Chapter 1

Introduction to Data Analysis

and Decision Making
Introduction
 We are living in the age of technology. This has two
important implications for everyone entering the business
world.
– First, technology has made it possible to collect huge
amounts of data.
– Second, it has given many more people the power and
responsibility to analyze data and make decisions on the
basis of quantitative analysis.
 A large amount of data already exists, and it will only
increase in the future.
 Enlightened companies are seeing this expansion as a
source of competitive advantage. By using quantitative
methods to uncover the information in the data and then
acting on this information – again guided by quantitative
analysis – they are able to gain advantages that their less
enlightened competitors are not able to gain.
Data Analysis, Optimization, and Simulation Modeling South-Western/Cengage Learning © 2011
An Overview of the Book
 This book is rather unique in that it combines topics
from two separate fields:
Statistics and management science.
– Statistics is the study of data analysis, whereas management
science is the study of model building, optimization, and
decision making.
– In the academic arena, these two fields have traditionally
been separated, sometimes widely.
– However, from a user’s standpoint it makes little sense to
separate them. Both are useful in accomplishing what the title
of this book promises: Data analysis and decision making.
 We do not distinguish between the statistics and the
management science parts of this book. Instead, we
view the entire book as a collection of useful
quantitative methods that can be used to analyze data
and help make business decisions.
Data Analysis, Optimization, and Simulation Modeling South-Western/Cengage Learning © 2011
Overview Continued
 In Chapter 2 and 3, a number of ways to summarize
the information in data sets are illustrated.
 Uncertainty is a key aspect of most business
problems. To deal with uncertainty, you need a basic
understanding of probability. We provide this
understanding in Chapters 4 and 5.
 In Chapter 6, we apply our knowledge of probability to
decision making under uncertainty.
 In Chapters 7, 8, and 9, we discuss sampling and
statistical inference. Here the basic problem is to
estimate one or more characteristics of a population.

Data Analysis, Optimization, and Simulation Modeling South-Western/Cengage Learning © 2011

Overview Continued
 In Chapters 10 and 11, we discuss the extremely
important topic of regression analysis, which is used to
study relationships between variables.
 From regression, we move to time series analysis and
forecasting in Chapter 12. This topic is particularly
important for providing inputs into business decision
problems.
 Chapters 13 and 14 are devoted to spreadsheet
optimization, with emphasis on linear programming.
 Finally, Chapters 15 and 16 illustrate a number of
computer simulation models.

Data Analysis, Optimization, and Simulation Modeling South-Western/Cengage Learning © 2011

Overview Continued
 The quantitative methods in this book can be used to
analyze a wide variety of business problems.
 However, they are not of much practical use unless
you have the software to do the number crunching.
 Very few business problems are small enough to be
solved with pencil and paper. They require powerful
software.
 The software included in new copies of this book,
together with Microsoft Excel, provides you with a
powerful combination.

Data Analysis, Optimization, and Simulation Modeling South-Western/Cengage Learning © 2011

Overview Continued
 The file Excel Tutorial.xlsx explains some of the
“intermediate” features of Excel.
 Excel’s Solver add-In, developed by Frontline
Systems, uses powerful algorithms – all behind the
scenes – to perform spreadsheet optimization.
 In addition to SolverTable and built-in Excel add-ins,
we also have included on the textbook Web site an
educational version of Palisade Corporation’s
powerful Decision Tools suite.
– The Palisade suite includes a statistical add-in called
StatTools. StatTools is powerful, easy to use, and capable of
generating output quickly in an easily interpretable form.
 A variety of other tools are included to aid the
decision-making process.
Data Analysis, Optimization, and Simulation Modeling South-Western/Cengage Learning © 2011
Modeling and Models
 A model is an abstraction of a real problem. It tries to
capture the essence and key features of the problem
without getting bogged down in relatively unimportant
details.
 There are different type of models, such as:
– Graphical models
– Algebraic models
– Spreadsheet models
 Depending on an analyst’s preferences and skills,
each can be a valuable aid in solving a real problem.

Data Analysis, Optimization, and Simulation Modeling South-Western/Cengage Learning © 2011

A Seven-Step Modeling
Process
 Most of the modeling you will do in this book is only
part of an overall modeling process typically done in
the business world. We portray it as a seven-step
process, as discussed here. But not all problems
require all seven steps.
1. Define the problem.
2. Collect and summarize data.
3. Develop a model.
4. Verify the model.
5. Select one or more suitable decisions.
6. Present the results to the organization.
7. Implement the model and update it over time.

Data Analysis, Optimization, and Simulation Modeling South-Western/Cengage Learning © 2011

Conclusion
 The skills in this book are important for you to know as
you enter the business world.
 The methods we discuss are no longer the sole
province of the “quant jocks.”
 By having a PC on your desk that is loaded with
powerful software, you incur a responsibility to use this
software to analyze business problems.
 We have described the types of problems you will
learn to analyze in this book, along with the software
you will use to analyze them.
 Finally, we also introduced you to the concepts of
models and modeling processes, which are key
elements throughout this book.
Data Analysis, Optimization, and Simulation Modeling South-Western/Cengage Learning © 2011
End of Chapter 1