Business Statistics:

A Decision-Making Approach
7th 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
 Compute and explain the coefficient of variation
 Chapter Topics
 Measures of Center and Location
 Mean, median, mode
 Other measures of Location
 Weighted mean
 Measures of Variation
 Range, variance and standard deviation, coefficient
of variation
 Summary Measures

Describing Data Numerically

Center and Location Variation

Mean Range

Median
Variance
Mode

Weighted Mean Standard Deviation

Coefficient of
Variation
 Measures of Center and Location
Overview
Center and Location

Mean Median Mode Weighted Mean


n

x i
X 
w x i i

w
W
x  i 1

n i

x i W 
 w x
i i

 i 1

N
w i
 Mean (Arithmetic Average)
 The Mean is the arithmetic average of data
values
 Population mean N = Population Size
N

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

x i
x1  x 2  x n
x  i 1

n n
 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
 Median

 In an ordered array, the median is the “middle”

number, i.e., the number that splits the
distribution in half

 The median is 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
 Median
(continued)

 To find the median, sort the n data values

from low to high (sorted data is called a
data array)
 Find the value in the i = (1/2)n position
 The ith position is called the Median Index
Point
 If i is not an integer, round up to next highest
integer
 Median Example
(continued)
Data array:
4, 4, 5, 5, 9, 11, 12, 14, 16, 19, 22, 23, 24

 Note that n = 13
 Find the i = (1/2)n position:
i = (1/2)(13) = 6.5
 Since 6.5 is not an integer, round up to 7
 The median is the value in the 7th position:
Md = 12
 Shape of a Distribution
 Describes how data is distributed
 Symmetric or skewed

Left-Skewed Symmetric Right-Skewed

Mean < Median Mean = Median Median < Mean

(Longer tail extends to left) (Longer tail extends to right)
 Mode
 A measure of location
 The 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 6

Mode = 5 No Mode
 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 X 
 w x
i i

(4  5)  (12  6)  (8  7)  (2  8)
w
W

6 12 i
4  12  8  2

7 8 164
  6.31 days
8 2 26
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
 Measures of Variation
Variation

Range Variance Standard Deviation Coefficient of

Variation

Interquartile Population Population

Variance Standard
Range
Deviation

Sample Sample
Variance Standard
Deviation
 Variation

 Measures of variation give information on

the spread or variability of the data values.

Same center,
different variation
 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
 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
 Variance

 Average of squared deviations of values from

the mean
 Population variance: N

 (x i
 μ) 2

σ
2
 i 1

Sample variance: n

 (x


i
x) 2

s
2
 i 1

n -1
 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



(x i
 μ) 2
σ  i 1

 Sample standard deviation: n

 (x i
 x )2
s  i 1

n -1
 Calculation Example:
Sample Standard Deviation
Sample
Data (Xi) : 10 12 14 15 17 18 18 24

n=8 Mean = x = 16
 Comparing Standard Deviations
Same mean, but different
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
 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
 Comparing Coefficients
of Variation
 Stock A:
 Average price last year = $50

 Standard deviation = $5

Both stocks
 Stock B: have the same
standard
 Average price last year = $100 deviation, but
stock B is less
 Standard deviation = $5 variable relative
to its price