STATISTICS IN BUSINESS
You’ve seen why statistics is important. Now let’s look at some of the ways statistics is used in business. Auditing A large fi rm pays over 12,000 invoices to suppliers every month. The fi rm haslearned that some invoices are being paid incorrectly, but they don’t know how widespread the problem is. The auditors lack the resources to check all the invoices, so they decide to take a sample to estimate the proportion of incorrectly paid invoices. How large should the sample be for the auditors to be confi dent that the estimate is close enough to the true proportion?
Marketing A marketing consultant is asked to identify likely repeat customers for Amazon.com, and to suggest co-marketing opportunities based on a database containing records of 5 million Internet purchases of books, CDs, and DVDs. How can this large database be mined to reveal useful patterns that might guide the marketing strategy?
Health Care Health care is a major business (1/6 of the U.S. GDP). Hospitals, clinics, and their suppliers can save money by fi nding better ways to manage patient appointments, schedule procedures, or rotate their staff. For example, an outpatient cognitive retraining clinic for victims of closed-head injuries or stroke evaluates 56 incoming patients using a 42-item physical and mental assessment questionnaire. Each patient is evaluated independently by two experienced therapists. Are there statistically signifi cant differences between the two therapists’ evaluations of incoming patients’ functional status? Are some assessment questions redundant? Do the initial assessment scores accurately predict the patients’ lengths of stay in the program?
Quality Improvement A manufacturer of rolled copper tubing for radiators wishes to improve its product quality. It initiates a triple inspection program, sets penalties for workers who produce poor-quality output, and posts a slogan calling for “zero defects.” The approach fails. Why?
Purchasing A retailer’s shipment of 200 DVD players reveals 4 with defects. The supplier’s historical defect rate is .005. Has the defect rate really risen, or is this simply a “bad” batch?
Medicine An experimental drug to treat asthma is given to 75 patients, of whom 24 get better. A placebo is given to a control group of 75 volunteers, of whom 12 get better. Is the new drug better than the placebo, or is the difference within the realm of chance?
Operations Management The Home Depot carries 50,000 different products. To manage this vast inventory, it needs a weekly order forecasting system that can respond to developing patterns in consumer demand. Is there a way to predict weekly demand and place orders from suppliers for every item, without an unreasonable commitment of staff time?
Product Warranty A major automaker wants to know the average dollar cost of engine warranty claims on a new hybrid vehicle. It has collected warranty cost data on 4,300 warrantyclaims during the fi rst six months after the engines are introduced. Using these warranty claims as an estimate of future costs, what is the margin of error associated with this estimate?
You’ve seen why statistics is important. Now let’s look at some of the ways statistics is used in business. Auditing A large fi rm pays over 12,000 invoices to suppliers every month. The fi rm haslearned that some invoices are being paid incorrectly, but they don’t know how widespread the problem is. The auditors lack the resources to check all the invoices, so they decide to take a sample to estimate the proportion of incorrectly paid invoices. How large should the sample be for the auditors to be confi dent that the estimate is close enough to the true proportion?
Marketing A marketing consultant is asked to identify likely repeat customers for Amazon.com, and to suggest co-marketing opportunities based on a database containing records of 5 million Internet purchases of books, CDs, and DVDs. How can this large database be mined to reveal useful patterns that might guide the marketing strategy?
Health Care Health care is a major business (1/6 of the U.S. GDP). Hospitals, clinics, and their suppliers can save money by fi nding better ways to manage patient appointments, schedule procedures, or rotate their staff. For example, an outpatient cognitive retraining clinic for victims of closed-head injuries or stroke evaluates 56 incoming patients using a 42-item physical and mental assessment questionnaire. Each patient is evaluated independently by two experienced therapists. Are there statistically signifi cant differences between the two therapists’ evaluations of incoming patients’ functional status? Are some assessment questions redundant? Do the initial assessment scores accurately predict the patients’ lengths of stay in the program?
Quality Improvement A manufacturer of rolled copper tubing for radiators wishes to improve its product quality. It initiates a triple inspection program, sets penalties for workers who produce poor-quality output, and posts a slogan calling for “zero defects.” The approach fails. Why?
Purchasing A retailer’s shipment of 200 DVD players reveals 4 with defects. The supplier’s historical defect rate is .005. Has the defect rate really risen, or is this simply a “bad” batch?
Medicine An experimental drug to treat asthma is given to 75 patients, of whom 24 get better. A placebo is given to a control group of 75 volunteers, of whom 12 get better. Is the new drug better than the placebo, or is the difference within the realm of chance?
Operations Management The Home Depot carries 50,000 different products. To manage this vast inventory, it needs a weekly order forecasting system that can respond to developing patterns in consumer demand. Is there a way to predict weekly demand and place orders from suppliers for every item, without an unreasonable commitment of staff time?
Product Warranty A major automaker wants to know the average dollar cost of engine warranty claims on a new hybrid vehicle. It has collected warranty cost data on 4,300 warrantyclaims during the fi rst six months after the engines are introduced. Using these warranty claims as an estimate of future costs, what is the margin of error associated with this estimate?
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