Numerical Measures

of Variability

Fall 2016-2017 MGT 205 1

Numerical Measures of Variability
After several months of operation, you find that the mean number of days
required to fill orders is 10 days for both of the suppliers. Which supplier do
you prefer?

Supplier A Supplier B
Fall 2016-2017 MGT 205 2
Numerical Measures of Variability
• Range
• Variance
• Standard deviation

Fall 2016-2017 MGT 205 •3

 Range
1. Measure of dispersion
2. Difference between largest & smallest observations
Range = xlargest – xsmallest
3. Ignores how data are distributed

7 8 9 10 7 8 9 10
Range = 3 Range = 3
Fall 2016-2017 MGT 205 4
 Variance &
Standard Deviation
1. Measures of dispersion
2. Most common measures
3. Consider how data are distributed

4. Show variation about mean (x or μ)

x =3
x =3

1 2 3 4 5 1 2 3 4 5
MGT 205 5
Fall 2016-2017
 Sample Variance Formula
n

å( x - x )
2
i
s2 = i =1
n-1

=
( x1 - x ) + ( x2 - x )
2 2
+ + ( xn - x )
2

n-1

n – 1 in denominator!

Fall 2016-2017 MGT 205 6

 Sample Standard Deviation Formula

s = s2
n

å( x - x )
2
i
= i =1
n-1

=
( x1 - x ) + ( x2 - x )
2 2
+ + ( xn - x )
2

n-1

Fall 2016-2017 MGT 205 7

 Variance Example
Raw Data: 2 3 3 3 4

n n

 (x i  x ) x i
2

i 1 i 1
s 2
 where x   3
n 1 n

s 2
 0.5

s  0.71
Fall 2016-2017 MGT 205 8
 Summary of
Variation Measures
Measure Formula Description
Range x largest – x smallest Total Spread
Standard Deviation n Dispersion about
å( x - x )
2
(Sample) i Sample Mean
i =1
n-1
n

å( x - µ )
Standard Deviation 2 Dispersion about
i x
(Population) i =1 Population Mean
N
n

å( x - x )
2
Variance i Squared Dispersion
(Sample) i =1 about Sample Mean
n-1
Fall 2016-2017 MGT 205 9
 Standard Notation

Measure Sample Population

Mean x 
Standard
Deviation
s 


2 2
Variance s
Size n N
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 Interpreting the
Standard Deviation

Fall 2016-2017 MGT 205 11

 Interpreting Standard Deviation:
Chebyshev’s Rule
Applies to any shape data set, regardless of the shape of
the frequency distribution of the data.
• No useful information about the fraction of data in the
interval x – s to x + s
• At least 3/4 of the data lies in the interval
x – 2s to x + 2s
• At least 8/9 of the data lies in the interval
x – 3s to x + 3s
• In general, for k > 1, at least 1 – 1/k2 of the data lies
in the interval x – ks to x + ks
Fall 2016-2017 MGT 205 12
Interpreting Standard Deviation: Chebyshev’s Rule

x  3s x  2s x s x xs x  2s x  3s

No useful information

At least 3/4 of the data

At least 8/9 of the data

Fall 2016-2017 MGT 205 13
Chebyshev’s Rule Example
Previously we found the mean closing stock price of
new stock issues is 15.5 and the standard deviation is
3.34. (Example 2, Prudential-Bache Securities)

• Use this information to form an interval that will

contain at least 75% of the closing stock prices of
new stock issues.

Fall 2016-2017 MGT 205 14

Chebyshev’s Rule Example
At least 75% of the closing stock prices of new stock
issues will lie within 2 standard deviations of the mean.

x = 15.5 s = 3.34

(x – 2s, x + 2s) = (15.5 – 2x3.34, 15.5 + 2x3.34)

= (8.82, 22.18)

Fall 2016-2017 MGT 205 15

Interpreting Standard Deviation: Empirical Rule
Applies to data sets that are mound shaped and
symmetric
• Approximately 68% of the measurements lie in the
interval x - s to x + s
• Approximately 95% of the measurements lie in the
interval
x - 2s to x + 2s
• Approximately 99.7% of the measurements lie in the
interval
x - 3s to x + 3s

Fall 2016-2017 MGT 205 16

Interpreting Standard Deviation: Empirical Rule

x – 3s x – 2s x–s x x+s x +2s x + 3s

Approximately 68% of the measurements

Approximately 95% of the measurements

Approximately 99.7% of the measurements

Fall 2016-2017 MGT 205 17

Empirical Rule Example
Recall the 50 companies’ percentages of revenues spent
on R&D. Previously, it was shown that the mean and
standard deviation of these data are 8.49 and 1.98,
respectively. Calculate the fraction of these
measurements that lie within the intervals
x ± s, x ± 2s, and x ± 3s and compare the results with those
predicted by the Empirical Rule.

Fall 2016-2017 MGT 205 18

Example 4- Making a Statistical Inference
A manufacturer of automobile batteries claims the average length of life for
its grade A battery is 60 months. However, the guarantee on this brand is for
just 36 months. Suppose the standard deviation of the length of life length is
known to be 10 months, and the frequency distribution of the life-length data
is known to be mound-shaped.
a) Approximately what percentage of the manufacturer’s grade A
batteries will last more than 50 months, assuming the manufacturer’s claim is
true?
b) Approximately what percentage of the manufacturer’s grade A
batteries will last less than 40 months, assuming the manufacturer’s claim is
true?
c) Suppose your battery lasts 37 months. What could you infer about
the manufacturer’s claim?

Fall 2016-2017 MGT 205 •19