Chapter 1 Data and Business Decisions
Basic Concepts Review Questions
1. Explain the importance of statistics in business.
Answer:
Statistics is the science of collecting, organizing, analyzing, interpreting, and presenting
data. In business, statistics is quite important because it allows managers to make fact-
based decisions instead of “gut feel” type decisions. In addition, if various claims are
made about a product or service, the use of statistics can prove or disprove claims which
can prevent legal issues and can allow for true and ethical decisions about a hypothesis.
2. Explain the difference between data and information.
Answer:
Data typically refers to the raw data, which is an important ingredient in producing useful
information. Information is what managers can use to make appropriate decisions.
3. Describe some ways in which data are used in different business functions.
Answer:
Data is used in many different business functions:
a. Finance and Accounting – the data is the basic element from which a balance sheet is
created, and the determination of costs and profits at a company or within a business unit.
b. Marketing – data is used to determine advertising impact, how, when, and where
coupons and sales promotions are used by customers, in market research to determine
customer satisfaction and where new product interests might lie.
c. Human Resources – data is used to determine employee turnover, attendance, success
of orientation programs and the effectiveness of training programs.
d. Strategic planning – data is used to determine which countries a company may want to
enter in a market and where to build manufacturing and warehouse facilities.
4. Explain how a company might use internal sources of data, special studies, and
external data bases.
Answer:
Internal sources of data is the information that an organization already has within its own
company data bases and is routinely collected by the accounting, marketing, and
,operations functions. Examples include: production output, material costs, sales, accounts
receivables, and customer demographics.
Other data must be generated through special efforts.
External databases are often used for comparative purposes, marketing projects, and
economic analyses. These might include population trends, interest rates, industry
performance, consumer spending, and international trade data. Such data can be found in
annual reports, Standard & Poor’s Compustat data sets, industry trade associations, or
government databases.
01-01
5. What is a metric, and how does it differ from a measure?
Answer:
A metric is a unit of measurement that provides a method for objectively quantifying
performance. A measurement is the act of obtaining data. Measurement creates measures
which are numerical values associated with a metric.
6. Explain the difference between a discrete and a continuous metric.
Answer:
A discrete metric is countable and finite number of distinct values and is expressed as
counts or proportions. Continuous metrics are results of measurements, such as length,
time or weight, and assume an infinite (continuous) range of possibilities.
7. Explain the differences between categorical, ordinal, interval, and ratio data.
Answer:
Categorical data or nominal data is data that is sorted into categories according to
specified characteristics, without any natural order, such as male/female by geographic
regions.
Ordinal data are ordered or ranked according to some relationship to one another. Rating
a service as poor, average, good, very good, or excellent is an example of ordinal data.
Interval data are ordered, have a specified measure of the distance between observations
but have no natural zero. Common examples are time and temperature.
Ratio data is interval data which have a natural zero. Most business and economic data
fall into this category, and statistical methods are the most widely applicable to them.
8. Explain the difference between cross‐sectional and time‐series data.
Answer:
Cross sectional data is the data that are collected over a single period of time, such as
responses to market questionnaires. Time series data is the data collected over a period of
time, such as NASDAQ’s daily returns.
,01-02
, 9. What is statistical thinking? Why is it an important managerial skill?
Answer:
Statistical thinking is a philosophy of learning and the action for improvement based on
three principles:
a. All work occurs in a system of interconnected processes.
b. Variation exists in all processes.
c. Understanding and reducing variation are keys to success.
Statistical thinking is an important management skill because managers need to be able to
understand the difference between common and special cause of variation in the business
processes that they are responsible for. This type of mindset allow managers to making
decisions the help to reduce variation and to deliver more consistent performance over a
long term time horizon.
10. What is the difference between a population and a sample?
Answer:
A population consists of all items of interest for a particular decision or investigation,
such as all the residents of a county or all the students at a university. A sample is a subset
of a population, such as the residents in a neighborhood or the students in a business
statistics class.
11. List the different types of charts available in Excel, and explain characteristics of
data sets that make each chart most appropriate to use.
Answer:
There are many different types of charts that Excel can generate:
a. Column and bar charts can be used to compare types of data against each other or
against a standard. Column charts are vertical and bar charts are horizontal.
b. Line charts provide a useful means for displaying data over time.
c. Pie charts show the relative proportion of each data source to the total.
d. Area charts combines the features of a pie chart with those of line charts. Area
charts present more information than pie or line charts alone, but may clutter the
observer’s mind with too many details if too many data sets are used.
e. Scatter diagrams show the relationship between two variables.
f. Stock charts allow a manager to plot stock prices, including the high, low, and
close.
g. Doughnut charts are similar to pie charts, but can include more than one set of
data.
h. Surface charts show 3 dimensional data.
i. A bubble chart is a type of scatter chart, but the size of the data marker
corresponds to the value of a 3rd variable.
Basic Concepts Review Questions
1. Explain the importance of statistics in business.
Answer:
Statistics is the science of collecting, organizing, analyzing, interpreting, and presenting
data. In business, statistics is quite important because it allows managers to make fact-
based decisions instead of “gut feel” type decisions. In addition, if various claims are
made about a product or service, the use of statistics can prove or disprove claims which
can prevent legal issues and can allow for true and ethical decisions about a hypothesis.
2. Explain the difference between data and information.
Answer:
Data typically refers to the raw data, which is an important ingredient in producing useful
information. Information is what managers can use to make appropriate decisions.
3. Describe some ways in which data are used in different business functions.
Answer:
Data is used in many different business functions:
a. Finance and Accounting – the data is the basic element from which a balance sheet is
created, and the determination of costs and profits at a company or within a business unit.
b. Marketing – data is used to determine advertising impact, how, when, and where
coupons and sales promotions are used by customers, in market research to determine
customer satisfaction and where new product interests might lie.
c. Human Resources – data is used to determine employee turnover, attendance, success
of orientation programs and the effectiveness of training programs.
d. Strategic planning – data is used to determine which countries a company may want to
enter in a market and where to build manufacturing and warehouse facilities.
4. Explain how a company might use internal sources of data, special studies, and
external data bases.
Answer:
Internal sources of data is the information that an organization already has within its own
company data bases and is routinely collected by the accounting, marketing, and
,operations functions. Examples include: production output, material costs, sales, accounts
receivables, and customer demographics.
Other data must be generated through special efforts.
External databases are often used for comparative purposes, marketing projects, and
economic analyses. These might include population trends, interest rates, industry
performance, consumer spending, and international trade data. Such data can be found in
annual reports, Standard & Poor’s Compustat data sets, industry trade associations, or
government databases.
01-01
5. What is a metric, and how does it differ from a measure?
Answer:
A metric is a unit of measurement that provides a method for objectively quantifying
performance. A measurement is the act of obtaining data. Measurement creates measures
which are numerical values associated with a metric.
6. Explain the difference between a discrete and a continuous metric.
Answer:
A discrete metric is countable and finite number of distinct values and is expressed as
counts or proportions. Continuous metrics are results of measurements, such as length,
time or weight, and assume an infinite (continuous) range of possibilities.
7. Explain the differences between categorical, ordinal, interval, and ratio data.
Answer:
Categorical data or nominal data is data that is sorted into categories according to
specified characteristics, without any natural order, such as male/female by geographic
regions.
Ordinal data are ordered or ranked according to some relationship to one another. Rating
a service as poor, average, good, very good, or excellent is an example of ordinal data.
Interval data are ordered, have a specified measure of the distance between observations
but have no natural zero. Common examples are time and temperature.
Ratio data is interval data which have a natural zero. Most business and economic data
fall into this category, and statistical methods are the most widely applicable to them.
8. Explain the difference between cross‐sectional and time‐series data.
Answer:
Cross sectional data is the data that are collected over a single period of time, such as
responses to market questionnaires. Time series data is the data collected over a period of
time, such as NASDAQ’s daily returns.
,01-02
, 9. What is statistical thinking? Why is it an important managerial skill?
Answer:
Statistical thinking is a philosophy of learning and the action for improvement based on
three principles:
a. All work occurs in a system of interconnected processes.
b. Variation exists in all processes.
c. Understanding and reducing variation are keys to success.
Statistical thinking is an important management skill because managers need to be able to
understand the difference between common and special cause of variation in the business
processes that they are responsible for. This type of mindset allow managers to making
decisions the help to reduce variation and to deliver more consistent performance over a
long term time horizon.
10. What is the difference between a population and a sample?
Answer:
A population consists of all items of interest for a particular decision or investigation,
such as all the residents of a county or all the students at a university. A sample is a subset
of a population, such as the residents in a neighborhood or the students in a business
statistics class.
11. List the different types of charts available in Excel, and explain characteristics of
data sets that make each chart most appropriate to use.
Answer:
There are many different types of charts that Excel can generate:
a. Column and bar charts can be used to compare types of data against each other or
against a standard. Column charts are vertical and bar charts are horizontal.
b. Line charts provide a useful means for displaying data over time.
c. Pie charts show the relative proportion of each data source to the total.
d. Area charts combines the features of a pie chart with those of line charts. Area
charts present more information than pie or line charts alone, but may clutter the
observer’s mind with too many details if too many data sets are used.
e. Scatter diagrams show the relationship between two variables.
f. Stock charts allow a manager to plot stock prices, including the high, low, and
close.
g. Doughnut charts are similar to pie charts, but can include more than one set of
data.
h. Surface charts show 3 dimensional data.
i. A bubble chart is a type of scatter chart, but the size of the data marker
corresponds to the value of a 3rd variable.
