Chapter 1: Data and Business Decisions

Statistics, Data Analysis, and Decision Modeling, Third Edition James R. Evans

2007 Pearson Education

In God We Trust; All Others Use Data

Modern organizations manage by fact for performance evaluation, improvement, and decision making Some organizations ignore data: They may not fully understand what to measure or how to measure. They may be reluctant to spend the required time and effort. They may feel they can make decisions by instinct and do not need data. They may fear discovering problems or poor performance that data may uncover.

Data, Information, and Analysis

Information derives from the analysis of data Analysis refers to extracting larger meaning from data to support evaluation and decision making. Data are also used as key inputs to decision models logical or mathematical representations of problems or business situations.

Statistics

Statistics the science of collecting, organizing, analyzing, interpreting, and presenting data for the purpose of gaining insight and making better decisions. Applications abound in all business disciplines, manufacturing and quality control, health care, sports, and daily life.

Statistical Thinking

A philosophy of learning and action for improvement based on three principles: All work occurs in a system of interconnected processes Variation exists in all processes systematic ways of doing things that achieve desired results Variation must be understood and reduced

Variation

Common causes of variation complex interactions of variation in materials, tools, machines, operators, and the environment Individual sources are not easily understood and cannot be controlled Special causes of variation variation arising from external sources not inherent in a process Can be identified and controlled or explained Many managers do not properly distinguish between these two causes, confuse them, and as a result, often make poor decisions

Six Sigma and Statistical Thinking

Six Sigma - a business process improvement approach that seeks to find and eliminate causes of defects and errors, reduce cycle times and cost of operations, improve productivity, better meet customer expectations, and achieve higher asset utilization and returns on investment in manufacturing and service processes. Six sigma is a measure of at most 3.4 errors or defects per million opportunities

Six Sigma Problem Solving

DMAIC (Define, Measure, Analyze, Improve, and Control) Uses a wide variety of statistical and process improvement tools. Many companies report positive financial results from Six Sigma initiatives

Metrics and Measurement

Metric - a unit of measurement that provides a way to objectively quantify performance. Discrete or Continuous Examples: profit, ROI, market share, customer satisfaction, defects, order accuracy Measurement the act of obtaining data. Measure numerical information that results from measurement

Six Sigma Metrics

Defects per unit Errors per opportunity Defects per million opportunities (dpmo)

Types of Business Data Balanced Scorecard

Financial Perspective profitability, revenue growth, ROI, EPS, Internal Perspective quality levels, productivity, process yields, cycle time, cost, Customer Perspective service levels, satisfaction ratings, repeat business, complaints, Innovation and Learning Perspective intellectual assets, employee satisfaction, market innovation, training effectiveness, supplier performance,

Using a Balanced Scorecard

Lagging measures (outcomes) Leading measures (performance drivers) Statistical relationships Examples IBM Rochester: causal relationships between people skills, quality, customer satisfaction, and financial/market share performance Sears: employee attitudes predict behavior, which predicts customer retention, which predicts financial performance

Sources of Data

Internal obtained from company records, databases, etc. External obtained from published sources, external databases, the internet Generated obtained from surveys, focus groups, etc.

Data Classification

Type of Data Cross-Sectional measurements taken at one time period Time series data collected over time Number of Variables Univariate data consisting of a single variable to measure some entity Multivariate data consisting of two or more variables to measure some entity

Cross-Sectional, Univariate

Cross-Sectional, Multivariate

Time Series, Univariate

Time Series, Multivariate

Data Classification

Categorical (nominal) data sorted into mutually exclusive (an observation cannot belong to more than one category) categories Geographical region, type of employee, gender, state of birth, type of automobile owned Properties No quantitative relationships among categories Statistics such as averages are usually meaningless

Data Classification

Ordinal data data ordered or ranked according to some relationship to one another Ranking of colas in taste tests, employee performance appraisals, satisfaction survey scales Properties Categories can be compared with one another Statistics usually meaningless because of no fixed units of measurement; i.e., differences are meaningless

Data Classification

Interval data data that are ordered and characterized by a specified measure of distance between observations, but with no natural zero. Temperature scales, time, survey scales that are assumed to be interval Properties Ratios are meaningless (50 degrees is not twice as hot as 25 degrees) Differences are meaningful, so statistics such as averages may be compared

Data Classification

Ratio data data that have a natural zero Sales dollars, length, weight, time from start of a process, most business and economic data Properties Strongest form of measurement; both ratios and differences are meaningful

Data Classification

Discrete or continuous Attributes: discrete data obtained from counting

E.g., number of defects per unit of production, percentage of on-time flight arrivals, number of complaints per customer, percentage of top box responses in a satisfaction survey

Variables: continuous numerical data obtained from a measurement process

Delivery time, number of ounces in a bottle of beer, monthly revenues, diameter of a drilled hole, balance in your checking account, time spent on homework

Populations and Samples

Population all items of interest for a particular decision or investigation All married drivers in the U.S. over age 25 All individuals who do not own a cell phone Sample a subset of a population Nielsen samples of TV viewers Accounting department samples of invoices for audits Samples are used To reduce costs of data collection When a full census cannot be taken

Definition of a Statistic

A statistic is a summary measure of sample data used to describe a characteristic of a population or to draw inferences about the population. 100 owners of a certain car reported 85 problems in the first 90 days of ownership. The statistic 85 describes the number of problems per 100 cars during the first 90 days of ownership, and suggests that the entire population of owners of these cars experience an average of 0.85 problems per car.

Statistical Methodology

Descriptive statistics collection, organization, and description of data Statistical inference drawing conclusions about unknown characteristics of a population based on samples Predictive statistics inferring future values based on historical data

Basic Excel Skills

Opening, saving, and printing files Navigation Selecting ranges Inserting/deleting rows and columns Entering and editing text, data, and formulas Formatting data (number, currency, decimal) Working with text strings Performing basic arithmetic calculations Formatting text Modifying the appearance of a spreadsheet

Copying Formulas

Select a cell. Choose EditCopy (or click Copy icon or press Ctrl-C ). Click on cell to copy to. Choose EditPaste (or click on Paste icon or press Ctrl-V ).

Cell References

Relative addressing: B5, G13 Absolute addressing: $B$5, $G13, K$11 Change reference using F4 key

Functions

Range functions: MIN, MAX, SUM, AVERAGE, AND(condition 1, condition 2,) OR(condition 1, condition 2,) IF(condition, value if true, value if false) VLOOKUP(value, table range, column number)

Paste Function
Easiest way to locate a particular function and identify the correct arguments

Other Useful Excel Tips

Split screen Paste special Column and row widths Displaying formulas Filling a range Comment boxes Displaying grid lines and headers for printing

Excel Add-Ins

Analysis Toolpak included with Excel Prentice-Hall PHStat2

Crystal Ball TreePlan Premium Solver for Education

PHStat Menu

PHStat Tool: Stack and

Unstack Data

PHStat menu > Data Preparation > Stack

Data (or Unstack Data)

Stack Data Tool

PivotTables

Create custom summaries and charts from data Need a database with headers. Select any cell and choose PivotTable Report from Data menu. Follow the wizard steps. Drag and drop data items into or out of any of the fields

Example: Portion of Accounting Professionals.xls

PivotTable Wizard

PivotTable Structure

PivotTable Examples

To change statistics, right click inside table and select Field Properties

Drag and Add/Replace

Add Graduate Degree variable to Row Field

PHStat Tool: One- and TwoWay Tables and Charts

Choose type of data Raw Categorical Data single column range Table of Frequencies two-column categories and frequency counts

Choose type of chart

(Two-way tables similar)

One-Way Table Example