation

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Summary Measures
Describing Data Numerically

Center and Location Other Measures of Location Variation

Mean Percentiles Range

Median Quartiles Interquartile Range

Mode Variance

Weighted Mean Standard Deviation

Coefficient of Variation

4
Measures of Center and Location
Overview
Center and Location

Mean Median Mode Weighted Mean

𝒏

𝒙𝒊 𝐰𝐢𝐱𝐢

𝐗
𝒊 𝟏
𝐗w
𝒏 𝐰𝐢
𝑵

𝒙𝒊 𝐰𝐢𝐱𝐢
𝒊 𝟏 µw
𝑵 𝐰𝐢 5
Mean (Arithmetic Average)
• The Mean is the arithmetic average of data values

o Sample mean n= Sample Size

𝒏

𝒙𝒊
𝒊 𝟏
x1 x2 ⋯ xn
𝐗 n = n
o Population mean N= Population Size
𝑵

𝒙𝒊
𝒊 𝟏 x1 x2 ⋯ xN
𝑵 = N 6
Mean (Arithmetic Average)
• 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 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

Mean = 3 Mean = 3

• In an ordered array, the median is the “middle” number

o If n or N is odd, the median is the middle number
o If n or N is even, the median is the average of the two middle numbers
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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 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

Mean = 5 No mode
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Weighted Mean
• Used when values are grouped by frequency or relative importance

• Example: Sample of 26 Repair Projects

Day to Weighted Mean Days to Complete:

Frequency
Complete
5 4
6 12
𝐖𝐢𝐗𝐢
7 8 4𝑥5 12𝑥6 8𝑥7 2𝑥8 164
8 2 𝐗w = 4 12 8 2 26
𝐖𝐢 𝟔. 𝟑𝟏 𝒅𝒂𝒚𝒔

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Review Example
• Five houses on a hill by the beach

• House Prices:
o $2,000,000 $2,000 K
o $ 500,000
o $ 300,000
o $ 100,000 $300 K
$500 K
o $ 100,000

$100 K
$100 K

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Summary Statistics

• House Prices: • Mean: ($ 3,000,000/5)

o $2,000,000 = $ 600,000
o $ 500,000
o $ 300,000 • Median: middle value of ranked data
o $ 100,000 = $ 300,000
o $ 100,000
Sum $3,000,000 • Model: most frequent value
= $ 100,000

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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.
o Example: Median home prices may be reported for a region – less
sensitive to outliers

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Shape of a Distribution

• Describes how data is distributed

• Symmetric or skewed

Left-Skewed Symmetric Right-Skewed

Mean < Median < Mode Mean < Median < Mode Mean < Median < Mode

(Longer tail extends to left) (Longer tail extends to right)

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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 equal to = median
this value
• 3rd quartile = 75th percentile
(where 0 ≤ p ≤ 100) 15
Percentiles

• The pth percentile in an ordered array of n values is the value in ith position,
where
i= n 1

• Example: The 60th percentile in an ordered array of 19 values is the value in

12th position:

i= n 1 19 1 =12
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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 9 1 =2.5 position

so use the value half way between the 2nd and 3rd values,

so 𝐐𝟏 𝟏𝟐. 𝟓 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

Quartile Quartile
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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

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Distribution Shape and Box and Whisker Plot

Left-Skewed Symmetric Right-Skewed

Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3

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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 very right skewed, as the plot depicts

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Measures of Variation
Variation

Range Variance Standard Deviation Coefficient of Variation

Interquartile Population Population

Range Variance Standard
Deviation
Sample
Variance Sample
Standard
Deviation

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Variation

• Measures of variation give information on the spread or variability of the data

values.

Same center, different variation

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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 24
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 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

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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 27
Variance

• Average of squared deviations of values from the mean

o Sample variance 𝐧

𝐱𝐢 𝐱 𝟐

𝐢 𝟏
S𝟐 𝐧 𝟏

o Population variance
𝐍

𝐱𝐢 µ 𝟐

𝐢 𝟏
σ𝟐 𝐍
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Standard Deviation
• Most commonly used measure of variation
• Shows variation about the mean
• Has the same units as the original data

∑𝐧
𝐢 𝟏 𝐱𝐢 𝐱
𝟐
o Sample standard deviation: S2
𝐧 𝟏

∑𝐍
𝐢 𝟏 𝐱𝐢 µ
𝟐
o Population standard deviation: σ2
𝐍 𝟏
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Calculation Example:
Sample Standard Deviation
• Sample Data (Xi) : 10 12 14 15 17 18 18 24
N=8 Mean = X = 16

𝟐 𝟐 𝟐 𝟐
𝟏𝟎 𝐗 𝟏𝟐 𝐗 𝟏𝟒 𝐗 𝐋 𝟐𝟒 𝐗
S
𝐧 𝟏

𝟐 𝟐 𝟐 𝟐
𝟏𝟎 𝟏𝟔 𝟏𝟐 𝟏𝟔 𝟏𝟒 𝟏𝟔 𝐋 𝟐𝟒 𝟏𝟔
S
𝟖 𝟏

𝟏𝟐𝟔
S
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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 B
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 S = 4.57
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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 = . 100% CV = . 100%
µ
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Comparing Coefficient of Variation
• Stock A:
o Average price last year = $50
o Standard deviation = $5
S $5
CVA = . 100%= . 100% 10% Both stocks have the
$50
same standard deviation,
• Stock B: but stock B is less
o Average price last year = $100 variable relative to its
o Standard deviation = $5 price
S $5
CVB = . 100%= . 100% 5%
$100
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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

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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±3

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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

o Example

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

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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

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Standardized Population Values

𝐱 µ
z σ
• where:
o x = original data value
o µ = population mean
o σ = population standard deviation
o z = standard score
(number of standard deviations x is from µ)
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Standardized Sample Values

𝐱 𝐱
z σ
• where:
o x = original data value
o x = sample mean
o s = sample standard deviation
o z = standard score
(number of standard deviations x is from µ)
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Using Microsoft Excel
• Descriptive Statistics are easy to obtain from Microsoft Excel
o Use menu choice: tools / data analysis / descriptive statistics
o Enter details in dialog box

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Using Excel
1

Use menu choice:

Data / data analysis / descriptive statistics

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 Using Excel

1. Enter dialog box details

2. Check box for summary statistics

3. Click OK

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Excel Output
• Microsoft Excel descriptive statistics
output, using the house price data:
• House Prices:
o $2,000,000
o $ 500,000
o $ 300,000
o $ 100,000
o $ 100,000

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Chapter Summary
• Described measures of center and location
o Mean, median, mode, geometric mean, midrange
• Discussed percentiles and quartiles
• Described measure of variation
o Range, interquartile range, variance, standard deviation, coefficient of
variation
• Created Box and Whisker Plots

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Chapter Summary
• Illustrated distribution shapes
o Symmetric, skewed
• Discussed Tchebysheff’s Theorem
• Calculated standardized data values

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THANKS FOR WATCHING