Chapter 14 Data Analysis and Decision Making

Chapter 14: Data Analysis and Decision Making Lesson 14.1: Mathematics and Management Mathematics Skills for Managers - Data-based decisions - use of information, facts, and measures, usually in numerical form, as the primary basis for choosing among alternatives - Managers gather and analyze information to keep decisions objective and as free from bias as possible - Inductive Reasoning - the analysis of specific data to draw broader conclusions - Deductive Reasoning - taking general principles and using them to make predictions about specific situations or circumstances. - Statistics - mathematical tools that use carefully selected numerical information to describe the situation being studied and to make predictions about future similar circumstances - Used for more advanced numerical analysis in business - Businesses also need to be able to organize, analyze, and present data visually - Raw Data - the original information that has not been processed for meaningful use - - Must be processed and organized to be understandable and useful decision makers Processed data (information) - data that have been checked for accuracy and organized in a way to make them understandable and usable - Can be classified, summarized, and compared in a more easily understood way than if presented as raw data Business Applications of Mathematics - Developing Math Skills - Electronic database programs and spreadsheets have become the primary tools for analyzing data - Database programs categorize and store detailed information in the form of individual records that can be accessed and reorganized for varied uses - Electronic spreadsheets allow large amounts of data to be analyzed and updated using simple to sophisticated formulas along with charting and graphing tools - Must develop mathematics skills for analyzing situations, determining the data needed to - Support decision making - - Organize the information in the correct way for analysis - Judge the results to make sure the solution is reasonable Math Applications in Business - Many common mathematics applications are used throughout a business, while some are unique to a specific business function or operation - Most widely used is a budget - Need to be able to identify and accurately predict expenses - Other common tools are schedules, standards, business records, and research - Accounting and Finance - Manage financial resources - Maintain all financial records - Prepare financial statements and reports - Communicate financial information and performance to those who need the info - Production and Operations - Turn the resources of the organization into the products and services that are sold to customers - - Major activities using mathematics include - Forecasting - Resource management - Personnel and production planning and scheduling - Purchasing - Inventory management Marketing - - Work to - Identify markets - Develop demand - Sell the products and services to maximize profitability Almost all marketing activities use mathematics including: - Budget development and cost controls - Pricing - - Advertising and sales planning - Managing financing and credit services Human Resources - Include management involved in - Acquiring, preparing, and compensating the people who do the company’s work - Major area requiring math skills include: - Planning compensation and benefits programs - Managing personnel records such as: - Payroll - Payroll taxes - Benefits Lesson 14.2 Basic Math and Measurement Systems Basic Mathematical Operations - - Consumers use math every day - Examples include debit card, restaurant tip, price comparisons - Business individuals encounter similar situations A starting point for effectively using mathematics in business is understanding and applying basic arithmetic operations - Arithmetic involves addition, subtraction, multiplication, and division - Business people need to understand, use, and convert fractions, decimals, and percents - Adding and Subtracting - Many of the numerical situations faced in business that require addition and subtraction involve large numbers - - May include decimals or fractions and percentages More complex addition and subtraction problems lead to the use of spreadsheets or calculators. - Remember when adding numbers - The order of the addends does not matter - Check answers by adding the numbers again in reverse order as added originally - Both positive and negative numbers can be added - To simplify the addition of large numbers add each column of numbers separately and then add the column sums together - Remember when subtracting numbers - Only two numbers can be subtracted at a time - The order of numbers in subtraction is important. The subtrahend must be subtracted from the minuend - A larger number can be subtracted from a smaller number - Check subtraction problems by adding the difference and the subtrahend. The correct answer is the minuend - Multiplying and Dividing - When using multiplication regularly, people use calculators or computers - Remember when using multiplication - Count the number of decimal places in the multiplicand and the multiplier. The total will be the number of decimal places in the product. - To check the work, divide the product by the multiplier. The correct answer is the multiplicand - Remembering when using division - Make sure the decimal in the quotient is aligned with the decimal in the dividend when dividing whole numbers - To check work, multiply the quotient by the divisor. The correct answer is the dividend - Fractions, Ratios, Decimals, and Percentages - Fraction - a part of a whole number expressed as a proportion - The top number is the numerator; the bottom number is the denominator - Ratio - the relationship between two quantities - Percentage - a part of a whole expressed in hundredths - Calculate the percentage represented by a fraction by dividing the numerator by the denominator. Measurement Systems in Business - Precise measurement is crucial in business - Customers expect exact measures in products they purchase Businesses must be able to develop products that meet the standards and expectations of customers in any country in which they choose to do business. - The common measures used in business are length, weight, and volume - Traditional U.S. Measures - - Measurement units in the United States are different from most other countries Metric Measures - Metric System - based on the decimal system, meaning that all measures are in common units of ten - Proposed by a French scientist and adopted by the French government in the late 1700s Lesson 14.3: Understanding and Using Basic Statistics Understanding Numerical Information - Managers frequently use statistics to help them understand, interpret, communicate, and apply numerical information - Helps them make decisions more quickly, with greater confidence, and with a higher probability that the best choice has been made - The effective use of statistics helps the decision maker remain objective - Managers must keep an open mind when a problem is identified or a question is asked - Information needs to be collected, organized, studied, and analyzed - - Statistics help direct the manager to the best solution or answer Managers face two very different types or situations that call for decisions - Most common - making decisions about current operations - Descriptive statistics - meaningful summaries of data to help managers understand the current situation - Managers want to identify factors contributing to changes in sales in order to improve the performance of all stores and ensure the stores that have increased sales will have inventory for upcoming sales period - Second situation - using available information to improve future decisions about similar circumstances - Inferential Statistics - the analysis of information to help managers make predictions about similar circumstances or about the future Statistics Terms and Concepts - Many managers do not actually conduct research or complete the statistical analysis - Receive reports that present the results of data collection and analysis - Must be able to read and understand the reports and use the info to make decisions - Common Descriptive Statistics - Descriptive statistics are used when decision makers have a large amount of data and want to understand it better - Make it easier to examine important characteristics of the information being studied and to determine if any meaningful relationships exist - First step in using descriptive statistics - Data Set - all of the data that have been collected for study - Characteristics - the unique, identifiable qualities or features of the people or objects being studied - Ex. age, gender, income level, number of years as a customer, and types of products purchased. - When important characteristics have been identified, the data are then classified - Data collected for each characteristic will fall within a range of numbers - Range - all of the possible values of a characteristic from lowest to highest - When data are classified, they are organized within meaningful categories for further analysis - Most common classification - frequency distribution - Frequency distribution - each value in the range for a characteristic and the number of times that value appears in the data set - Other classifications - Range - Frequency - shows how often a particular value or group of values appears - Measure of central tendency - the value representing the average, or most common, of all the data - Three averages used in statistics - Mean - the sum of all values divided by the number of values - Median - the middle number in the range of all the values - Mode - the value that appears the most frequently in the range - Common Inferential Statistics - Inferential statistics refers to the use of a small amount of info to draw conclusions about a larger groups - To compare two groups - To use existing info to make predictions about the future - Infer - to draw a conclusion with only partial information - Population - is all of the people or objects with a similar characteristic or characteristics being studied - Sample - a small, representative part of a population selected for study - With inferential statistics, a manager makes a conclusion about a population based on a sample. - When reviewing a sample, there is a chance that the results vary from the total population - Must know the probability that the results are representative of the population - Probability - the likelihood that a certain outcome will occur - Correlation - a relationship between two things being studied Lesson 14.4: using Data in Decision Making Communicating Results of Data Analysis - Having a large amount of data to review can present problems for decision makers - Effective guidelines that help in completing an effective analysis - Focus on the problem or question - Recognize the purpose of the data analysis - Summarize the information accurately - Look for changes, differences, and unexpected results - Search for patterns or relationships. - Cause-and-effect - the relationship between two events in which the second event is a consequence of the first - An action or change occurs as a result of something that preceded it - Decision makers identify relationships without judging whether one of the events occurred as a direct result of the other Summarizing Results - Information gathering and data analysis aids in problem solving and decision making - In order to create a productive environment, information needs to be analyzed, summarized, and communicated to decision makers - summarized and communicated in two main ways: in writing and visually using tables, charts, and graphs. - Written summaries - A complete written report including - A statement of the problem or purpose - A description of the data collection procedure - All important data collected - The identification and analysis of possible decisions - Executive summary - is a written summary of a longer report containing adequate information for the reader to fully understand the information being communicated - Tables, Charts, and Graphs - The preferred way of summarizing and communicating numerical information - - Can be understood in an easier way Table - a visual presentation of information organized in rows and columns - Data Table - When the information in a table is numerical - Used to summarize data and clearly communicate complicated info to readers - Main components - Title - the focus or purpose of the table - concise and clear - Column and row headings - identify the characteristics or variables from the data set included in the table. - Cell Data - presented for each region and quarter Chart - a type of diagram that organizes and summarizes a set of numerical data - Usually simpler than a table and focuses on summarizing and comparing information for a few characteristics in a data set - Bar Chart - presents important characteristics or variables from the data set as bars whose lengths are proportional to their values - Pie Chart - represents one or more important characteristics from a data set as a circle divided into sections - - Main components: - Title - identifies the focus or purpose of the table - Data Presentation - the content of the chart - Legend - identifies each of the variables in the chart Graph - a visual representation of data as they change over time - Data are shown as one or more lines connecting data points - may present information on only one or a number of characteristics or categories of the data being studied - Same components as charts - Trend - a general direction in which something is developing or changing Using Data-Based Decisions - In preparing to make a decision, managers should take the time to review written summaries of the information - Make sure the process used to collect, analyze, and summarize the information is clear, objective, and unbiased - Next, study carefully each table, chart, and graph that summarizes the key data needed to make a decision - Effective procedures when studying tables, charts, and graphs: - Read the title carefully - Determine what is represented in the data set - Review the row and column headings of a table or the data labels and legends on charts and graphs - Examine the type of data being reported in the data cells or data presentation - Study all of the data carefully and thoroughly to understand their meaning Answering Questions and Solving Problems - Data alone cannot answer a question or solve a problem - Information can be helpful only if the right question is asked or the problem is identified correctly - Reviewing information regularly helps to identify when problems are occurring and what decisions need to be made - Data can also help to identify possible answers to questions or solutions to problems - Should seldom rely on information collected from one group or at one time - Monitoring and comparing data from various time periods or several groups gives a much clearer and more objective view - Data needs to be: - Representative - need to be consistent with other similar data that could be collected - Significant - meaningful and did not occur by chance Questions to ask when using data for decision making - Do the results point toward one answer or solution or to more than one? - Is there other information that could affect the decision that has not been considered? - Do differences in the data indicate important differences, or are the differences the result of the type of data collected, the method used to collect data, or the timing of data collection? - Does the information appear to present a pattern or trend or does it seem to be a one-time occurrence? - Are there multiple factors rather than just one that could be affecting the results?