Chapter 1 Introduction to Statistics and Business Analytics
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CHAPTER 1 Introduction to Statistics and Business Analytics LEARNING OBJECTIVES The primary objective of Chapter 1 is to introduce you to the world of statistics and analytics thereby enabling you to: 1.1 Define important statistical terms, including 1.3 Explain the differences between the four dimensions population, sample, and parameter, as they relate to of big data. descriptive and inferential statistics. 1.4 Compare and contrast the three categories of 1.2 Explain the difference between variables, business analytics. measurement, and data, and compare the four 1.5 Describe the data mining and data visualization different levels of data: nominal, ordinal, interval, processes. and ratio. Decision Dilemma Statistics Describe the State of Business in India’s Countryside India is the second-most-populous country in the world, with more than 1.25-billion people. Nearly 70% of the people live in rural areas, scattered about the countryside in 600,000 villages. In fact, it may be said that more than one in every ten people in the world live in rural India. While it hasCOPYRIGHTED a per capita income of less MATERIAL than US$1 per day, rural India, which has been described in the past as poor and semi-literate, now contributes about one-half of the country’s gross national product (GNP). However, rural India still has the most households in the world without electricity, with iStock.com/Kailash soni iStock.com/Kailash the number of such households exceeding 300,000. ©istockphoto.com/kailash soni Despite its poverty and economic disadvantages, there are compelling reasons for companies to market their goods households in India are in rural areas, and more than one-third and services to rural India. This market has been growing at of all rural households now have a main source of income other five times the rate of the urban Indian market. There is increas - than farming. Virtually every home has a radio, almost one-third ing agricultural productivity, leading to growth in disposable have a television, and more than one-half of rural households income, and there is a reduction in the gap between the tastes of benefit from banking services. Forty-two percent of the people urban and rural customers. The literacy level is increasing, and living in India’s villages and small towns use toothpaste, and people are becoming more conscious of their lifestyles and of that proportion is increasing as rural incomes rise and as there opportunities for a better life. Around 60% of all middle-income is greater awareness of oral hygiene. 1-1 c01IntroductionToStatisticsAndBusinessAnalytics.indd 1 26/02/20 8:04 PM 1-2 CHAPTER 1 Introduction to Statistics and Business Analytics Consumers are gaining more disposable income due to the 2. How and where could the business analysts have gathered movement of manufacturing jobs to rural areas. It is estimated that such data? nearly 75% of the factories that opened in India in the past decade 3. In measuring the potential of the rural Indian marketplace, were built in rural areas. Products that are selling well to people what other statistics could have been gathered? in rural India include televisions, fans, bicycles, bath soap, two- or 4. What levels of data measurement are represented by data on three-wheelers, and cars. According to MART, a New Delhi–based rural India? research organization, rural India buys 46% of all soft drinks and 49% of motorcycles sold in India. Because of such factors, many 5. How can managers use these and other statistics to make bet- global and Indian firms, such as Microsoft, General Electric, ter decisions about entering this marketplace? Kellogg’s, Colgate-Palmolive, Hindustan-Unilever, Godrej, Nirma, 6. What big data might be available on rural India? Novartis, Dabur, Tata Motors, and Vodafone India, have entered the rural Indian market with enthusiasm. Marketing to rural customers Sources: Adapted from “Marketing to Rural India: Making the Ends often involves persuading them to try products that they may not Meet,” India Knowledge@Wharton, March 8, 2007, knowledge.wharton. have used before. Rural India is a huge, relatively untapped mar- upenn.edu/india/article.cfm?articleid=4172; “Rural Segment Quickly ket for businesses. However, entering such a market is not without Catching Up,” India Brand Equity Foundation (IBEF), September 2015, www.ibef.org/industry/indian-rural-market.aspx; Mamta Kapur, Sanjay risks and obstacles. The dilemma facing companies is whether to Dawar, and Vineet R. Ahuja, “Unlocking the Wealth in Rural Markets,” enter this marketplace and, if so, to what extent and how. Harvard Business Review, June 2014, hbr.org/2014/06/unlocking-the- wealth-in-rural-markets; Nancy Joseph, “Much of Rural India Still Managerial, Statistical, and Analytical Questions Waits for Electricity,” Perspectives Newsletter, University of Washington, 1. Are the statistics presented in this report exact figures or October 2013, artsci.washington.edu/news/2013-10/much-rural-india- estimates? still-waits-electricity. Introduction Every minute of the working day, decisions are made by businesses around the world that determine whether companies will be profitable and grow or whether they will stagnate and die. Most of these decisions are made with the assistance of information gathered about the marketplace, the economic and financial environment, the workforce, the competition, and other factors. Such information usually comes in the form of data or is accompanied by data. Business statistics and business analytics provide the tools by which such data are collected, analyzed, summarized, and presented to facilitate the decision-making process, and both business statistics and business analytics play an important role in the ongoing saga of decision-making within the dynamic world of business. There is a wide variety of uses and applications of statistics in business. Several examples follow. • A survey of 1,465 workers by Hotjobs found that 55% of workers believe that the quality of their work is perceived the same when they work remotely as when they are physically in the office. • In a survey of 477 executives by the Association of Executive Search Consultants, 48% of men and 67% of women said they were more likely to negotiate for less business travel compared with five years earlier. • A survey of 1,007 adults by RBC Capital Markets showed that 37% of adults would be willing to drive 8 to 15 km to save 5 cents on a litre of gas. • A Deloitte Retail “Green” survey of 1,080 adults revealed that 54% agreed that plastic, non-compostable shopping bags should be banned. • A survey by Statistics Canada determined that in 2017, the average annual household net expenditure in Canada was $86,070 and that households spent an average of $3,986 annu- ally on recreation.1 In addition, employment rates and wages increased more in Canada than in the United States between 2000 and 2017.2 1 Statistics Canada, “Household Spending by Household Type,” Table 11-10-0222-01, December 12, 2018, www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1110022401. 2 André Bernard and René Morissette, Statistics Canada, “Economic Insights: Employment Rates and Wages of Core-Aged Workers in Canada and the United States, 2000 to 2017,” June 4, 2018, www150.statcan.gc.ca/ n1/pub/11-626-x/11-626-x2018082-eng.htm. c01IntroductionToStatisticsAndBusinessAnalytics.indd 2 26/02/20 8:04 PM 1.1 Basic Statistical Concepts 1-3 • In a 2014 survey of 17 countries conducted by GlobeScan for the National Geographic Society, Canada ranked 16th out of 17 when it came to environmental and climate foot- print. This was due mostly to Canadian preferences for bigger houses and an established culture of using privately owned cars as opposed to transit.3 Note that, in most of these examples, business analysts have conducted a study and pro- vided rich and interesting information that can be used in business decision-making. In this text, we will examine several types of graphs for visualizing data as we study ways to arrange or structure data into forms that are both meaningful and useful to decision-makers. We will learn about techniques for sampling from a population that allow studies of the busi- ness world to be conducted in a less expensive and more timely manner. We will explore vari- ous ways to forecast future values and we will examine techniques for predicting trends. This text also includes many statistical and analytics tools for testing hypotheses and for estimating population values. These and many other exciting statistics and statistical techniques await us on this journey through business statistics and analytics. Let us begin. 1.1 Basic Statistical Concepts LEARNING OBJECTIVE 1.1 Define important statistical terms, including population, sample, and parameter, as they relate to descriptive and inferential statistics. Business statistics, like many areas of study, has its own language. It is important to begin our study with an introduction of some basic concepts in order to understand and communicate about the subject. We begin with a discussion of the word statistics. This word has many differ- ent meanings in our culture. Webster’s Third New International Dictionary gives a comprehen- sive definition of statistics as a science dealing with the collection, analysis, interpretation, and presentation of numerical data. Viewed from this perspective, statistics includes all the topics presented in this text. Figure 1.1 captures the key elements of business statistics. FIGURE 1.1 The Key Elements of Statistics Collect Analyze Interpret Present data data data ndings The study of statistics can be organized in a variety of ways. One of the main ways is to subdivide statistics into two branches: descriptive statistics and inferential statistics. To understand the difference between descriptive and inferential statistics, definitions of population 3 GlobeScan, “Environmental Behaviour of Canadians: Mining National Geographic’s and GlobeScan’s Greendex Research,” November 3, 2016, globescan.com/wp-content/uploads/2017/07/GlobeScan_PCO_ Greendex_CAN_Report.pdf.