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Concepts and Applications
Basic Business Statistics
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help!!!
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Concepts
• Populated data sets to save you time BERENSON
LEVINE and Applications
• Hands-on practice with StatCrunch and PHStat analysis tools KREHBIEL
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STEPHAN
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Statistics
3 Berenson, Levine, Krehbiel,
Stephan, O’Brien, Jayne, Watson
3
ISBN 978-1-4425-4847-3
9 781442 548473
Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2013 – 9781442548473 - Berenson/Basic Business Statistics 3e
Berenson BBS full cover.indd 1 8/6/12 2:17:47 PM

Preface
This third Australasian and Pacific edition of Basic Business Statistics continues to build on the strengths of the
second edition, and extends the outstanding teaching foundation of the previous American editions, authored by
Berenson, Levine, Kriehbel and Stephan.
The teaching philosophy of this text is based upon the principles of the American book, but each chapter has
once again been carefully revised to include practical examples and a language and style that is more applicable to
Australasian and Pacific readers.
In preparation for this edition we again asked lecturers from around the country to comment on the format and
content of the second edition and, based on those comments, the authors have worked to create a text that is more
accessible—but no less authoritative—for students.
Natasha Diasinos from the University of New South Wales, also played a vital part in the development of the
new edition. Her technical edit for all 14 chapters has ensured that accuracy will continue to be a cornerstone of this
text.
The new edition has continued with a ‘real world’ focus, to take students beyond the pure theory. Most chapters
have a completely new opening scenario, focusing on a person or company, which serves to introduce key concepts
covered in the chapter. The scenario is interwoven throughout the chapter to reinforce the concepts to the student.
Multiple in-chapter examples have been updated that highlight real Australasian and Pacific data.
Also included is the Real people, real stats feature, which opens each of the text’s four parts. This feature
is composed of a personal interview (questions written by Natasha Diasinos from the University of New South
Wales) highlighting how real people in real business situations apply the principles of statistics to their jobs. The
interviewees include:
• Part 1: Ricardo Maldonada, Power Stats

• Part 2: Natalie Warren, Insurance Company
• Part 3: Keira Braybrook, IPSOS
• Part 4: Marcus Tan, Marcus Tan Consulting
Judith Watson
Nicola Jayne
Martin O’Brien
vii
Berenson 3e_prelims.indd 7 8/6/12 7:02:59 AM

Acknowledgements
When developing the new edition of Basic Business Statistics, we were mindful of retaining the strengths of the
current edition, but also of the need to build on those strengths, to enhance the text and to ensure wider reader appeal
and useability.
We are indebted to the following academics who contributed to the new edition.
Technical review
Natasha Diasinos University of New South Wales
Proposal reviewers
Shawkat Ali Central Queensland University
Dr Taha Chaiechi James Cook University
Dr Michael Steele Bond University
Reetu Verma University of Wollongong
Patrick Dennis L. Solosa University of Western Australia
Scott Salzman Deakin University
The enormous task of writing a book of this scope was possible only with the expert assistance of all these friends
and colleagues and that of the editorial and production staff at Pearson Australia. We gratefully acknowledge their
invaluable contributions at every stage of this project, collectively and, now, individually. We thank the following
people at Pearson Australia: Joanne Stanley, Acquisitions Editor; Nicola Poole, Development Editor; Sandra
Goodall, Senior Project Editor; Jennifer Coombs, Copy Editor; Germaine Silva, Editorial Coordinator; and Emma
Gaulton, Copyright and Pictures Editor.
viii

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ix

SUPPORT MATERIAL FOR INSTRUCTORS The slides have been completely revised and updated,
This edition of Basic Business Statistics comes with a and are available via the Pearson Australia catalogue
complete package of supplementary teaching material site.
to support lecturers.
FUSION DOCUMENTARY DVD SERIES
INSTRUCTOR’S (SOLUTIONS) MANUAL Films that fuse theory and practice!
This comprehensive teaching resource contains three Acknowledging the visual learning styles of many
key elements for each chapter: of today’s students, these DVD clips illuminate key
• a chapter orientation, which offers the instructor theories and concepts using real-life Australian case
a simple statement of the authors’ intent for the studies and interviews with today’s managers. This
chapter set of Fusion Business Statistics DVD clips was
• a chapter outline for easy reference to key issues produced by Australian university educators for use
• answers to all end-of-chapter questions in the text. by instructors. The DVD clips are purpose built for
in-lecture delivery and may be customised for use with
COMPUTERISED TEST BANK PowerPoint slides. The video clips include:
Each chapter contains a substantial number of
true–false, multiple-choice, short-answer, essay and Topic 1 Business stats—Bigpond Australia 7.42 min
matching questions. All questions have solutions, Topic 2 Sampling distribution: business statistics in
and the multiple-choice questions have been graded focus—TNS 5.28 min
according to levels of difficulty. Topic 3 Data collection and organisation—Tyrells
Winery 6.50 min
POWERPOINT SLIDES Topic 4 Forecasting—Taylor Fry 6.47 min
To facilitate classroom presentation, a full set of Topic 5 Price indexes and CPI—Australian Bureau
PowerPoint slides is available in Windows format. of Statistics 6.18 min

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doing homework problems, but grading
FEATURES FOR STUDENTS complex multi-part problems is time-
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they need. xi

How to use this book
Real people, real stats interviews open each part. These introduce real
people working in real business environments, using statistics to tackle
real business challenges.
Learning objectives introduce you to the key concepts to be covered in

1
PART
Presenting and
describing
information
each chapter, and are signposted in the margins where they are covered
within the chapter.
Real People, Real Stats
1
CHAPTER Introduction and
data collection
Chapter-opening
scenarios show how
statistics are used in
Ricardo Maldonado POWER STATS
Which company are you currently working for and what are some of your responsibilities?
I currently work for Power Stats, a statistical consultancy, assisting primarily market research companies
and management consulting firms with their data collection, analysis and reporting needs.
As the principal statistician, I oversee every project that Power Stats undertakes. My main responsibilities
everyday life. The

are to ensure that research questions are asked properly, that sample sizes are adequate to obtain
statistically significant results and that the data are analysed using the optimal statistical techniques.
List five words that best describe your personality.
The Celena Star
scenarios introduce the
Responsible, hardworking, practical, innovative, understanding.
C
ruising is a major part of the tourism industry and at any one time there are hundreds of cruise ships sailing from ports What are some things that motivate you?
around the world. Competition between cruise companies is strong. Your employer is the Arafura Line which offers • The challenge of exploring an interesting new topic.
concepts to be covered,
cruises around South East Asia and the Pacific. The company’s newest ship is the Celena Star, a medium-sized vessel • The feeling that I can make a contribution to help other people achieve a goal.
of 70,000 tonnes. Part of your job entails collecting data from passengers on the Celena Star to assess their enjoyment of • The satisfaction of obtaining a valuable insight.
its latest cruise. You and the market research team will help to analyse the data for forward planning purposes. The infor- • The desire to do a ‘good job’, not just at work, but in every aspect of my life.
showing the relevance

mation gained is important as the company relies quite heavily on repeat bookings from cruise customers. It has loyalty When did you first become interested in statistics?
programs which offer benefits to those who make further bookings and finds that customer satisfaction is a key factor in I first became interested in statistics while studying engineering. I could immediately see the application of
attracting repeat patronage. every statistical concept and technique I learnt.
of using particular
Complete the following sentence. A world without statistics…
…would be a chaotic and unorganised place, where everything becomes more complicated than it is in
reality. Imagine a census without population figures, an election without polling, a cricket match without
player batting scores.
statistical techniques.
© Andreiorlov|Dreamstime.com
The problem is woven
throughout each chapter,
showing the connection
2.1 Tables and Charts for Categorical Data 23
between statistics and the 360° of the circle (Figure 2.3). A pie chart allows you to see the portion of the entire pie that
their use in business, falls into each category. In Figure 2.3 the convenience reason takes 28% of the pie and products
well displayed takes only 3%.
What type of chart should you use? The selection of a chart depends on your intention. If
as well as keeping you a comparison of categories is most important, use a bar chart. If observing the portion of the
whole that lies in a particular category is most important, use a pie chart.
Pie chart – reasons for grocery shopping online
motivated.
Figure 2.3
Comfortable Microsoft Excel pie chart
Variety/range of
environment of the reasons for grocery
products
8%
10% shopping online
Competitive prices
20%
Quality products
18%
Products well
displayed
3%
Real world, business examples are included throughout the chapter.

Customer service Convenience
13% 28%
These are designed to show the multiple applications of statistics, while PIE CHART FOR FAMILY TYPE
The Naturally Soap demographics are presented as summary tables. Use the summary tables
EXAMPLE 2.3
helping you to learn the statistics techniques.

given for family type to construct and interpret pie charts for the capital city and the coastal
region.
Pie chart – coastal region

Figure 2.4
Microsoft Excel pie chart for
family type
Emphasis on data output and interpretation Couple with children

Couple no children
The authors believe that the use of computer software is an integral One parent
Other
part of learning statistics. Our focus emphasises analysing data by Pie chart – capital city
interpreting the output from Microsoft Excel while reducing emphasis

on doing calculations. Excel 2010 changes to statistical functions are Couple with children
Couple no children
reflected in the operations shown in this edition.

One parent
Other
xii

In the coverage of hypothesis testing in Chapters 9 to 11, extensive Chapter Review Problems 11
computer output is included so that the focus can be placed on the

p-value approach. In our coverage of simple linear regression in
Chapter 12, we assume that a software program will be used and our
Assess your progress 1
focus is on interpretation of the output, not on hand calculations.
Summary
In this chapter you have studied data collection and the various cruise holidays) are discrete, and the responses to the second
types of data used in business. In the Celena Star scenario question (length of time since last holiday) are continuous.
Summaries are provided at the end of each chapter, to help you review you were asked to review the passenger survey which will be
used to provide information to the cruise line planning staff
(see page 7). The first three questions shown will produce
After the data have been collected, they must be organised
and prepared in order to make various analyses. The next two
chapters develop tables and charts and a variety of descriptive
the key content. numerical data and the last four will produce categorical
data. The responses to the first question (number of previous
numerical measures that are useful for data analysis.
Key terms
Key terms are signposted in the margins when they are first categorical variables
continuous variables
data
8
8
3
nominal scale
numerical variables
operational definition
8
8
4
ratio scale
sample
secondary sources
9
4
6
introduced, and are referenced to page numbers at the end of each

descriptive statistics 5 ordinal scale 8 statistic 4
discrete variables 8 parameter 4 statistics 3
focus group 7 population 4 statistical packages 5
chapter, helping you to revise key terms and concepts for the chapter.
inferential statistics 5 primary sources 6 variables 3
interval scale 9
Chapter review problems
End-of-section
CHECKING YOUR UNDERSTANDING Go to this site and click on First course in statistics. Pick a
1.10 What is the difference between a sample and a population? story and summarise how statistics were used in the story.
1.11 What is the difference between a statistic and a parameter? 1.18 Make a list of six ways you have used or encountered
problems are divided

1.12 What is the difference between descriptive and inferential statistics in the past week. Think about what you read or
statistics? heard in a news report or saw on a commercial website.
End of Part 1 problems 1.13 What is the difference between a categorical and a Also think whether you made a bet or participated in a
survey.
into Learning the

numerical variable?
1.14 What is the difference between a discrete and a continuous 1.19 The Australian Bureau of Statistics <www.abs.gov.au>
variable? site contains survey information on people, business,
1.15 What is an operational definition and why is it so important? geography and other topics. Go to the site and find the
A.1 A sample of 500 shoppers was selected in a large report to the manager on how long a customer should
basics and Applying the 1.16 What are the four types of measurement scales?
APPLYING THE CONCEPTS

latest version of Labour Force Experience, Australia
(Catalogue No. 6206.0).
a. Briefly describe the Labour Force Experience Survey.
metropolitan area to obtain consumer behaviour
information. Among the questions asked was ‘Do you enjoy
shopping for clothing?’ The results are summarised in the A.3
expect to wait to have a complaint resolved, what would
you say? Explain.
The annual crediting rates (after tax and fees) on several
concepts. 1.17 The Australasian Data and Story Library OZDASL <www.
statsci.org/data/index.html> is an online library of data
files and stories that illustrate the use of basic statistical
b. Give an example of a categorical variable found in this
survey.
c. Give an example of a numerical variable found in this
following cross-classification table. managed superannuation investment funds are: methods. The stories are classified by method and by topic. survey.
Gender Historical crediting rate for year ending
End-of-part problems
Enjoy shopping for clothing Male Female Total 30 June %
Yes 136 224 360 Superannuation
No 104 36 140 fund 2011 2010 2009 2008 2007
challenge the student to

Total 240 260 500 Australian shares 14.9 8.4 –9.8 –12.5 26.1
Balanced 9.5 9.1 –11.6 –6.6 14.2
a. Construct contingency tables based on total
High growth 11.7 10.3 –14.8 –12.5 19.6
percentages, row percentages and column percentages.
make decisions about the appropriate technique to apply, to carry out

Property 15.8 6.7 –18.8 –17.8 19.2
b. Construct a side-by-side bar chart of enjoy shopping for
clothing based on gender. a. For each fund calculate the geometric rate of return for
c. What conclusions do you draw from these analyses? three years and for five years.
A.2 One of the major measures of the quality of service
provided by any organisation is the speed with which the
organisation responds to customer complaints. A large
b. What conclusions can you reach concerning the
geometric rates of return for the funds? that technique and to interpret the data meaningfully.*
A.4 A supplier of ‘Natural Australian’ spring water states that
family-held department store selling furniture and flooring, the magnesium content is 1.6 mg/L. To check this during
including carpet, has undergone major expansion in the the bottling operation the quality control department during
past few years. In particular, the flooring department has a day’s production takes a random sample of 96 bottles
expanded from two installation crews to an installation
supervisor, a measurer and 15 installation crews. During
a recent year the company got 50 complaints about carpet
and obtains the magnesium content. SPRING_WATER1
a. Construct frequency and percentage distributions.
b. Construct a histogram and a percentage polygon.
Australasian and Pacific data sets are used for the problems in each
chapter. These files are contained on the Pearson website (www.
installation. The following data represent the number of c. Construct a cumulative percentage distribution and plot
days between receipt of the complaint and resolution of the the corresponding ogive.
complaint. FURNITURE d. Calculate the mean, median, mode, first quartile and
54
11
12
5
19
4
35
126
165
137
110
32
31
110
29
27
29
28
152
61
29
2
35
26
123
94
25
81
31
1
74
26
14
27
5
13
third quartile.
e. Calculate the variance, standard deviation, range,
interquartile range and coefficient of variation.
pearson.com.au/mymathlabglobal).
13 10 5 27 4 52 30 22 36 26 20 23 f. Construct and interpret a box-and-whisker plot.
33 68 g. What conclusions can you reach concerning the
magnesium content of this day’s production?
a. Construct frequency and percentage distributions.
Ethical issues sections are integrated into many chapters, raising issues
A.5 The ACNielsen organisation releases the results of recent
b. Construct histogram and percentage polygons. surveys at its website <www.acnielsen.com>. Go to this
c. Construct a cumulative percentage distribution and plot site and search for global online survey. Select an article
the corresponding ogive. of interest to you – for example, Global Online Shopping
d. Calculate the mean, median, first quartile and third
quartile.
e. Calculate the range, interquartile range, variance,
Habits.
a. Give an example of a categorical variable found in the
presentation.
for ethical consideration.
standard deviation and coefficient of variation. b. Give an example of a numerical variable found in the
f. Construct a box-and-whisker plot. Are the data skewed? presentation. Appendix 5 167
If so, how? c. Is the variable you selected in (b) discrete or
PH Stat2, a supplemental
g. On the basis of the results of (a) to (f), if you had to continuous?
add-in program for Appendix 5

Microsoft Excel, that Using statistical software for discrete probability distributions
enhances the statistical capabilities of Microsoft Excel, is included on You can use either PHStat2 or the probability worksheets
on the companion website for the textbook to calculate the
the companion website. When combined with Microsoft Excel’s own probabilities in this chapter.
Calculating expected value, variance and
Data Analysis Toolpak add-in, virtually all statistical methods taught in standard deviation of a discrete random variable
To calculate these parameters you must use the expected
value worksheet as neither Excel nor PHStat2 have
introductory statistics courses can be illustrated using Microsoft Excel. commands for this calculation.
Using the Expected Value worksheet

Open the Expected Value.xls file. This worksheet already Figure A5.1 Covariance and Portfolio Management dialog box
contains the entries for the Table 5.1 home mortgage
approval example and uses the SUM and SQRT (square
Visual Explorations, a Microsoft Excel workbook included on the

root) functions to calculate the parameters. in Probabilities and Outcomes and the weight value in
To adapt this worksheet to other problems: Weight Assigned to X.
• If you have more or less than seven outcomes, first add
Using the Portfolio worksheet
companion website allows you interactively to explore important
or delete table rows by selecting the cell range A5:E5,
then right-click and select either Insert or Delete. If Open the Portfolio.xls file. This worksheet already contains
a box of options appears, choose Shift cells down the entries for the investment data of Table 5.3. To adapt
if adding cells or choose Shift cells up if deleting. this worksheet to other problems:
statistical concepts. For example, in descriptive statistics, you can • If adding rows, copy the formulas in cell range C4:E4
down through the new table rows.
• Enter a corrected list of X values in column A starting
• If you have more or less than three outcomes, first add
or delete table rows by selecting row 5, then right-click
and select either Insert or Delete. If a box of options
observe the effect of changes in the data on the mean, median, quartiles with cell A4.
• Enter the new values for P(X) in column B.
appears, choose Entire row.
• If adding rows, copy the formulas in cell range F4:J4
down through the new table rows.
and standard deviation. Calculating portfolio expected return and

portfolio risk
You can either use the PHStat2 Covariance and Portfolio
• Enter the new probability and outcome values and the
new Weight Assigned to X values in the tinted cells
near the top of the worksheet.
Analysis procedure or make entries in the portfolio work-
sheet, Portfolio.xls Calculating binomial probabilities
You can use either the PHStat2 Binomial procedure or
The Pearson website contains downloadable versions of all of

Using PHStat2 – covariance and portfolio analysis make entries in the binomial worksheet, Binomial.xls
Open the workbook in which you want your portfolio
analysis worksheet to be placed. Using PHStat2 – Binomial
the data sets referenced in the text. Visit www.pearson.com.au/

Select PHStat � Decision-Making � Covariance Open the workbook in which you want your binomial
and Portfolio Analysis. In the Covariance and Portfo- worksheet to be placed.
lio Management dialog box (see Figure A5.1) enter the Select PHStat � Probability & Prob. Distributions
Number of Outcomes, a Title, check Portfolio Manage- � Binomial. In the Binomial Probability Distribution
mymathlabglobal to download the latest version of PhStat, to access ment Analysis, and click on OK.
In the worksheet created by PHStat2, enter in the tinted
cells near the top the probabilities and outcome values
dialog box (see Figure A5.2) enter the Sample Size, the
Probability of Success and the range of outcome required.
Enter a Title and click on OK.
Minitab and SPSS data sets and exercises, and to access the Visual
Explorations Microsoft Excel add on.
*The solutions are calculated using the (raw) Excel output. If you use the rounded figures presented in the text to xiii
reproduce these answers there may be minor differences.

About the authors
JUDITH WATSON
Judith Watson teaches in the Australian School of Business at the University of
New South Wales. She has extensive experience in lecturing and administering
undergraduate and postgraduate Quantitative Methods courses.
Judith’s keen interest in student support led her to establish the Peer Assisted
Support Scheme (PASS) in 1996 and she has coordinated this program for many years.
She served as her faculty’s academic adviser from 2001 to 2004 and was a recipient of
the inaugural Australian School of Business Outstanding Teaching Innovations Award
in 2008 and the 2012 Bill Birkett Award for Teaching Excellence. She is interested
in using online learning technology to engage students and has created a number of
adaptive e-learning tutorials for mathematics and statistics.
DR NICOLA JAYNE
Nicola Jayne is a lecturer in the Southern Cross Business School at the Lismore
campus of Southern Cross University. She has been teaching quantitative units since
being appointed to the university in 1993 after several years at Massey University in
New Zealand. Nicola has lectured extensively in Business and Financial Mathematics,
Discrete Mathematics and Statistics, both undergraduate and postgraduate, as well as
various Pure Mathematics units.
Her academic qualifications from Massey University include a Bachelor of
Science (majors in Mathematics and Statistics), a Bachelor of Science with Honours
(first class) and a Doctor of Philosophy, both in Mathematics. Nicola also has a
Graduate Certificate in Higher Education (Learning & Teaching) from Southern Cross
University.
She was the recipient of a Vice Chancellor’s Citation for an Outstanding
Contribution to Student Learning in 2011.
DR MARTIN O’BRIEN
Dr Martin O’Brien is a senior lecturer and Associate Head of the School of Economics
at the University of Wollongong. Martin earned his Bachelor of Commerce (first-
class honours) and PhD in Economics at the University of Newcastle. Martin’s PhD
and subsequent published research is in the general area of labour economics, and
specifically the exploration of older workers’ labour force participation in Australia in
the context of an ageing society. He has taught a wide range of quantitative subjects at
university level including business statistics, quantitative analysis for decision making,
econometrics, financial modelling, business research methods, as well as quality
management. Martin also has a keen interest in the development of new teaching
technologies and the analysis of alternative teaching methods such as practice-
into-theory.
xiv

About the originating authors
Mark L. Berenson is a professor of Management and Information Systems at Montclair State
University (Montclair, New Jersey) and also Professor Emeritus of Statistics and Computer
Information Systems at Bernard M. Baruch College (City University of New York). Over the
years, Mark has received several awards for teaching and for innovative contributions to statistics
education. In 2005 he was the first recipient of the Catherine A. Becker Service for Educational
Excellence Award at Montclair State University.
David M. Levine is Professor Emeritus of Statistics and Computer Information Systems at Bernard M. Baruch State
University. He is nationally recognised as a leading innovator in statistics education and is the co-author of 14 books,
including the best-selling Statistics for Managers Using Microsoft Excel.
Timothy C. Krehbiel is Professor of Decision Sciences and Management Information Systems at the Farmer School
of Business at Miami University in Oxford, Ohio. In 1996 he received the prestigious Instructional Innovation Award
from the Decision Sciences Institute. Tim’s research interests span all areas of business and applied statistics.
xv

PART
1 Presenting and
describing
information
Real People, Real Stats
Ricardo Maldonado POWER STATS
Which company are you currently working for and what are some of your responsibilities?
I currently work for Power Stats, a statistical consultancy, assisting primarily market research companies
and management consulting firms with their data collection, analysis and reporting needs.
As the principal statistician, I oversee every project that Power Stats undertakes. My main responsibilities
are to ensure that research questions are asked properly, that sample sizes are adequate to obtain
statistically significant results and that the data are analysed using the optimal statistical techniques.
List five words that best describe your personality.
Responsible, hardworking, practical, innovative, understanding.
What are some things that motivate you?
• The challenge of exploring an interesting new topic.
• The feeling that I can make a contribution to help other people achieve a goal.
• The satisfaction of obtaining a valuable insight.
• The desire to do a ‘good job’, not just at work, but in every aspect of my life.
When did you first become interested in statistics?
I first became interested in statistics while studying engineering. I could immediately see the application of
every statistical concept and technique I learnt.
Complete the following sentence. A world without statistics…
…would be a chaotic and unorganised place, where everything becomes more complicated than it is in
reality. Imagine a census without population figures, an election without polling, a cricket match without
player batting scores.
Berenson 3e_CH01.indd 2 8/6/12 6:34:04 AM

LET’S TALK STATS The questionnaire is then ‘launched’ typically as a telephone or an
What do you enjoy most about working in statistics? ‘online’ survey.
The fact that every project I undertake is likely to yield new insights, We recently completed an online survey where medical practitioners
which I can share with clients and colleagues. were asked to rate the performance of pharmaceutical sales reps.
Typical questions included asking doctors what is important to them
Describe your first statistics-related job or work experience.
when dealing with reps and how the reps are performing on those
Was this a positive or a negative experience?
important items.
It was a very positive experience! While completing my
postgraduate studies, I joined a multidisciplinary team (economists, How are these data usually summarised? What are some
computer programmers and entomologists) looking into grain insect positives and negatives of these summary techniques?
infestation in silos. I did most of the statistical analysis, travelled Many survey questions in market research can be summarised as
extensively and met many farmers. percentages of the total sample (or specific cohorts – like gender,
age group, etc.). Percentages work well with questions where the
What do you feel is the most common misconception about
response is categorical, for instance ‘How often do you buy fresh
your work held by students who are studying statistics?
milk?’ Answer options can include 1. Once a week, 2. Twice a week,
Please explain.
3. More often than twice a week. Percentages are easy to understand
That statisticians are very boring people who work in a back room
by general audiences and easy to represent graphically (bar charts, pie
and do a very dry and boring job. In fact, most statisticians face a
charts, etc.). Most surveys also include questions where the answer
new challenge every day, needing to talk extensively to other people
is purely numerical, for instance ‘How many patients on high blood
to understand the problem at hand and actively participating in the
pressure medication do you currently have on your books?’ Questions
presentation of results to senior management.
like this are usually summarised using means (averages). Averages
Do you need to be good at maths to understand and use are easy to understand by general audiences, but could provide a
statistics successfully? ‘biased’ view if a few doctors in the sample have an unusually large
Mathematical statisticians and statisticians who work in the number of patients on blood pressure medication.
development and validation of techniques need to have a good level In your experience, what is the most commonly referred to
of maths. Other ‘applied’ statisticians like me tend to rely more on measure of central tendency? What benefits does this measure
their problem-solving skills. Applied statisticians use techniques and offer over others?
statistical software developed by their more mathematically inclined
The most commonly used measure of central tendency, and one
colleagues to solve everyday statistical problems in business and
that really needs little explanation, is the mean or what is generally
industry.
meant when people use the word ‘average’.
Is there a high demand for statisticians in your industry (or in There are certain disadvantages associated with the mean, primarily
other industries)? Please explain. because it is influenced by extreme scores. However, the mean is
There is certainly demand for statisticians within market research made of sterner stuff. The mean has several important advantages
and marketing in general. Statisticians in these areas need to be that outweigh its disadvantages. Probably the most important of
familiar with survey and sampling design, multivariate analysis, data these advantages (perhaps more from an historical point of view,
mining techniques and consumer behaviour analysis (e.g. conjoint that is, pre-computers) is that it can be manipulated algebraically.
analysis, discrete choice modelling). Forecasting using time-series Another important advantage of the sample mean is that it has
analysis is also in high demand in these types of jobs. several desirable properties with respect to its use as an estimate of
the population mean. The fact that the sample mean is, in general,
PRESENTING AND DESCRIBING INFORMATION a better estimate of the population mean than are the mode or the
Does data collection play an important role in the decisions you median (other measures of central tendency) is a major reason why
make for your business/work? Please explain. the mean is so widely used.
Data collection is our bread and butter. We do use secondary Why is it important to be aware of the spread/variation of
data sources (e.g. bureau data, data that exist within the data points in a sample? What are the consequences
organisation – like sales data) but many of the insights come
from asking specific questions to target respondents in surveys.
of not knowing this type of information about your
sample?
a
Survey questions are carefully crafted to address specific
business information needs and then analysed and presented to
The average value of a distribution (whether it be a
mode, median or mean) fails to give the whole story.
quick
q&a
decision makers. Statisticians need some additional measure (or measures)
Describe a project that you have worked on recently that might to indicate the degree to which individual observations are
have involved data collection. Please be specific. clustered about, or equivalently, deviate from the average
Almost every project that we undertake has a data collection value. The average may reflect the general location of most
component, usually in the form of a survey questionnaire. We of the scores. On the other hand, the scores may be distributed
always test our questionnaires face to face to ensure that over a wide range of values and the average may be some sort of
questions are properly asked and understood by respondents. bad compromise.

1
CHAPTER Introduction and
data collection
The Celena Star
C
ruising is a major part of the tourism industry and at any one time there are hundreds of cruise ships sailing from ports
around the world. Competition between cruise companies is strong. Your employer is the Arafura Line which offers
cruises around South East Asia and the Pacific. The company’s newest ship is the Celena Star, a medium-sized vessel
of 70,000 tonnes. Part of your job entails collecting data from passengers on the Celena Star to assess their enjoyment of
its latest cruise. You and the market research team will help to analyse the data for forward planning purposes. The infor-
mation gained is important as the company relies quite heavily on repeat bookings from cruise customers. It has loyalty
programs which offer benefits to those who make further bookings and finds that customer satisfaction is a key factor in
attracting repeat patronage.
© Andreiorlov|Dreamstime.com

1.1 Basic Concepts of Statistics 3
After studying this chapter you should have a better understanding of:
LEARNING
OBJECTIVES
1 how statistics is used in business
2 the sources of data used in business
3 the types of data used in business
Every day you use news and information sources to gather the facts that you need to lead your
life. You might listen to a weather forecast to decide what clothes to wear; if you live in a large
city, you might listen to traffic reports to learn about the road or public transport delays that
could affect you.
Your personal likes and dislikes shape some of your decisions, too. In spite of hearing that
a movie has received poor ratings, you might decide to go to see it just because you happen to
like a particular actor who appears in that film.
Every day business managers also have to make decisions. Although managers sometimes
resort to ‘gut instincts’ to make some decisions (this is more formally known as unstructured
decision making), they more typically make decisions that are based on concrete information.
As a business student, you cannot really learn how to make unstructured decisions, as they
require instincts and insights that come from many years of experience. You can learn, though,
the procedures and methods that will help you make better decisions based on solid evidence.
When you begin focusing on the procedures and methods involved in collecting, presenting
and summarising a set of facts, or forming conclusions about those facts, you have discovered
statistics.
In the Celena Star scenario it is important that your team members focus on the consumer
information that is needed by many different management departments when planning future
cruises. If the market research team fails to collect important information, or misrepresents the
opinions of current passengers, management may make poor decisions about pricing, shore
excursion options, entertainment and other factors that will attract passengers. Failure to offer
cruises and activities that are popular could affect the profitability of the Arafura Line. In
deciding how to collect the facts that are needed, it will help if you know something about the
basic concepts of statistics.
1.1 BASIC CONCEPTS OF STATISTICS

Statistics is the branch of mathematics that examines ways to process and analyse data. Sta- statistics
tistics provides procedures to collect and transform data in ways that are useful to business A branch of mathematics
concerned with the collection and
decision-makers. To understand anything about statistics, you first need to understand the analysis of data.
meaning of a variable.
V A R IA B L E S
Variables are characteristics of items or individuals. variables
Characteristics or attributes that
DATA can be expected to differ from one
individual to another.
Data are the observed values of variables.
data
Examples of variables are your gender, your major field of study, the amount of money you The observed values of variables.
have in your wallet or purse, and the amount of time you spend in the shower each day. The

4 CHAPTER ONE / Introduction and Data Collection
key aspect of the word variable is the idea that items differ and people differ. The person next
to you may be male rather than female, may be majoring in a field of study different from your
own, almost certainly has a different amount of money in their wallet, and may be less con-
scious of saving water than you are. You should distinguish between a variable, such as gender
or cost, and its value for an individual observation (e.g. ‘male’ or ‘$55’). Collections of values
are known as data.
operational definition All variables should have an operational definition – a universally accepted meaning that is
Defines how a variable is to be clear to all associated with an analysis. Without operational definitions, confusion can occur.
measured.
An example of a situation where operational definitions are needed is for the process of data
gathering by the Australian Bureau of Statistics. The ABS needs to collect information about
groups of people living together so defines a ‘household’ as ‘one or more persons, at least one
of whom is at least 15 years of age, usually resident in the same private dwelling’ whereas a
‘family’ has the operational definition of ‘two or more persons, one of whom is at least 15 years
of age, who are related by blood, marriage (registered or de facto), adoption, step or fostering,
and who are usually resident in the same household’ (Australian Bureau of Statistics, 2010,
Standards for income variables, Cat. No. 1287.0).
Comparing these definitions we can see that it is possible for a household to contain more
than one family. The household is the preferred statistical unit for income analysis.
Now that the terms variables and data have been defined, you need to understand the
meaning of the terms population, sample, parameter and statistic.
P OP UL A TIO N
population A population consists of all the members of a group about which you want to draw a con-
A collection of all members of a clusion.
group being investigated.
S A MP L E
sample
A sample is the portion of the population selected for analysis.
The portion of the population P A RA ME TE R
selected for analysis.
A parameter is a numerical measure that describes a characteristic of a population.
parameter
A numerical measure of some
S T A TIS TIC
population characteristic. A statistic is a numerical measure that describes a characteristic of a sample.
statistic
A numerical measure that
describes a characteristic of a
Examples of populations are all the full-time students at a university, all the registered voters in
sample. New Zealand and all the people who were customers of the local shopping centre last weekend.
The term population is not limited to groups of people. We could refer to a population of all motor
vehicles registered in Victoria. Two factors need to be specified when defining a population:
1. the entity (e.g. people or motor vehicles)
2. the boundary (e.g. registered to vote in New Zealand or registered in Victoria for road
use).
Samples could be selected from each of the populations mentioned above. Examples
include ten full-time students selected for a focus group, 500 registered voters in New Zealand
who were contacted by telephone for a political poll, 30 customers at the shopping centre who
were asked to complete a market research survey and all the vehicles registered in Victoria that
are more than ten years old. In each case, the people or the vehicles in the sample represent a
portion, or subset, of the people or vehicles comprising the population.
The average amount spent by all the customers at the local shopping centre last weekend is
an example of a parameter. Information from all the shoppers in the entire population is needed
to calculate this parameter.
The average amount spent by the 30 customers completing the market research survey is
an example of a statistic. Information from a sample of only 30 of the shopping centre’s cus-
tomers is used in calculating the statistic.

1.2 The Growth of Statistics and Information Technology 5
Statistics, itself, is divided into two branches, both of which are applicable to managing a
business. Descriptive statistics focuses on collecting, summarising and presenting a set of data. descriptive statistics
Inferential statistics uses sample data to draw conclusions about a population. The field that focuses on
summarising or characterising a
Descriptive statistics has its roots in the record-keeping needs of large political and social set of data.
organisations. Refining the methods of descriptive statistics is an ongoing task for government
inferential statistics
statistical agencies such as the Australian Bureau of Statistics and Statistics New Zealand as
Uses information from a sample
they prepare for each census. In both Australia and New Zealand a census is scheduled to be to draw conclusions about a
carried out every five years (e.g. 2006 and 2011) to count the entire population and to collect population.
data about education, occupation, languages spoken and many other characteristics of the
citizens. A large amount of planning and training is necessary to ensure that the data collected
represent an accurate record of the population’s characteristics at the census date. However,
despite the best planning, such an immense data collection task can be affected by external
factors. The New Zealand census originally planned for 8 March 2011 had to be cancelled due
to chaos caused by the major earthquake on 22 February in Christchurch. A new census is now
scheduled for March 2013.
The foundation of inferential statistics is based on the mathematics of probability theory.
Inferential methods use sample data to calculate statistics that provide estimates of the charac-
teristics of the entire population.
Today, applications of statistical methods can be found in different areas of business.
Accounting uses statistical methods to select samples for auditing purposes and to understand
the cost drivers in cost accounting. Finance uses statistical methods to choose between alterna-
tive portfolio investments and to track trends in financial measures over time. Management
uses statistical methods to improve the quality of the products manufactured or the services
delivered by an organisation. Marketing uses statistical methods to estimate the proportion of
customers who prefer one product over another and to draw conclusions about what advertising
strategy might be most useful in increasing sales of a product.
1.2 THE GROWTH OF STATISTICS AND INFORMATION TECHNOLOGY

During the past century, statistics has played an important role in spurring the use of infor-
mation technology and, in turn, such technology has spurred the wider use of statistics. At
the beginning of the twentieth century, the expanding data-handling requirements associated
with the United States federal census led directly to the development of tabulating machines
that were the forerunners of today’s business computer systems. Statisticians such as Pearson,
Fisher, Gosset, Neyman, Wald and Tukey established the techniques of modern inferen-
tial statistics as an alternative to analysing large sets of population data that had become
increasingly costly, time-consuming and cumbersome to collect. The development of early
computer systems permitted others to develop computer programs to ease the calculation and
data-processing burdens imposed by those techniques. Over time, greater use of statistical
methods by business decision makers and advances in computer capacity have led to the devel-
opment of even more sophisticated statistical methods.
Today, when you hear of retailers investing in a ‘customer-relationship management
system’, or CRM, or a packaged goods producer engaging in ‘data mining’ to uncover
consumer preferences, you should realise that statistical techniques form the foundations of
such cutting-edge applications of information technology. Even though cutting-edge appli-
cations might require custom programming, for many years businesses have had access to
statistical packages, such as Minitab, SPSS/PASW Statistics, SAS and Stata – standardised sets statistical packages
of programs that help managers use a wide range of statistical techniques by automating the Computer programs designed to
perform statistical analysis.
data processing and calculations these techniques require.
The leasing and training costs associated with statistical packages have led many to consider
using some of the graphical and statistical functions of Microsoft Excel. However, you need to be
aware that many statisticians have concerns about the accuracy and completeness of the statistical
results produced by early versions of Excel. Invalid results could be produced, especially when

the data sets were very large or had unusual statistical properties (see reference 1). Microsoft
Excel 2010 has made some significant improvements in statistical functions (see reference 2) but
it would still be wise to be careful about the data and the analysis you are undertaking.
1.3 COLLECTING DATA

In the Celena Star scenario, identifying the data that need to be collected is an important
LEARNING OBJECTIVE 1 step in the process of cruise ship marketing and operational planning. Some of the data will
How statistics is used in come from consumers through market research. It is important that the correct inferences are
business drawn from the research and that appropriate statistical methods assist planners and designers
to make the right decisions.
Managing a business effectively requires collecting the appropriate data. In most cases,
the data are measurements acquired from items in a sample. The samples are chosen from
populations in such a manner that the sample is as representative of the population as possible.
The most common technique to ensure proper representation is to use a random sample. (See
Chapter 7 for a detailed discussion of sampling techniques.)
Many different types of circumstances require the collection of data:
• A marketing research analyst needs to assess the effectiveness of a new television
advertisement.
• A pharmaceutical manufacturer needs to determine whether a new drug is more effective
than those currently in use.
• An operations manager wants to monitor a manufacturing process to find out whether the
quality of product being produced is conforming to company standards.
• An auditor wants to review the financial transactions of a company to determine
whether or not the company is in compliance with generally accepted accounting
principles.
• A potential investor wants to determine which firms within which industries are likely to
have accelerated growth in a period of economic recovery.
Identifying Sources of Data

Identifying the most appropriate source of data is a critical aspect of statistical analysis. If biases,
ambiguities or other types of errors flaw the data being collected, even the most sophisticated
statistical methods will not produce accurate information. Four important sources of data are:
• data distributed by an organisation or an individual
• a designed experiment
• a survey
• an observational study.
Data sources are classified as either primary sources or secondary sources. When the data col-
LEARNING OBJECTIVE 2 lector is the one using the data for analysis, the source is primary. When another organisation
Sources of data used in or individual has collected the data that are used for analysis by an organisation or individual,
business the source is secondary.
Organisations and individuals that collect and publish data typically use this information
as a primary source and then let others use the data as a secondary source. For example, the
primary sources Australian federal government collects and distributes data in this way for both public and
Provide information collected by private purposes. The Australian Bureau of Statistics oversees a variety of ongoing data collec-
the data analyser.
tion in areas such as population, the labour force, energy and the environment and health care
secondary sources and publishes statistical reports. The Reserve Bank of Australia collects and publishes data on
Provide data collected by another exchange rates, interest rates and ATM and credit card transactions.
person or organisation.
Market research firms and trade associations also distribute data pertaining to specific
industries or markets. Investment services such as Aspect Huntley provide financial data on a
company-by-company basis. Syndicated services such as ACNielsen provide clients with data
enabling the comparison of client products with those of their competitors. Daily newspapers in

1.3 Collecting Data 7
The Celena Star survey

Near the end of each cruise on the Celena Star passengers are asked to complete a survey with
questions about various aspects of their cruise experience and future travel plans. The survey
includes these questions:
n How many cruise holidays have you taken prior to this one? ________
n How long is it since your last holiday on land or sea? ________
n How many times during this cruise did you use the Galaxy Pool Bar? ________
n How satisfied were you with the servicing of your cabin?
Very satisfied n Satisfied n Undecided n Dissatisfied n Very dissatisfied n
n The shore excursion tours offered good value for money
Almost always n Very infrequently n
Sometimes n Never n
n Would you consider taking another cruise on an Arafura Line ship? Yes n No n
n Are you likely to take another cruise in the next twelve months? Yes n No n
You have been asked to review the survey. What type of data does the survey seek to collect?
What type of information can be generated from the data of the completed survey? How can
the cruise company’s head office use this information when planning future cruises? What other
questions would you suggest for the survey?
print and online formats are filled with numerical information about share prices, weather condi-
tions and sports statistics.
As listed above, conducting an experiment is another important data-collection source.
For example, to test the effectiveness of laundry detergent, an experimenter determines which
brands in the study are more effective in cleaning soiled clothes by actually washing dirty
laundry instead of asking customers which brand they believe to be more effective. Proper
experimental designs are usually the subject matter of more advanced texts, because they often
involve sophisticated statistical procedures. However, some fundamental experimental design
concepts are considered in Chapter 11.
Conducting a survey is a third important data source. Here, the people being surveyed are
asked questions about their beliefs, attitudes, behaviours and other characteristics. Responses
are then edited, coded and tabulated for analysis.
Conducting an observational study is the fourth important data source. In such a study, a
researcher observes the behaviour directly, usually in its natural setting. Observational studies
take many forms in business. One example is the focus group, a market research tool that is used focus group
to elicit unstructured responses to open-ended questions. In a focus group, a moderator leads A group of people who are asked
about attitudes and opinions for
the discussion and all the participants respond to the questions asked. Other, more structured qualitative research.
types of studies involve group dynamics and consensus building and use various organisational-
behaviour tools such as brainstorming, the Delphi technique and the nominal-group method.
Observational study techniques are also used in situations in which enhancing teamwork or
improving the quality of products and service are management goals.

1.4 TYPES OF VARIABLES

As illustrated in Figure 1.1, there are two types of variables – categorical and numerical, some-
times referred to as qualitative and quantitative variables respectively.
Figure 1.1 VARIABLE TYPE QUESTION TYPES RESPONSES

Types of variables
Categorical Do you currently own any shares? Yes No
To how many magazines do

Discrete Number
you currently subscribe?
Numerical
Continuous How tall are you? Centimetres
categorical variables Categorical variables yield categorical responses, such as yes or no or male or female answers.
Take values that fall into one or An example is the response to the question ‘Do you currently own any shares?’ because it is
more categories.
limited to a simple yes or no answer. Another example is the response to the question in the
Celena Star survey (presented on page 7), ‘Are you likely to take another cruise in the next
twelve months?’ Categorical variables can also yield more than one possible response. For
example, ‘On which days of the week are you most likely to use public transport?’
numerical variables Numerical variables yield numerical responses, such as your height in centimetres. Other
Take numbers as their observed examples are ‘How many times during this cruise did you use the Galaxy Pool Bar?’ (from the
responses.
Celena Star survey) or the response to the question ‘To how many magazines do you currently
subscribe?’
There are two types of numerical variables: discrete and continuous. Discrete variables
LEARNING OBJECTIVE 3 produce numerical responses that arise from a counting process. ‘The number of magazines
The types of data used in subscribed to’ is an example of a discrete numerical variable, because the response is one of a
business finite number of integers. You subscribe to zero, one, two and so on magazines.
Continuous variables produce numerical responses that arise from a measuring process.
discrete variables Your height is an example of a continuous numerical variable, because the response takes on
Can only take a finite or countable any value within a continuum or interval, depending on the precision of the measuring instru-
number of values.
ment. For example, your height may be 158 cm, 158.3 cm or 158.2945 cm, depending on the
continuous variables precision of the available instruments.
Can take any value between No two people are exactly the same height and the more precise the measuring device
specified limits. used, the greater the likelihood of detecting differences in their heights. However, most meas-
uring devices are not sophisticated enough to detect small differences. Hence, tied observations
are often found in experimental or survey data even though the variable is truly continuous and,
theoretically, all values of a continuous variable are different.
Levels of Measurement and Types of Measurement Scales

Data are also described in terms of their level of measurement. There are four widely recog-
nised levels of measurement: nominal, ordinal, interval and ratio scales.
Nominal and ordinal scales Data from a categorical variable are measured on a nominal scale or on
nominal scale an ordinal scale. A nominal scale (Figure 1.2) classifies data into various distinct categories in which
A classification of categorical data no ranking is implied. In the Celena Star survey, the answer to the question ‘Are you likely to take
that implies no ranking.
another cruise in the next twelve months?’ is an example of a nominally scaled variable, as is your
favourite soft drink, your political party affiliation and your gender. Nominal scaling is the weakest
form of measurement because you cannot specify any ranking across the various categories.
ordinal scale An ordinal scale classifies data into distinct categories in which ranking is implied. In the
Scale of measurement where Celena Star survey, the answers to the question ‘The shore excursion tours offered good value
values are assigned by ranking.
for money’ represent an ordinal scaled variable because the responses ‘almost always, some-
times, very infrequently and never’ are ranked in order of frequency. Figure 1.3 lists other
examples of ordinal scaled variables.

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Basic Business Statistics Concepts and

Applicationsby 3e by Mark Berenson

Basic Business Statistics 4e by Mark Berenson

(Original PDF) Basic Business Statistics 14th Edition

(eBook PDF) Basic Business Statistics Concepts and

(eBook PDF) Basic Business Statistics: Concepts and

(eBook PDF) Basic Statistics for Business and Economics

(eBook PDF) Basic Statistics for Business and Economics

(eBook PDF) Basic Statistics for Business and Economics

(eBook PDF) Basic Business Statistics, Global Edition

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and standard deviation. Calculating portfolio expected return and

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1.1 BASIC CONCEPTS OF STATISTICS

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