Al Ghurair University College Of Business Studies Course : Business statistics BSG 301

: Project about

The Effects Of Statistical Analysis On Decision Making Process Submit To :

Dr. Abdul Sattar Hussien Yousif

Prepared By :
Saeed Rashid Mohammed Al Dhari

ID : 201110113

Table Of Contents:

Page Number

Table Of Contents: Page 2......................................................................................................................Number 2.................................................................................................................................. 2..................................................................................................................Objectives: 3...............................................................................................................Introduction: 4.........................................Statistical concepts & Decision-Making Process theories:-1 5...........................................................................................Statistical Terminology:-2 7..................................................................................Common Statistical concepts:-3 10...........................................Measurement Tools of statistics and decision making:-4 10........................................................................................Frequency Distributions: 10...............................................................................................Normal Distribution: 11..............................................................................................Skewed Distribution: 12..................................................................................Example: Buying a New Car:-5 12.....................................................................................Main theories in statistics:-6 14...............................................................................................................Conclusion: 14...................................................................................................Recommendations:

Objectives:
1. 2. 3. 4. Introduce the common theories and concepts of statistics Show the importance of statistics for decision makers Provide some statistical terminology Discuss examples in statistics and their effect on decision making

process

Introduction:
Since the advent of the 21st century, business has changed a lot in the sense that making a decision has become of great importance for business owners, managers and shareholders. There has been a need to take decisions that are based on knowledge and information for the aim of reducing risk and maximizing benefits. In this project about the effects of statistical analysis on decision making process, I will reflect the spot light on statistical analysis theories, terms and concepts in relation to decision making process. I will provide an example for the use of statistical analysis in business's decision making process and I will explain the general criteria required for implementing statistical analysis in decision making. Today's good decisions are driven by data. In all aspects of our lives, and importantly in the business context, an amazing diversity of data is available for inspection and analytical insight. Business managers and professionals are increasingly required to justify decisions on the basis of data. They need statistical model-based decision support systems. Statistical skills enable them to collect, analyze and interpret data relevant to their decision-making. Statistical concepts and statistical thinking enable them to: Solve problems in a diversity of contexts. Add substance to decisions. Reduce guesswork.

1. 2. 3.

1-Statistical concepts & Decision-Making Process theories:

Unlike the deterministic decision-making process, such as linear optimization by solving systems of equations, Parametric systems of equations and in decision making under pure uncertainty, the variables are often more numerous and more difficult to measure and control. However, the steps are the same1. They are: 1. 2. 3. 4. 5. 6. 7. Simplification Building a decision model Testing the model Using the model to find the solution: It is a simplified representation of the actual situation It need not be complete or exact in all respects It concentrates on the most essential relationships and ignores the less

essential ones. 8. It is more easily understood than the empirical (i.e., observed) situation, and

hence permits the problem to be solved more readily with minimum time and effort. 9. It can be used again and again for similar problems or can be modified.

Statistical thinking for managerial decisions, Professor Hossein Arsham

http://home.ubalt.edu/ntsbarsh/Business-stat/opre504.htm#rrstatthink
4

Fortunately the probabilistic and statistical methods for analysis and decision making under uncertainty are more numerous and powerful today than ever before. The computer makes possible many practical applications. A few examples of business applications are the following2: An auditor can use random sampling techniques to audit the accounts

A.

receivable for clients.

B.

A plant manager can use statistical quality control techniques to assure the

quality of his production with a minimum of testing or inspection.

C.

A financial analyst may use regression and correlation to help understand

the relationship of a financial ratio to a set of other variables in business.

D.

A market researcher may use test of significance to accept or reject the

hypotheses about a group of buyers to which the firm wishes to sell a particular product.
E.

A sales manager may use statistical techniques to forecast sales for the

coming year.

2-Statistical Terminology:
1.

Objectives or Hypotheses: What are the objectives of the study or the

questions to be answered? What is the population to which the investigators intend to refer their findings?

Statistical thinking for managerial decisions, Professor Hossein Arsham

http://home.ubalt.edu/ntsbarsh/Business-stat/opre504.htm#rrstatthink

2.

Statistical Design: Is the study a planned experiment (i.e., primary data), or

an analysis of records ( i.e., secondary data)? How is the sample to be selected? Are there possible sources of selection, which would make the sample atypical or non-representative? If so, what provision is to be made to deal with this bias? What is the nature of the control group, standard of comparison, or cost? Remember that statistical modeling means reflections before actions.3
3.

Observations: Are there clear definition of variables, including

classifications, measurements (and/or counting), and the outcomes? Is the method of classification or of measurement consistent for all the subjects and relevant to Item No. 1.? Are there possible biased in measurement (and/or counting) and, if so, what provisions must be made to deal with them? Are the observations reliable and replicable (to defend your finding)?
4.

Analysis: Are the data sufficient and worthy of statistical analysis? If so,

are the necessary conditions of the methods of statistical analysis appropriate to the source and nature of the data? The analysis must be correctly performed and interpreted.
5.

Conclusions: Which conclusions are justifiable by the findings? Which are

not? Are the conclusions relevant to the questions posed in Item No. 1?
6.

Representation of Findings: The finding must be represented clearly,

objectively, in sufficient but non-technical terms and detail to enable the decisionmaker (e.g., a manager) to understand and judge them for himself? Is the finding
3

Statistics Concepts and Controversies, David S. Moore (W H Freeman and Company, 1996)

internally consistent; i.e., do the numbers added up properly? Can the different representation be reconciled?
7.

Managerial Summary: When your findings and recommendation(s) are

not clearly put, or framed in an appropriate manner understandable by the decision maker, then the decision maker does not feel convinced of the findings and therefore will not implement any of the recommendations. You have wasted the time, money, etc. for nothing.

3-Common Statistical concepts:

There are different statistical concepts that have been used by the statisticians. They have their key words and phrases that are suitable in their communication. The phrases and key words or terms must be interpreted by easy language to be understood by the decision makers I such language the symbols math problems and statistics are converted into summarized results that show the decision makers how their business is going and what is the best decision to be takes to change the results4.
i.

Population: this term refers to any entire collection of people, plants or things on
which the statistics may collect data. It is the focused group that are under study and that the managers or decision makers would like to have information about so that they can take a decision.

ii.

Qualitative and Quantitative Variables: a variable is anything that can

vary either in quantity or quality. A qualitative variable doesnt vary in magnitude in

Full House: The Spread of Excellence from Plato to Darwin, Stephen Jay Gould (Random

House, 1997).

successive observation. The values of both quantitative and qualitative variables are called "Variates" and Attributes", respectively.
iii.

Variable: such as weight, gender, they are characteristics or phenomenon which may
take various values as they are different from one person to another.

iv.

Randomness: I mean unpredictability that although each random may not be

predictable when taken alone; collectively they follow a predictable data. For example, it is a fact that the distribution of a sample average follows a normal distribution for sample size over 30. In other words, an extreme value of the sample mean is less likely than an extreme value of a few raw data.5

v. vi.

Sample: A subset of a population or universe. An Experiment: An experiment is a process whose outcome is not known in
advance with certainty.

vii.

Statistical Experiment: any experiment is an operation in which one chooses

the values of some variables and measures the values of other variables. In the statistical experiment, contrast is an operation in which one takes a random sample from population and infers to the values of some variables. For example, in a survey look at the situation without aiming to change it such as the survey in political opinions. A random sample from a relevant population provides information about the voting intentions.

Full House: The Spread of Excellence from Plato to Darwin, Stephen Jay Gould (Random

House, 1997).

viii.

Design of experiments: It is a tool for increasing the rate of acquiring new

knowledge which is used to make competitive advantage, shorten the product development cycle, and help take decisions for new product lines that meet the customer requirements and expectations.

ix.

Primary data and Secondary data sets: A primary data set is data from experiment in relation to the objectives of the statistical investigation; collected by the analyst on the other hand if the data is from another source then they are called the secondary data.

x.

Random Variable:
It is a function that has numerical value within to each simple event. One example is for quality control an item could be defective or non defective so statistician may assign X=1, and X = 0 for a defective and non-defective item. They are needed to work out arithmetic operations and they enable us to compute statistics such as average and variance.6

xi.

Probability: It shows the probability of some results to occur under some conditions
or what the distribution of data should look like under a given model.

xii.

Sampling Unit: refers to things plants, animals, humans that are used as sample for
the study and experimenting such as a doctors practice, client attitude

xiii.

Parameter: It is an unknown value, and therefore it has to be estimated. Parameters

are used to represent a certain population characteristic. For example, the population means m is a parameter that is often used to indicate the average value of a quantity.

Introduction to Probability, John E. Freund (Dover Publications, 1973).

xiv.

Within a population, a parameter is a fixed value that does not vary. Each sample drawn from the population has its own value of any statistic that is used to estimate this parameter. For example, the mean of the data in a sample is used to give information about the overall mean min the population from which that sample was drawn.

xv.

Statistic: A statistic is a quantity that is calculated from a sample of data. It is used to

give information about unknown values in the corresponding population. For example, the average of the data in a sample is used to give information about the overall average in the population from which that sample was drawn. A statistic is a function of an observable random sample. It is therefore an observable random variable. Notice that, while a statistic is a function" of observations, unfortunately, it is commonly called a random variable" not a function. 7

4-Measurement Tools of statistics and decision making:

Frequency Distributions:
There are three frequency patterns that account for a very large percentage of sample distributions:

Normal Distribution:
It refers to the common type of frequency that describes the human or biological phenomena as it describes the population where most of score value occurs in central
7

Statistical thinking for managerial decisions, Professor Hossein Arsham

10

http://home.ubalt.edu/ntsbarsh/Business-stat/opre504.htm#rrstatthink

average range while the frequency of other scores is the same above and below the average and fewer scores in the center. This kind of frequency is familiar bell curve.8

Skewed Distribution:
It is like the previous type of frequency as it measures population but it is different as most scores in it are unequally divided among the possible higher and lower values outside the average range. The curve is like a mountain that falls off sharply to one side and more gradually to the other

1. Bimodal Distribution: Some score patterns have two (or more) central clusters,

rather than one. When graphed, they look like two bell curves next to each other. In fact, in many cases, For example measuring the heights of a sample of people will produce a bimodal distribution -- one cluster for men and one for women. If instead you measure height separately by sex, the results will be two normal distributions. Thus, a bimodal frequency distribution may be a sign that what is being measured as one group should really be reconsidered as two separate populations.

The center for informed decision making, Statisticshttp://cygnus-

group.com/CIDM/stats.html#Tools

11

5-Example: Buying a New Car:

Making a decision regarding buying a new car requires information and statistics about customer ratings and car make. In case we are near to choose either anew Flotsam or Jetsam, we call the dealers and ask about consumer satisfaction ratings for their specific car

. in turn if the dealer for the Flotsam informs us that this car has gained the most consumer satisfaction as recorded by statistician who says that the Flotsam has jumped by 20 points while the Jetsam remained still for the last year from an approval rating of 23% to one of 43% and the Jetsam numbers did not change, so the decision is clear.9

6-Main theories in statistics:

In competitive environment, business managers must design quality into products, and into the processes of making the products. They must facilitate a process of never-ending improvement at all stages of manufacturing and service. This is a strategy that employs statistical methods, particularly statistically designed experiments, and produces processes that provide high yield and products that seldom fail. Moreover, it facilitates development of robust products that are insensitive to changes in the environment and internal component variation. Carefully planned statistical studies remove hindrances to high quality and productivity at every stage of production. This saves time and money. It is well recognized that quality must be engineered into products as early as possible in the design process. One must know how to use carefully planned, costeffective statistical experiments to improve, optimize and make robust products and processes.

The center for informed decision making, Statisticshttp://cygnus-

group.com/CIDM/stats.html#Tools

12

Business Statistics is a science assisting to make business decisions under uncertainties based on some numerical and measurable scales. Decision making processes must be based on data, neither on personal opinion nor on belief. Variation is inevitable in life! Every process, every measurement, every sample has variation. Managers need to understand variation for two key reasons. First, they can lead others to apply statistical thinking in day-to-day activities and secondly, to apply the concept for the purpose of continuous improvement. This course will provide you with hands-on experience to promote the use of statistical thinking and techniques to apply them to make educated decisions, whenever you encounter variation in business data. You will learn techniques to intelligently assesses and manage the risks inherent in decision-making.10 Data is known to be crude information and not knowledge by itself. The sequence from data to knowledge is: from Data to Information, from Information to Facts, and finally, from Facts to Knowledge. Data becomes information, when it becomes relevant to your decision problem. Information becomes fact, when the data can support it. Facts are what the data reveals. However the decisive instrumental (i.e., applied) knowledge is expressed together with some statistical degree of confidence. 11 Fact becomes knowledge, when it is used in the successful completion of a decision process. Once you have a massive amount of facts

10

The center for informed decision making, Statisticshttp://cygnus-

group.com/CIDM/stats.html#Tools
11

How to Think About Statistics, John L. Phillips (W. H. Freeman and Company, 1988).

13

integrated as knowledge, then your mind will be superhuman in the same sense that mankind with writing is superhuman compared

Conclusion:
I have been fascinated to work on this project since it has enabled me to understand the effects of statistics on our life in general. The human is doubtful by his nature and wants to take decisions up on convenience which is the role of statistics a they provide the decision makers with required data and knowledge regarding every need. Governments need statistics to take decisions some of such decision is connected with the future of the next generations and future plans such as redistribution of the residents, change in standards of living and social problems. A basic understanding of statistics is a critical component of informed decision making. Statistical concepts are not hard to master, and mastery will help ensure accurate use, and minimum misuse, of the large quantity of numerical information that confronts us every day. The culture of any industrialized society is suffused with quantitative information. Some quantitative messages are simple and direct; others involve a relatively complicated process of inference. Knowing how to think statistically makes possible the comprehension of both."

Recommendations:
1. Since statistics are very linked to business decisions, I recommend setting

statistic course in all the university curriculums so that the scholars are able to understand, use and benefit from it in making surveys and learn how to take the correct decision.
14

2.

It is recommended that more research projects to be set on the topic for the

aim of discovering more effects and much detailed knowledge about the effects of statistical analysis on decision making process. 3. Managers, directors, employees and corporate chairmen must have basic

knowledge on statistic hypothesis and terminology so that they could carry out surveys, experiments and make analysis based on data and figures which will enable them to achieve competitive advantage.

References:
On The Internet:
1.

Chance Database, a multi-institutional effort to foster critical thinking

about news and current events

2.

The center for informed decision making, Statisticshttp://cygnus-

group.com/CIDM/stats.html#Tools
3.

Statistics Concepts and Controversies, David S. Moore (W H Freeman

and Company, 1996)

4.

Statistical thinking for managerial decisions, Professor Hossein Arsham

http://home.ubalt.edu/ntsbarsh/Business-stat/opre504.htm#rrstatthink

15

Other references (books& Articles)

1.

Full House: The Spread of Excellence from Plato to Darwin, Stephen

Jay Gould (Random House, 1997).

2.

How to Think About Statistics, John L. Phillips (W. H. Freeman and

Company, 1988).
3.

Introduction to Probability, John E. Freund (Dover Publications, 1973).

16