Quantitative Methods for Management

Lesson 2

October 25, 2013

B. K. Chandrasekhar

Quantitative Methods for Managers

Contents for Lesson - 2

1. General Points and House Keeping

2. Recommended Books
3. Normal/Gaussian Distribution and Standard Deviation

4. Central Limit Theorem

5. Skewness
6. Kurtosis
7. Quartiles and Interquartiles
8. Box and Whisker Plots
2

Quantitative Methods for Managers

General Points and House Keeping Guidelines
1. Please be prompt to the class at 6.30 PM and stay till end of the class
2. Need 2-3 contact points for communication to the class
3. Switch off mobile phones during class
4. Homework?
5. Interrupt lecture to ask questions anytime
6. Will follow syllabus from Lesson 2 onwards
7. Access to computers at home?
8. Break for 10 minutes around 7.45 PM

9. Provide feedback for improvements after each lecture

10. Any other point(s)?

Quantitative Methods for Managers

Books Recommended by the Department

1. J K Sharma, Quantitative Techniques, McMillan

2. N D Vohra, Quantitative Techniques in Management, TMH
3. Anderson, Sweeney and Williams, Quantitative Methods for Business, Thomson
4. J K Sharma, Operations Research, McMillan
5. Barry Render, Ralph Stair and Michael Hanna, Quantitative Analysis, Pearson
6. Fredrick Hillier and Gerald Lieberman, Operations Research, TMH

7. Natarajan, Balasubramani and Tamilarasi, Operations Research, Pearson

"There is no elevator to success. You have to take the stairs.

Anonymous

Normal Distribution

Normal Distribution- Nomenclature

Mean

Sample

Population

or y

Standard Deviation

Normal Distribution

y=

Physicists

Gaussian distribution

Mathematicians

Normal distribution

Social scientists

Bell shaped curve

Normal Distribution - Example

Plot a normal distribution with Mean = 5 and s = 1 for x ranging from 1 to 10
x

Constant

Exponential

0.40

0.000

0.40

4.5

0.004

0.40

0.054

0.40

0.5

0.242

0.40

0.399

0.40

0.5

0.242

0.40

0.054

0.40

4.5

0.004

0.40

0.000

10

0.40

12.5

0.000

See Excel file named Normal Distribution Example for calculations

9

Normal Distribution - Example

Plot a normal distribution with Mean = 5 and s = 1 for x ranging from 1 to 10

0.400
0.300

0.200
0.100
0.000

10

12

-0.100

10

Normal Distribution

11

Characteristics of Normal Distribution

1. It is a symmetric curve. The left hand side is a reflection of the right hand side
2. It is a continuous distribution
3. The x- axis runs from

to +

4. The maximum position occurs at the center of the distribution

5. Mode = Mean = Median

6. The inflection points occur at +/- 1 values

7. About 68.27% of the points lie between

-1 to

+1

8. About 95.45% of the points lie between

-2 to

+2

9. About 99.73% of the points lie between

-3 to

+3

10. 100% of the points lie between 11. Probable error: 0.6745

to +
12

Central Limit Theorem

If a random samples of n measurements are repeatedly drawn from a population
with a finite mean and a standard deviation , then, when n is large, the relative
frequency histogram for the sample means (calculated from the repeated samples)
will be approximately normal with mean and standard deviation /n

Probability distribution of y with Mean and

Distribution of

standard deviation

Mean and standard deviation /n

with

13

(x- )
Let

-----------

Then y = A * exp ( - Z 2/2)

Using this any Normal distribution can be represented by a unique Z

Let us see some examples

14

Marks
Section A
30
33
36
39
42
45
48
51
54
57
60
63
66
69
72
75
78
81
84
87
90

Section B
10
15
19
24
28
33
37
42
46
51
55
60
64
68
73
77
82
86
91
95
100

15

Section A

Section B

Count

21

21

Max

90

100

Min

30

10

Mean

60.0

55.0

Sigma

18.614

27.730

16

17

0.00

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

0.0

0.0000

0.0040

0.0080

0.0120

0.0160

0.0199

0.0239

0.0279

0.0319

0.0359

0.1

0.0398

0.0438

0.0478

0.0517

0.0557

0.0596

0.0636

0.0675

0.0714

0.0753

0.2

0.0793

0.0832

0.0871

0.0910

0.0948

0.0987

0.1026

0.1064

0.1103

0.1141

0.3

0.1179

0.1217

0.1255

0.1293

0.1331

0.1368

0.1406

0.1443

0.1480

0.1517

0.4

0.1554

0.1591

0.1628

0.1664

0.1700

0.1736

0.1772

0.1808

0.1844

0.1879

0.5

0.1915

0.1950

0.1985

0.2019

0.2054

0.2088

0.2123

0.2157

0.2190

0.2224

0.6

0.2257

0.2291

0.2324

0.2357

0.2389

0.2422

0.2454

0.2486

0.2517

0.2549

0.7

0.2580

0.2611

0.2642

0.2673

0.2704

0.2734

0.2764

0.2794

0.2823

0.2852

0.8

0.2881

0.2910

0.2939

0.2967

0.2995

0.3023

0.3051

0.3078

0.3106

0.3133

0.9

0.3159

0.3186

0.3212

0.3238

0.3264

0.3289

0.3315

0.3340

0.3365

0.3389

1.0

0.3413

0.3438

0.3461

0.3485

0.3508

0.3531

0.3554

0.3577

0.3599

0.3621

1.1

0.3643

0.3665

0.3686

0.3708

0.3729

0.3749

0.3770

0.3790

0.3810

0.3830

1.2

0.3849

0.3869

0.3888

0.3907

0.3925

0.3944

0.3962

0.3980

0.3997

0.4015

1.3

0.4032

0.4049

0.4066

0.4082

0.4099

0.4115

0.4131

0.4147

0.4162

0.4177

1.4

0.4192

0.4207

0.4222

0.4236

0.4251

0.4265

0.4279

0.4292

0.4306

0.4319

1.5

0.4332

0.4345

0.4357

0.4370

0.4382

0.4394

0.4406

0.4418

0.4429

0.4441

1.6

0.4452

0.4463

0.4474

0.4484

0.4495

0.4505

0.4515

0.4525

0.4535

0.4545

1.7

0.4554

0.4564

0.4573

0.4582

0.4591

0.4599

0.4608

0.4616

0.4625

0.4633

1.8

0.4641

0.4649

0.4656

0.4664

0.4671

0.4678

0.4686

0.4693

0.4699

0.4706

1.9

0.4713

0.4719

0.4726

0.4732

0.4738

0.4744

0.4750

0.4756

0.4761

0.4767

2.0

0.4772

0.4778

0.4783

0.4788

0.4793

0.4798

0.4803

0.4808

0.4812

0.4817

2.1

0.4821

0.4826

0.4830

0.4834

0.4838

0.4842

0.4846

0.4850

0.4854

0.4857

2.2

0.4861

0.4864

0.4868

0.4871

0.4875

0.4878

0.4881

0.4884

0.4887

0.4890

2.3

0.4893

0.4896

0.4898

0.4901

0.4904

0.4906

0.4909

0.4911

0.4913

0.4916

2.4

0.4918

0.4920

0.4922

0.4925

0.4927

0.4929

0.4931

0.4932

0.4934

0.4936

2.5

0.4938

0.4940

0.4941

0.4943

0.4945

0.4946

0.4948

0.4949

0.4951

0.4952

2.6

0.4953

0.4955

0.4956

0.4957

0.4959

0.4960

0.4961

0.4962

0.4963

0.4964

2.7

0.4965

0.4966

0.4967

0.4968

0.4969

0.4970

0.4971

0.4972

0.4973

0.4974

2.8

0.4974

0.4975

0.4976

0.4977

0.4977

0.4978

0.4979

0.4979

0.4980

0.4981

2.9

0.4981

0.4982

0.4982

0.4983

0.4984

0.4984

0.4985

0.4985

0.4986

0.4986

3.0

0.4987

0.4987

0.4987

0.4988

0.4988

0.4989

0.4989

0.4989

0.4990

0.4990

18

Skewness

A measure of skewness is a single value that

indicates the degree and direction of asymmetry.

19

Skewness

Skewness quantifies how symmetrical the distribution is

A symmetrical distribution has a skewness of zero

An asymmetrical distribution with a long tail to the right has a positive skew

An asymmetrical distribution with a long tail to the left has a negative skew

The skewness is unit less (just a number)

20

Skewness

21

Skewness

Skewness is positive- Tail on the right hand side

22

Skewness

Skewness is negative - Tail on the left hand side

23

Skewness
Computation of skewness
The moment coefficient of skewness of a data set is

m3
Skewness for the population is g1 =

-----------------

m23/2
Where

m3 =

m2 =
n

(x x) 3
--------n
(x x) 2
--------n

is the population size

is the mean of the population

24

Skewness

n(n 1)
For a sample, skewness is given by

G1

= -----------

g1

(n-2)

25

Skewness
Data

2.10

2.82

2.17

1.99

2.22

3.09

2.47

2.52

2.80

2.10

2.92

2.20

1.75

2.77

2.82

2.67

3.05

2.93

2.94

1.98

2.38

2.65

2.77

1.85

1.69

2.70

2.68

2.06

2.36

2.28

2.75

2.43

2.39

2.55

1.80

1.96

Descriptive statistics

Count
Max
Min
Average

36
3.09

1.69

2.434
26

Calculation of Skewness
Sl. No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
SUM

(x-

x)

-0.334
0.036
-0.684
0.506389
-0.74361
0.316389
0.386389
0.086389
0.336389
-0.45361
0.266389
-0.00361
-0.26361
0.366389
0.386389
-0.05361
0.246389
-0.04361
-0.44361
-0.33361
0.236389
0.216389
-0.37361
0.116389
-0.21361
0.486389
0.616389
0.336389
-0.07361
-0.63361
0.656389
-0.23361
0.496389
-0.58361
-0.15361
-0.47361

(x-

x) 2

(x-

x) 3

0.111
0.001
0.468
0.256
0.553
0.100
0.149
0.007
0.113
0.206
0.071
0.000
0.069
0.134
0.149
0.003
0.061
0.002
0.197
0.111
0.056
0.047
0.140
0.014
0.046
0.237
0.380
0.113
0.005
0.401
0.431
0.055
0.246
0.341
0.024
0.224

-0.037
0.000
-0.320
0.130
-0.411
0.032
0.058
0.001
0.038
-0.093
0.019
0.000
-0.018
0.049
0.058
0.000
0.015
0.000
-0.087
-0.037
0.013
0.010
-0.052
0.002
-0.010
0.115
0.234
0.038
0.000
-0.254
0.283
-0.013
0.122
-0.199
-0.004
-0.106

5.522

-0.427

( x x ) 2
5.522
--------= ------- = 0.153376
n
36

m 2=

m3 =

(x x) 3
--------n

m3
g1 = ----=
m2 (3/2)

-0.427
= ------- = -0.01185
36
-0.01185
--------- = -0.1973
0.060067

for population
SQRT(36*35)
n(n 1)
G1 = --------- g1 = --------------- * -0.1973
(n-2)
(36-2)
= -0.205
for sample

27

Histogram of the Skewness Data

8

1.61-1.75 1.76-1.90 1.91-2.05 2.06-2.20 2.21-2.35 2.36-2.50 2.51-2.65 2.66-2.80 2.81-2.95 2.96-3.10

Interval

28

Kurtosis
Apart from tails, two other possibilities for deviation from a normal distribution are:
a) High and sharp of the peaks (compared to a normal distribution)

b) Short and broad of the peaks (compared to a normal distribution)

A qualitative idea might be obtained from a Histogram; but a quantitative information
is desired for comparisons. For this reason, Kurtosis is measured.
Kurtosis is a measure of the Height and Sharpness relative to the rest of the data
A high Kurtosis number indicates a sharp peak
A low Kurtosis number indicates a broad peak

Kurtosis has no dimensions, it is a pure number

It is usually reported as Excess Kurtosis which is Kurtosis-3 as 3 is the Kurtosis for a
Normal distribution
29

Kurtosis
Calculation of Kurtosis

a4 = m4 / m2 2

Where

m4 = (x

x )4 / n and m2 = (x x )2 / n

Excess kurtosis = g2 = a4 3 (for the population)

For the sample, G2 =

(n-1)
--------------- [(n+1)g2 +6]
(n-2) (n-3)
30

Calculation of Kurtosis
Step 1: Obtain Descriptive statistics of the data including count and mean
Step 2: Calculate m2 = (x

x)

/n

and m4 = (x

x)

/n

Step 3: Calculate a4 = m4 / m2 2
Step 4: Calculate Excess kurtosis g2 = a4 3 for the population
Step 5: Calculate Excess kurtosis G2

(n-1)
= --------------- [(n+1)g2 +6]
(n-2) (n-3)

for the sample

31

Calculation of Kurtosis
Data of No. of major accidents in 90 districts in India in a month
Sl. No.
Col 1
Col 2
Col 3
Col 4
Col 5
Col 6
1
20
8
3
3
8
15
2
22
13
2
2
5
6
3
10
18
5
7
5
4
4
10
13
3
4
8
6
5
14
16
13
10
4
8
6
25
15
6
3
8
2
7
15
13
14
9
4
4
8
13
8
15
1
13
3
9
13
11
7
5
6
1
10
18
15
3
4
9
9
11
4
10
2
6
2
6
12
14
15
4
2
6
2
13
11
11
2
4
2
17
14
17
6
2
10
3
4
15
16
7
3
7
6
4

32

Calculation of Kurtosis from Excel file

8.2444

Mean

8.2444

m2 = (xx )2 / n

29.45136

m4 = (x x )4 / n

2460.361
2.837

a4 = m4 / m2 2
=a4 -3

g2

-0.164
(n-1)
--------------- [(n+1)g2 +6]
(n-2) (n-3)

G2 =

=(90-1)
----------- [(90+1) (-0.164) +6]
(90-2)(90-3)

Excess Kurtosis

-0.104

=
-0.1032

From Excel
34

Quartiles and Interquartile Range

Quartiles are the values that divide a list in to quarters

They are usually represented schematically as below

Q1
25%

Min

Q2
25%

Q3
25%

25%

Max

Interquartile range is the difference between Q3 and Q1 i.e. Q3 Q1

Interquartile range describes the 50% of the data in the middle

However, the numbers in a list need not get distributed equally

35

Box and Whisker Plot

Schematically, the Box and Whisker plot is shown as below
Q1

Q2

Q3

Min

1
Example 1

Max

1.5

7.5

( with odd numbers in the list as 3, 6, 9, 4, 9, 2, 1, 1, 5 )

Step1. Arrange the numbers in order as below

1 1 2 3 4 5 6 9 9
Step 2. Identify the middle number (4 in this case). This is Q2
Step 3. Divide the numbers to the left of Q2 (1 1 2 3) in to equal parts. This
falls between 1 and 2. Hence 1.5 (average of 1 and 2) is Q1
Step 4. Divide the number to the right of Q2 (5 6 9 9) in to equal parts. This
falls between 6 and 9. Hence Q3 is 7.5 (average of 6 and 9)
Step 5. Interquartile Range is Q3 Q1 = 7.5-1.5 = 6

36

Box and Whisker Plot

Example 1

( with even numbers in the list as 3, 6, 9, 4, 9, 2, 8, 1, 1, 5 )

Step1. Arrange the numbers in order as below

1 1 2 3 4 5 6 8 9 9
Step 2. Identify the middle of the list number (between 4 and 5 in this case).
Therefore Q2 is 4.5
Step 3. Divide the numbers to the left of Q2 (1 1 2 3 4) in to equal parts.
This number is 2. Hence 2 is Q1
Step 4. Divide the number to the right of Q2 (5 6 8 9 9) in to equal parts.
This number is 8. Hence Q3 is 8
Step 5. Interquartile Range is Q3 Q1 = 8 - 2 = 6
Q1

Q2

Q3

Min
1

Max
2

4.5

9
37

Interquartile Range
Find the Interquartile Range of the following numbers?
3 6 8 9 9 11 13 16 17 18 18 20 23 25 26 30

38

Interquartile Range
3 6 8 9 9 11 13 16 17 18 18 20 23 25 26 30
Step 1: There are 16 numbers
Step 2: Median is average of 8th and 9th number = (16+17)/2 = 16.5
Step 3: First Quartile is middle number to the left of 16.5. This is
average of 9 and 9 = 9
Step.4: Third Quartile is the middle number to the right of 16.5. This is
the average of 20 and 23 = 21.5
Step 5: Interquartile Range is Q3-Q1 = 21.5 - 9 = 12.5

Do Not Use Quartile Function in Excel

39

Feedback Received- October 25, 2013

Feedback received from the class (anonymously)
1. Good. Voice and the contents is very clear to understand. Content is completely
Covered.
Change: Exam wise what is yet to be covered to plan for each session
9
2. Interesting subject

10

3. Good. Explanation is also good

4. It was good. But I think you got to be little slow

5. ----------

6. The class was very explanatory and descriptive but as I am not aware of the
subject it seems it would be difficult for me

7. Little confused but understand

8. Clear understanding

10
40

Feedback Received- October 25, 2013

Feedback received from the class (anonymously) contd.
9. Good.

10. No comments. This class will be done very good

10

11. Teaching method is very good & I understood all the concepts

10

12. --------

10

13. Very helpful because of the teachings of the basics about the topic

---

14. --------

(Out of 14 responses, one (sl. No. 13) did not have a numerical rating)

Lesson - 2
41

Feedback Received- October 25, 2013

Descriptive Statistics
Count

13

Max

10

Min

Range

Mean

Frequency

4
3
2
1
0
8

10

Rating out of 10

Lesson - 2
42