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9707/1,2 – Business Studies
Unit 7: Information for Decision-making
A Levels
INFORMATION FOR DECISION MAKING
1)
2)
3)
Collection of data(Market Resource)
Presentation of data (Market Resource)
Analysis and evaluation of data.
Before we analyze the data we should known whether the data is reliable or not.
Factors influencing the reliability of data
1.
Whether the data is primary or secondary in nature.
2.
Sample size – the longer the sample size the more reliable the data is.
3.
Sampling method – if it is not reliable then data isn’t too.
4.
Questionnaire bias – reading question, not understanding the questions.
5.
Response rate – respondents may lie or don’t answer at all.
Much of the information that a business collects will be too detailed to be useful. It is necessary for this
raw data to be organized properly so that decision makers can use it effectively. Following methods are
used for this purpose:
1,
Measures of central tendency – averages – mean, median, mode
2.
Measures of dispersion – inter-quartile range
Measures of central tendency
It is a measure of the most likely or common result from a set of data. It is also known as averages. The
three most commonly used average types are:
1.
Arithmetic mean
2.
mode
3.
median
Mean
Mean is a figure that shows the average result of any data. It is calculated (for ungrouped data) by the
following formula:-
x=
Sum of all values
No. of values
For grouped data it is calculated as:
x=
(x) Qty of stock
6
8
10
12
14
x=
∑ f ( x)
∑f
x=
420
= 10.5 units
40
Frequency f
2
8
12
14
4
∑40
∑ f ( x)
∑f
f(x)
12
64
120
160
80
∑420
Cumulative
2
10
22
26
30
10 units show the order it places on average every time.
Therefore, the business on average orders 10–11 units whenever it places an order. The company might
use this figure as its average order quantity for stock control purpose.
The biggest limitation of mean is the effect of extreme values. A very large value or a very small value
would give a very wrong mean i.e. not very accurate.
Unit 7
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9707/1,2 – Business Studies
Unit 7: Information for Decision-making
A Levels
Mode
This is the value that occurs most frequently in a data. Mode is not affected by extreme values and has
the added advantage of being easy to calculate or identify. The main problem with the mode value is that
it does not take into account all values and might therefore prove to be misleading when taken as a
measure of averages. There might also be several modes in a set of data which will make the measure
less useful. So it cannot be used for further statistical analysis. In grouped data it is sufficient to identify
the highest frequency group.
Median
The median is the middle item in a set of organized data. When the figures are placed in order, median
divides the data into two equal halves. If the number of values is odd then this is calculated as
value. And if the number of values is even, then it is
n +1
the
2
n
th value. Median is a useful measure of averages
2
as it is not distorted by extreme values. However, the problem is that it ignores all data other than the
middle values. Calculation from grouped data is not straight forward and they are a bit inaccurate too.
Moreover when there are even items the values are approximated or averaged so it is not a reliable
measure for further statistical analysis.
31 INFORMATION FOR DECISION – MAKING
TABLE:
Shoe size (x)
3
4
5
6
7
8
9
10
(f) Number sold
4
13
18
20
17
12
11
5
∑100
f(x)
12
52
90
120
119
95
99
50
∑638
Cum. Frequency
4
17
35
55
72
84
95
100
Calculate:
mean, median, mode
mean:
x=
∑ f ( x) 638
=
100
∑f
= 6.38 units / shows size
mode:
Most occurring number = 6
This shoes that the most frequently sold shoe size is 6.
median:
=
n 100
=
= 50 th value
2
2
i.e. the median or middle value is 6.
Unit 7
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9707/1,2 – Business Studies
Unit 7: Information for Decision-making
A Levels
Measures of dispersion
It is the measure of spread of the data. In some cases information is widely spread and in others there is a
narrow dispersion. The following methods are generally used for calculating dispersion:
1.
range
2.
inter-quartile range
3.
standard deviation
not part of
4.
variance
AS or A2 syllabus
Range:
It is the easiest and simplest method to calculate dispersion. It is the difference between the highest and
the lowest value in a set of data.
Range = highest value – lowest value
OR
= maximum value – minimum value
Range is also distorted by extreme high or low values. In such cases sometimes the highest and the
lowest value are excluded. That type of range is known as “BUTTER RANGE”.
Inter-quartile Range:
The inter-quartile range considers the range within the control 50% of the set of data. It therefore ignores
the top and bottom 25% of the data. The inter-quartile range is therefore narrow than the range. For large
amounts of data, deciles and percentiles are also used.
Step’s to calculate the inter-quartile range:
1. In order to calculate the inter-quartile range it is necessary to arrange data with lowest item first
and the highest item last (ascending order).
2. Then the first quartile which is a quarter of the ascending ordered data set must be found. It is
possible to calculate the first quartile using the formula:
First Quartile (Q1) =
n
4
where ‘n’ equals the number of values.
3. Then the third – quartile has to be calculated which is three–quarters of the way. The third quartile
can be calculated using the formula:
Third Quartile (Q3) =
3n
4
4. The difference between the first and the third quartile gives the inter-quartile range.
Unit 7
Page 3 of 3