A.

INTRODUCTION
The Role of Quantitative Methods in Business and Management
Quantitative methods play an important role both in business research and in the practical
solution of business problems. Managers have to take decisions on a wide range of issues, such
as:
 How much to produce
 what prices to charge
 How many staff to employ
 Whether to invest in new capital equipment
 Whether to fund a new marketing initiative
 Whether to introduce a new range of products
 whether to employ an innovative method of production
In all of these cases, it is clearly highly desirable to be able to compute the likely effects of the
decisions on the company's costs, revenues and, most importantly, profits. Similarly, it is
important in business research to be able to use data from samples to estimate parameters
relating to the population as a whole (for example, to predict the effect of introducing a new
product on sales throughout the UK from a survey conducted in a few selected regions).
These sorts of business problems require the application of statistical methods such as:
 Time-series analysis and forecasting
 Correlation and regression analysis
 Estimation and significance testing
 Decision-making under conditions of risk and uncertainty
 Break-even analysis.
These methods in turn require an understanding of a range of summary statistics and concepts of
probability. These topics therefore form the backbone of this course.
Statistics
Most of the quantitative methods mentioned above come under the general heading of statistics.
The term "statistics" of course is often used to refer simply to a set of data – so, for example, we
can refer to a country's unemployment statistics (which might be presented in a table or chart
showing the country's unemployment rates each year for the last few years, and might be broken
down by gender, age, region and/or industrial sector, etc.). However, we can also use the term

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"Statistics" (preferably with a capital letter) to refer to the academic discipline concerned with
the collection, description, analysis and interpretation of numerical data. As such, the subject of
Statistics may be divided into two main categories:
(a) Descriptive Statistics
This is mainly concerned with collecting and summarizing data, and presenting the results in
appropriate tables and charts. For example, companies collect and summarize their financial data
in tables (and occasionally charts) in their annual reports, but there is no attempt to go "beyond
the data".
(b)Statistical Inference
This is concerned with analysing data and then interpreting the results (attempting to
go "beyond the data"). The main way in which this is done is by collecting data from a sample
and then using the sample results to infer conclusions about the population.
For example, prior to general elections in the UK and many other countries, statisticians conduct
opinion polls in which samples of potential voters are asked which political party they intend to
vote for. The sample proportions are then used to predict the voting intentions of the entire
population.
Of course, before any descriptive statistics can be calculated or any statistical inferences made,
appropriate data has to be collected. We will start the course, therefore, by seeing how we collect
data. This chapter looks at the various types of data, the main sources of data and some of the
numerous methods available to collect data.
B. MEASUREMENT SCALES AND TYPES OF DATA
Measurement Scales
Quantitative methods use quantitative data which consists of measurements of various kinds.
Quantitative data may be measured in one of four measurement scales, and it is important to
be aware of the measurement scale that applies to your data before commencing any data
description or analysis. The four measurement scales are:
(a) Nominal Scale
The nominal scale uses numbers simply to identify members of a group or category.
For example, in a questionnaire, respondents may be asked whether they are male or
female and the responses may be given number codes (say 0 for males and 1 for females).
Similarly, companies may be asked to indicate their ownership form and again the responses

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may be given number codes (say 1 for public limited companies, 2 for private limited companies,
3 for mutual organizations, etc.). In these cases, the numbers simply indicate the group to which
the respondents belong and have no further arithmetic meaning.
(b) Ordinal Scale
The ordinal scale uses numbers to rank responses according to some criterion, but has
no unit of measurement. In this scale, numbers are used to represent "more than" or
"less than" measurements, such as preferences or rankings. For example, it is common in
questionnaires to ask respondents to indicate how much they agree with a given statement and
their responses can be given number codes (say 1 for "Disagree Strongly", 2 for "Disagree", 3 for
"Neutral", 4 for "Agree" and 5 for "Agree Strongly").
This time, in addition to indicating to which category a respondent belongs, the numbers measure
the degree of agreement with the statement and tell us whether one respondent agrees more or
less than another respondent. However, since the ordinal scale has no units of measurement, we
cannot say that the difference between 1 and 2 (i.e. between disagreeing strongly and just
disagreeing) is the same as the difference between 4 and 5 (i.e. between agreeing and agreeing
strongly).
(c) Interval Scale
The interval scale has a constant unit of measurement, but an arbitrary zero point.
Good examples of interval scales are the Fahrenheit and Celsius temperature scales. As these
scales have different zero points (i.e. 0 degrees F is not the same as 0 degrees C), it is not
possible to form meaningful ratios. For example, although we can say that 30 degrees C (86
degrees F) is hotter than 15 degrees C (59 degrees F), we cannot say that it is twice as hot (as it
clearly isn't in the Fahrenheit scale).
(d) Ratio Scale
The ratio scale has a constant unit of measurement and an absolute zero point. So this is the scale
used to measure values, lengths, weights and other characteristics where there are well-defined
units of measurement and where there is an absolute zero where none of the characteristic is
present. For example, in values measured in pounds, we know (all too well) that a zero balance
means no money. We can also say that £30 is twice as much as £15, and this would be true
whatever currency were used as the unit of measurement. Other examples of ratio scale

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measurements include the average petrol consumption of a car, the number of votes cast at an
election, the percentage return on an investment, the profitability of a company, and many others.
The measurement scale used gives us one way of distinguishing between different types of data.
For example, a set of data may be described as being "nominal scale", "ordinal scale”, “interval
scale" or "ratio scale" data. More often, a simpler distinction is made between categorical data
(which includes all data measured using nominal or ordinal scales) and quantifiable data (which
includes all data measured using interval or ratio scales).
Variables and Data
Any characteristic on which observations can be made is called a variable or variate. For
example, height is a variable because observations taken are of the heights of a number of
people. Variables, and therefore the data which observations of them produce, can be
categorised in various ways:
(a) Quantitative and Qualitative Variables
Variables may be either quantitative or qualitative. Quantitative variables, to which we
shall restrict discussion here, are those for which observations are numerical in nature.
Qualitative variables have non-numeric observations, such as colour of hair, although
of course each possible non-numeric value may be associated with a numeric
frequency.
(b) Continuous and Discrete Variables
Variables may be either continuous or discrete. A continuous variable may take any
value between two stated limits (which may possibly be minus and plus infinity). Height,
for example, is a continuous variable, because a person's height may (with appropriately accurate
equipment) be measured to any minute fraction of a millimeter.
A discrete variable however can take only certain values occurring at intervals between Stated
limits. For most (but not all) discrete variables, these intervals are the set of integers (whole
numbers).
For example, if the variable is the number of children per family, then the only possible values
are 0, 1, 2, ... etc., because it is impossible to have other than a whole number of children.
However in Britain shoe sizes are stated in half-units, and so here we have an example of a
discrete variable which can take the values 1, 1½, 2, 2½, etc.

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You may possibly see the difference between continuous and discrete variables stated as
"continuous variables are measured, whereas discrete variables are counted". While this is
possibly true in the vast majority of cases, you should not simply state this if asked to give a
definition of the two types of variables.
(c) Primary and Secondary Data
If data is collected for a specific purpose then it is known as primary data. For example,
the information collected direct from householders' television sets through a microcomputer link-
up to a mainframe computer owned by a television company is used to decide the most popular
television programmes and is thus primary data. The Census of Population, which is taken every
ten years, is another good example of primary data because it is collected specifically to calculate
facts and figures in relation to the people living in the UK.
Secondary data is data which has been collected for some purpose other than that for which it is
being used. For example, if a company has to keep records of when employees are sick and you
use this information to tabulate the number of days employees had flu in a given month, then this
information would be classified as secondary data.
Most of the data used in compiling business statistics is secondary data because the source is the
accounting, costing, sales and other records compiled by companies for administration purposes.
Secondary data must be used with great care; as the data was collected for another purpose, and
you must make sure that it provides the information that you require. To do this you must look at
the sources of the information; find out how it was collected and the exact definition and method
of compilation of any tables produced.
(d) Cross-Section and Time-Series Data
Data collected from a sample of units (e.g. individuals, firms or government departments) for a
single time period is called cross-section data. For example, the test scores obtained by 20
management trainees in a company in 2007 would represent a sample of cross-section data. On
the other hand, data collected for a single unit (e.g. a single individual, firm or government
department) at multiple time periods are called time-series data. For example, annual data on the
UK inflation rate from 1985–2007 would represent a sample of time-series data. Sometimes it is
possible to collect cross sectional data over two or more time periods – the resulting data set is
called a panel data or longitudinal data set.