Hypothesis Testing

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Lean Six Sigma Black Belt : E Book

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CSSBB Tutorial Series : Lesson 11

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August 20, 2014August 20, 2014 Lean Six Sigma alternative hypothesis, Consumers Risk,
Hypothesis Testing, null hypothesis, Parametric tests, Power of a hypothesis test, Producers Risk, Type I
Error, Type II Error
The Analyze Phase Part 2
Topics Covered :
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Hypothesis Testing
Basic Concepts Statistical and Practical Signicance
Hypothesis Testing and Errors
Power of a hypothesis test
Types Parametric and Non- Parametric
Alice -Would you tell me, please, which way I ought to go from here?
The Cheshire Cat -That depends a good deal on where you want to get to.
Alice -I dont much care where
The Cheshire Cat Then it doesnt maer which way you go.
Lewis Carroll (hps://www.goodreads.com/author/show/8164.Lewis_Carroll), Alice in Wonderland
(hps://www.goodreads.com/work/quotes/2933712)
Introduction
A hypothesis is an assumption about a population parameter. The parameter may be the mean , the
proportion , the standard deviation etc. In statistics , we may make assumptions about population
parameters based on the sample statistic . These assumptions need to be proved ( or disproved) at
required levels of signicance ( or condence levels) . This is known as hypothesis testing.
The most common example of a hypothesis test is that of a trial process in a court of law . The assumption
in a trial is the defendant is innocent This assumption is called the null hypothesis . A contradiction to
this assumption is the defendant is not innocent. This is called the alternative hypothesis. Hence the
hypothesis statement is framed as :
Ho : The defendant is innocent
Ha : The defendant is not innocent
Note : Is it incorrect to state the alternative hypothesis as : Ha : The defendant is guilty ? Think about
it !
Hypothesis tests can be two tailed or single- tailed ( le or right tailed) . Fig. 11-1 below shows
acceptance and rejection regions for each of these possibilities. This concept is best understood with the
help of examples discussed later.
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(hps://improveandinnovate.les.wordpress.com/2014/08/slide21.jpg)
Fig 11-1 : Two- Tailed and Single- Tailed Hypothesis Tests.
Steps in Hypothesis Testing : Following is the sequence of steps in hypothesis testing.
1. Dene the problem and objectives ( Ex. : Establish that the new product is lighter than the old product ).
2. Frame the hypothesis ( Is it a two tailed or a single tailed test ? )
1. State the null hypothesis (Ho : New Product is lighter ).
2. State the alternative hypothesis (Ha : New product is not lighter )
3. Select the appropriate hypothesis test (depending on the assumed probability distribution: z, t, or F ,
chi- squared etc).
4. Select the required level of signicance (typically 5%).
5. Select the required level of (typically 10%).
6. Establish the sample size depending on the precision ,E, required ( the dierence between the
population parameters required to be detected).
7. Carry out data collection according to the sampling data.
8. Compute the test statistic using the formula for the probability function
9. From the tables , determine the critical value of the probability distribution for the selected value of
and degrees of freedom . This denes the rejection region for the null hypothesis.
10. Compare values obtained in steps 8 and 9 .
11. If the test statistic lies in the rejection region , reject Ho and accept Ha , else accept the null
hypothesis.
12. Interpret the statistical conclusion with reference to the objective dened in Step 1.
Hypothesis Testing and Errors
Since decisions about accepting or rejecting hypotheses are based on sample statistics, there is always a
possibility of errors when arriving at such decisions. This could happen either due to a bad sample or
due to inadequate sample sizes . Errors in hypothesis testing can be of two types :
Type I Error : A decision to reject the null hypothesis when it is true is called a Type I Error . The
probability associated with a Type I error is the level of signicance , , It is also called the risk.
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This means when we select a value of ( say 0.05) , there is a 5% risk of wrongly rejecting the null
hypothesis when it is true. This also means the decision about the hypothesis is made with 95%
condence .
Type II Error : A decision to accept a null hypothesis when it is false is called a Type II Error. The
probability associated with a Type II error is called the risk. This means when we select a value of
( say 0.1) , there is a 10% risk of wrongly accepting the null hypothesis when it is false.
Power of the Test : The ability of a test to correctly reject the hypothesis when it is false is given by 1 . This is also called the power of the test.
Example : A vendor supplies a consignment of 1000 components to the customer and a random sample is drawn
by the Quality Manager for inspection and acceptance . If , for some reason , the sample is not representative of
the population ( the 1000 components in this case ) , the following decisions are possible :
The sample indicates a bad consignment when the consignment is actually good . The Quality
Manager will reject a good consignment .This is a Type I Error , also called the Producers Risk;
The sample indicates a good consignment , when the consignment is actually bad . The Quality
Manager will accept the bad consignment . This is a Type II Error, also called the Consumers Risk.
Fig. 11- 2 explains the concept of Type I and Type errors .
(hps://improveandinnovate.les.wordpress.com
/2014/08/slide31.jpg)
Selecting Values of and
A major challenge in hypothesis testing is keeping both and as low as possible.
Example : A Type I error will be preferred over a Type II error when the risk of accepting a bad consignment is
high . In such a case , the decision maker will have to set a high value of , even if it means some good product
will get rejected. The same argument holds when the risk of rejecting a good consignment ( Type I error) is higher
than that of accepting a bad consignment ( Type II error). In this case , the decision maker will have to set a low
value of to ensure no good product gets rejected even at the cost of some bad product geing accepted.
Hence , there is always a trade o between the two errors : one can reduce the probability of making a
Type I error only at the cost of a higher probability of making a Type II error and vice -versa. Therefore,
the choice of levels of and will depend on the costs associated with each type of error.
Types of Hypothesis Testing :
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Depending on the population parameter to be tested , there are several types of hypothesis tests.
However ,these tests can be classied into two broad categories viz. : Parametric Tests and NonParametric Tests
Parametric Tests are used when the underlying population from which the sample was drawn follows a
known probability distribution such as Normal , t , F , ch- squared etc. The following table ( Tabe 11 3)
shows some of the commonly used parametric tests.
/2014/08/slide41.jpg)
Non Parametric Tests : Also known as distribution free tests , non parametric tests are used when the
population from which the samples were drawn does not follow any known distribution. Non
parametric test are based on ranks or signs or both . Table 11-4 shows some of the commonly used non
parametric tests and the equivalent parametric test .
/slide51.jpg)
Suggested Reading
Statistics For Management by Levin and Rubin
Dr. Jurans Quality Handbook.
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August 2, 2014August 2, 2014 Lean Six Sigma
The Analyze Phase Part 1
Interval Estimates
Introduction : Margin of Error , Condence Levels
Interval Estimates for Means (proportions & variances not covered)
Sample Size Determination for interval estimates
Alice -Would you tell me, please, which way I ought to go from here?
The Cheshire Cat -That depends a good deal on where you want to get to.
Alice -I dont much care where
The Cheshire Cat Then it doesnt maer which way you go.
Lewis Carroll (hps://www.goodreads.com/author/show/8164.Lewis_Carroll), Alice in Wonderland
(hps://www.goodreads.com/work/quotes/2933712)
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The Analyze Phase : Introduction

During the Analyze Phase, the six sigma improvement team is expected to identify root causes that
contribute to variation in the process. Depending on the complexity of the problem , teams can use several
tools (statistical and non- statistical) to identify the root causes. A good starting point , however , is the
Fish Bone Diagram which is discussed at the end of this chapter !
1. Interval Estimates
Point And Interval Estimates : A point estimate is a single value to describe a summary statistic. For
example : If we wish to know the average yield of a process , we could collect data for 7 days and arrive at
a value , say 97.8 % . This is called a point estimate of the sample mean. If we are asked to estimate the
population mean based on the sample mean , we would do it by constructing a margin of error around
this mean i.e
population mean = sample mean +/- margin of error .
This is called an interval estimate or a condence interval. The margin of error needs to be computed
statistically
An interval estimate can be used to provide information about how close the point estimate is to the value
of the population parameter. However, there is always an error built into these estimates, which is a
function of :
the sample size,
the standard deviation and
the condence level required for the estimate. For example , one could state I am 90% condent that
the population mean of the cycle time of the process lies between 8 hrs. 14 hrs. . This can also be stated as
the 90% condence interval for the population mean of the process cycle time is 8 hrs to 14 hrs.
The condence level is also denoted by 100( 1 )% , where is known as the level of signicance
or risk level
Most commonly used condence levels are 90 % , 95% and 99% . Of course , other condence levels
can also be used depending on business requirements.
Is it obvious that higher the condence level the narrower will be the condence interval and vice
versa ? If not , think again !
Interval Estimates : Applications
Most commonly used interval estimates in Six Sigma are :
1. Interval Estimate For the Mean ( Standard Deviation Known)
2. Interval Estimate For the Mean ( Standard Deviation Unknown)
3. Interval Estimate For Proportions
4. Interval Estimate For Variance
Note : This lesson deals with Interval Estimates for the Mean (Sl Nos 1 & 2 only )
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Interval Estimate for the Mean (Standard Deviation Known)

This method is applicable to cases when ,
the population standard deviation is known
the sample size is large ( considered innite )and
the population is normally distributed.
The 100 ( 1-)% condence interval estimate for the mean , , is given by the formula :
/slide2.jpg)
Example 10-1 : A consumer goods rm is interested in estimating sales of a new product in a particular locality.
The rm believes that one of the factors aecting sales is the purchasing power of the residents in the locality.
300 families were surveyed for this purpose and their annual incomes averaged $65000 . Past data shows a
standard deviation of $ 27500. Construct a 95% condence interval for the mean .
Solution :
n = 300 , x(bar) = $ 65000 and = $ 27500 , = 0.05
From normal probability tables ( refer any book on basic Statistics)
Z (/2 = 0.025) = 1.96
Standard error of the mean ,
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= 1587.7
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/slide4.jpg)
Fig. 1
Hence a 95 % condence interval is ( The area of interest is shown in Fig. 1)
= 65000 (1.96 *1587.7 ) <= <= 65000 + (1.96 *1587.7)
= $ 61888 < = < = $ 68112
This means , the rm is 95% condent that the average annual income of the population is between $
61888 and $ 68112
DIY Exercise 1 : Reconstruct and compare the above condence intervals with 1) 90% condence and 2) with
99% condence levels
Using MS Excel : The z- values for = 0.025 can also be obtained with MS Excel using the formula
NORMSINV( 0.025) .
The Finite Population Multiplier : In the above example we assumed a large sample ( almost innite) .
However , in real life we cannot imagine an innite population in a certain locality ! If the population is
nite , we need to modify the equation for standard error of the mean as given :
/slide5.jpg)
Note : A population is considered nite if n/N >= 0.05
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Example 10-2: In the earlier example ( Example 10 1 ) , if the population was known to be 5000 , the revised
condence interval would be computed as follows :
Finite Population multiplier = 0.94

The revised condence interval can be expressed as :
65000 (1.96 *1587.7 * 0.94) <= <= 65000 + (1.96 *1587.7*94)
= $ 62075 <= <= $ 67925
ii) Interval Estimate For the Mean ( Standard Deviation Unknown)
When the population standard deviation is not known but the population is nearly normally distributed
we use the t- distribution instead of the normal distribution. ( Refer to probability distributions in earlier
lesson ). The sample standard deviation s is used as an approximation of . The formula for a 100(1-)%
condence interval is given by :
/slide7.jpg)
Fig. 3 shows a comparison of t distribution with 3 deg. of freedom and a normal distribution.
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/slide8.jpg)
Fig 3. t- distribution vs. Normal Distribution
Example 10 3 : A sample of 10 patients in a hospital showed the average waiting time to be 50 mins and a
standard deviation of 15 mins. Construct a 90% condence interval for the mean waiting time.
Solution :
n = 10 , x(bar) = 50 mins. s = 15 mins ,
For a 90% condence interval, = 0.1. From statistical tables , look for t = 0.05 with ( n-1 = 9 ) degrees of
freedom. This corresponding value is is 2.2622 .
Hence the condence interval is computed as :
/slide9.jpg)
Note :
t- value can also be found using the Excel formula TINV(0.1,9) .
The t dist. table, unlike the Z table discussed earlier , shows combined areas under the le and
right tail for a given and also this area is outside the critical values of t .
Sample Size Determination for Means
The formula for estimating sample size for determining condence intervals for means is derived from the
margin of error discussed earlier :
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/2014/08/slide10.jpg)
Example 4 : In the earlier example ( Example 6- 1) of the consumer goods rm estimating average annual
salaries, what would be a statistically signicant sample size if the rm wanted the estimate to be within +/- $
3000 with a 95% condence?
Solution :
Suggested Reading For Interval Estimates for Proportions & Variances :
1. Statistics For Management by Levin and Rubin
2. Jurans Quality Handbook
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improveandinnovate | Thoughts and ideas on Quality , Improvement and In...

Lean Six Sigma Black Belt : E Book

Lean Six Sigma

improveandinnovate | Thoughts and ideas on Quality , Improvement and In...

Thought for the Weekend

CSSBB Tutorial Series : Lesson 11

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improveandinnovate | Thoughts and ideas on Quality , Improvement and In...

improveandinnovate | Thoughts and ideas on Quality , Improvement and In...

improveandinnovate | Thoughts and ideas on Quality , Improvement and In...

improveandinnovate | Thoughts and ideas on Quality , Improvement and In...

Thought For the Weekend

Thought for the Weekend

improveandinnovate | Thoughts and ideas on Quality , Improvement and In...

CSSBB Tutorial Series : Lesson 10

improveandinnovate | Thoughts and ideas on Quality , Improvement and In...

The Analyze Phase : Introduction

improveandinnovate | Thoughts and ideas on Quality , Improvement and In...

Interval Estimate for the Mean (Standard Deviation Known)

improveandinnovate | Thoughts and ideas on Quality , Improvement and In...

improveandinnovate | Thoughts and ideas on Quality , Improvement and In...

Finite Population multiplier = 0.94

improveandinnovate | Thoughts and ideas on Quality , Improvement and In...

improveandinnovate | Thoughts and ideas on Quality , Improvement and In...

improveandinnovate | Thoughts and ideas on Quality , Improvement and In...

Thought for the Weekend

improveandinnovate | Thoughts and ideas on Quality , Improvement and In...

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