9707/1,2 Business Studies A Levels

Unit 7: Information for Decision-making

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 isnt too. 4. Questionnaire bias reading question, not understanding the questions. 5. Response rate respondents may lie or dont 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=
For grouped data it is calculated as:

Sum of all values No. of values

x=
(x) Qty of stock 6 8 10 12 14 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

x=

f ( x) f
420 = 10.5 units 40

x=

10 units show the order it places on average every time. Therefore, the business on average orders 1011 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 Page 1 of 3

9707/1,2 Business Studies A Levels

Unit 7: Information for Decision-making

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=
mode:

f ( x) 638 = 100 f
= 6.38 units / shows size

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 Page 2 of 3

9707/1,2 Business Studies A Levels

Unit 7: Information for Decision-making

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. Steps 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 threequarters 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