ABM Student Guide V1.0 PDF

ADVANCED BUSINESS MATHEMATICS
Student Guide
ABM Student Guide V1.0
Modification History
Version
Date
Revision Description
V1.0
May 2011
For Release
NCC Education Limited, 2011

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CONTENTS
1.
Module Overview and Objectives .............................................................................. 7
2.
Learning Outcomes and Assessment Criteria .......................................................... 7
3.
Syllabus ....................................................................................................................... 7
4.
Related National Occupational Standards ................................................................ 9
5.
Teaching and Learning............................................................................................... 9

5.1
Lectures........................................................................................................................ 9
5.2
Tutorials ........................................................................................................................ 9
5.3
Private Study ................................................................................................................ 9
6.
Further Reading List ................................................................................................. 10
7.
Assessment .............................................................................................................. 11
Topic 1:
Introductory Management Statistics ....................................................................... 13
1.1
Learning Objectives .................................................................................................... 13
1.2
Timings ....................................................................................................................... 13
1.3
Private Study Exercises .............................................................................................. 14
1.4
Tutorial Exercises ....................................................................................................... 16
Topic 2:
Probability Distributions .......................................................................................... 19
2.1
2.2
Timings ....................................................................................................................... 19
2.3
2.4
Topic 3:
Inferential Statistics 1 ............................................................................................... 25
3.1
3.2
Timings ....................................................................................................................... 25
3.3
3.4
Topic 4:
Inferential Statistics 2 ............................................................................................... 29
4.1
4.2
Timings ....................................................................................................................... 29
4.3
4.4
Topic 5:
Differentiation 1 ........................................................................................................ 33
5.1
5.2
Timings ....................................................................................................................... 33
5.3
5.4
Topic 6:
Differentiation 2 ........................................................................................................ 37
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6.1
6.2
Timings ....................................................................................................................... 37
6.3
6.4
Topic 7:
Regression Analysis 1.............................................................................................. 41
7.1
7.2
Timings ....................................................................................................................... 41
7.3
7.4
Topic 8:
Regression Analysis 2.............................................................................................. 45
8.1
8.2
Timings ....................................................................................................................... 45
8.3
8.4
Topic 9:
Time Series Analysis ................................................................................................ 49
9.1
9.2
Timings ....................................................................................................................... 49
9.3
9.4
Topic 10:
Linear Programming................................................................................................. 55
10.1 Learning Objectives .................................................................................................... 55

10.2 Timings ....................................................................................................................... 55
10.3 Private Study Exercises .............................................................................................. 56
10.4 Tutorial Exercises ....................................................................................................... 58
Topic 11:
Linear Programming with Solver Routines ............................................................. 59

11.2 Timings ....................................................................................................................... 59
Topic 12:
Decision Tree Analysis............................................................................................. 63

12.2 Timings ....................................................................................................................... 63
Equations and Statistical Tables ................................................................................................. 67
Management Statistics ........................................................................................................ 67
Probability ........................................................................................................................... 68
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Hypothesis Testing .............................................................................................................. 69
Fitting Data .......................................................................................................................... 70
Differentiation ...................................................................................................................... 71
Time Series ......................................................................................................................... 72
Probabilities under the Normal Distribution Curve ............................................................... 73
Percentage Points of the Student Distribution ..................................................................... 75
Critical Values for the 2 Distribution.................................................................................... 76
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Page 6 of 76
Overview
1.
Module Overview and Objectives
Mathematical models and data analysis are foundational within numerous disciplines of
management thought. Whether the focus is on understanding the broad economic environment,
carrying out market research, optimising the supply chain, diversifying financial risk or another area
of business practice, the requirement to be able to use analytical techniques is vital.
This module advances existing quantitative skills to a level in which students can formulate, use and
interpret mathematical models within a business context. An appreciation of the use of computer
software to support such models is also developed.
2.
Learning Outcomes and Assessment Criteria
Learning Outcomes
Assessment Criteria
The learner will be able to
The learner can
Use summary and inferential

statistics to inform business
decisions
1.1 Calculate and interpret standard scores

1.2 Use index numbers when reviewing data
1.3 Compare and contrast sampling methods and techniques
1.4 Use confidence intervals to indicate the reliability of
estimates
1.5 Apply significance testing to business hypotheses
Analyse management
decisions using optimisation
techniques
2.1 Use differentiation in marginal analysis

2.2 Formulate a linear programme
2.3 Interpret the optimal and sensitivity results from the
solution of a linear programme.
Understand and apply

approaches to business
forecasting
3.1 Use Pearson and Spearman correlation analysis

3.2 Perform a simple regression analysis
3.3 Evaluate results from a multiple regression analysis
3.4 Use time series analysis to predict future business
performance
Evaluate sequential
management decisions
4.1 Formulate a decision tree representation of a management

decision
4.2 Solve a decision tree
3.
Syllabus
Syllabus
Topic No
Title
Introductory
management
statistics
Proportion
1/12
Content
Summary statistics
Data types
Index numbers
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2
Probability
distributions
1/12
Simple probability review

Standard scores (Z-scores)
Probability distributions
Inferential statistics
1
1/12
Sampling distributions
Point estimates and confidence intervals
Introduction to hypothesis testing
Inferential statistics
2
1/12
Hypothesis testing with a sample

Sampling approaches
Two sample t-test
Significance, error types, power
Frequency data and the 2 test

5
Differentiation 1
1/12
Gradient and the derivative

Rules of differentiation
Differentiation 2
1/12
Partial differentiation
The total derivative
Regression
analysis 1
1/12
Pearson correlation
Simple linear regression
Spearman correlation
Regression
analysis 2
1/12
Multiple regression analysis

Further regression models
Time series
analysis
1/12
Preparing time series for analysis

Time series decomposition
o Additive and multiplicative models
o Centred moving averages
o Seasonal adjustment
Forecasting with time series
Exponential smoothing
10
Linear
Programming
1/12
Formulating two variable linear programme

Graphical solution of a linear programme
Sensitivity analysis
11
Linear
Programming with
Solver routines
1/12
Multiple variable linear programmes

Solving linear programmes with software
Interpreting the output
Extensions of linear programming: the integer
programme
12
Decision tree
analysis
1/12
Formulating decision trees

Solving decision trees with rollback
Posterior probabilities within decision trees
Uncertainty
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4.
Related National Occupational Standards
The UK National Occupational Standards describe the skills that professionals are expected to
demonstrate in their jobs in order to carry them out effectively. They are developed by employers
and this information can be helpful in explaining the practical skills you have covered in this module.
Related National Occupational Standards (NOS)
Sector Subject Area:
15.3 Business management
Related NOS:
BAD321 Organise and report data
BAD322 Analyse and report data
BAG127 Solve business problems
BAG128 Evaluate and solve business problems
5.
Teaching and Learning

Suggested Learning Hours
Lectures:
Tutorial:
12
Private Study:
24
114
Total:
150
The teacher-led time for this module is comprised of lectures and tutorials. You will need to bring
this Student Guide to all classes for this module. The breakdown of the hours for each topic is given
in the topic notes below. Generally, the order of study should be to complete private study work
before tutorials as your private study work will be reviewed during the tutorial.
5.1
Lectures
Your lecturer will be presenting the basic knowledge and the theoretical concepts required for the
unit during this time. He/she will use PowerPoint slides during the lecture time and you will be
expected to take notes.
You will also be encouraged to be active during this time and discuss and/or practice the concepts
covered. Lectures will include question and answer elements to promote participation and to allow
your lecturer to check whether you understand the concepts they are covering.
5.2
Tutorials
These are designed to deal with the questions arising from the lectures and private study sessions.
You should think carefully beforehand about any areas in which you might need additional guidance
and support and use this time to discuss these with your teacher.
5.3
Private Study
This Student Guide also contains details of the private study exercises. You are expected to
complete these exercises to improve your understanding. Your tutor will set deadlines for the
completion of this work and go over the suggested answers with you. The deadlines will usually be
before the scheduled tutorials for that topic. Some of the private study tasks may require you to work
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in a small group so you will need to plan your time carefully and ensure that you can meet with your
group members to complete the work required before the deadline.
You should also use this time to revise the content of lectures to ensure understanding and conduct
extra reading (using the supplementary textbooks or other materials available in the library or
online). You should bring any questions to the tutorial for additional guidance and support.
6.
Further Reading List
A selection of sources of further reading around the content of this module must be available in your
Accredited Partner Centres library. The following lists provide suggestions of some suitable
sources.
There are many textbooks in the business mathematics and related areas. The longer list provides
titles of those that include most of the aspects within this module. If possible it is useful to have
access to at least three different titles.
Additionally attention is drawn to useful websites in the private study sections for each of the topic
areas.
Buglear (2004), Quantitative Methods for Business - The A-Z of QM, Butterworth-Heinemann
ISBN-10: 0750658983
ISBN-13: 978-0750658980
Burton, Carol and Wall (2001), Quantitative Methods for Business and Economics, 2nd Edition,
Prentice Hall
ISBN-10: 0273655701
ISBN-13: 978-0273655701
Dewhurst (2006), Quantitative Methods for Business and Management, 2nd Edition, McGraw Hill
ISBN-10: 0077109023
ISBN-13: 978-0077109028
Lucey (2002), Quantitative Techniques, 6th Edition, Thomson Learning
ISBN-10: 1844801063
ISBN-13: 978-1844801060
Oakshott (2009), Essential Quantitative Methods for Business, Management and Finance, 4th
Edition, Palgrave McMillan
ISBN-10: 0230218180
ISBN-13: 978-0230218185
Waters (1998), A Practical Introduction to Management Science, 2nd Edition, Prentice Hall
ISBN-10: 0201178478
ISBN-13: 978-0201178470
Wisniewski (2010), Quantitative Methods for Decision Makers, 5th Edition, Prentice Hall
ISBN-10: 0273742663
ISBN-13: 978-0273742663
Neave (2011), Elementary Statistics Tables, 2nd Edition, Routledge
ISBN-10: 041556347X
ISBN-13: 978-0415563475
Short list:
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For topics 1, 2, 3, 4, 7 and 8:
Hinton (2004), Statistics Explained, 2nd Edition, Routledge
ISBN-10: 0415332850
ISBN-13: 978-0415332859
For topics 5 and 6:
Dowling (1990), Schaums Outline of Calculus for Business, Economics, and The Social Sciences,
Schaums Outlines
ISBN-10: 0070176736
ISBN-13: 978-0070176737
For topics 9, 10, 11 and 12:
Keast and Towler (2009), Rational Decision Making for Managers: An Introduction, Wiley and Sons
ISBN-10: 0470519657
ISBN-13: 978-0470519653
7.
Assessment
This module will be assessed by means of an examination worth 100% of the total mark. This
assessment will cover the learning outcomes and assessment criteria given above.
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Page 12 of 76
Topic 1
Topic 1:
1.1
Introductory Management Statistics
Learning Objectives
This topic provides an overview of the key concepts of data types, summary statistics and index
numbers.
On completion of the topic, you will be able to:
Recognise nominal, ordinal, interval and ratio data types

Recognise and use mode, median, mean, range, standard deviation and coefficient of variation
Calculate Laspeyres and Paasche index numbers
Use index numbers to calculate percentage changes and deflate series
1.2
Timings
Lectures:
1 hour
Private Study:
9.5 hours
Tutorials:
2 hours
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1.3
Private Study Exercises
You should spend approximately 9.5 hours on the Private Study for this topic. You should use this
time to complete the exercises below as directed by your lecturer and to review the contents of this
topic.
Exercise 1:
Review the lecture material for this topic and discuss any confusion you have with other students.
List the points for which you remain uncertain and raise these in the tutorial. [You must still attempt
the other exercises below and take your answers to the tutorials.]
Exercise 2:
A shop records its daily sales over a one week period. Calculate the median, mean (), population
standard deviation () and coefficient of variation (CV);
148, 262, 164, 382, 246, 328, 126
Exercise 3:
Use MS Excel to check your answers to Exercise 2. Clue: look for the functions AVERAGE,
MEDIAN and STDEVP (or in Excel 2010 STDEV.P)
Exercise 4:
Calculate the Laspeyres and Paasche price indices for the following data. Take 2005 as the base
year.
year
litre of beer
price
quantity
litre of whiskey
price
quantity
litre of wine
price
quantity
2005
0.95
200
19.80
10
10.50
36
2006
0.99
150
20.39
12
11.15
48
2007
1.05
120
20.99
11
12.35
60
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Exercise 5:
Investigate the following sites;
http://go.worldbank.org/OK9RCLZQN0 (this is part of the Statistical Manual of the World Bank
Accessed 3rd March 2011)
www.usablestats.com/tutorials/basicStats (this comes from the Usable Statistics site. Accessed 3rd
March 2011)
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1.4
Tutorial Exercises
The tutorials for this topic will last for 2 hours. You can expect to spend some of this time discussing
your answers to the Private Study exercises with your lecturer and other students. Your lecturer will
then direct you on completing the tasks below.
Exercise 1:
The mean queuing (or waiting) time experienced by a customer with a single server is given by;
+
Where p is the mean time for the customer to be processed, a is the mean inter-arrival time between
customers, and CV are the respective coefficient of variations.
A newspaper kiosk takes on average 2 minutes to process a customer, with a standard deviation of
1 minute. A new customer arrives on average every 3 minutes with a standard deviation of 2
minutes. What is the typical time a customer waits to be served?
Exercise 2:
A price index series initially used 2001 as its base year; in 2006 the base year was updated. Link the
two series to create a single series with 2006 as the base year. Use the single series to calculate
annual percentage changes in price.
Year
Price Index (2001

base)
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
100.00
100.30
103.97
105.73
106.33
110.21
Price Index (2006

base)
100.00
105.79
113.31
121.10
130.30
Exercise 3:
Show the equivalence of the Laspeyres price index formula to the weighted price relative formula.
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Exercise 4:
The lectures introduced the Laspeyres Price Index and the Paasche Price Index. What do you think
the formulae would be for the Laspeyres Quantity Index and the Paasche Quantity Index?
Exercise 5:
Calculate the Laspeyres and Paasche quantity indices for the following data. Take 2005 as the base
year.
year
litre of beer
price
quantity
litre of whiskey
price
quantity
litre of wine
price
quantity
2005
0.95
200
19.80
10
10.50
36
2006
0.99
150
20.39
12
11.15
48
2007
1.05
120
20.99
11
12.35
60
Exercise 6:
Review of Private Study Exercises.
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Page 18 of 76
Topic 2
Topic 2:
2.1
Probability Distributions
Learning Objectives
This topic provides a brief reminder of the rules of simple probability and an overview of four
important probability distributions.
Recall the rules of simple probability

Use key probability distributions
o Binomial distribution
o Poisson distribution
o Exponential distribution
o Normal distribution
Calculate z-scores.
2.2
Timings
Lectures:
1 hour
Private Study:
9.5 hours
Tutorials:
2 hours
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2.3
topic.
Exercise 1:
Exercise 2:
Investigate the following site.
www.usablestats.com/tutorials/basicStats2 (accessed 15th March 2011)
Exercise 3:
The economy is forecast to boom with probability 0.3, grow steadily with probability 0.5 or
experience recession with probability 0.2. The returns on each of two shares in such circumstances
are given below. Calculate the expected return (mean) and standard deviation for each share.
State
Boom
Grow
Recession
Probability
0.3
0.5
0.2
Share 1
Return
30%
5%
-20%
Share 2
Return
15%
10%
-10%
Exercise 4:
Type each of the following into a cell in Excel. Use the Excel Help facility to identify what the function
calculates.
a. =POISSON(3, 6, FALSE)
b. =POISSON(3, 6, TRUE)
c. =BINOMDIST(6, 10, 0.6, FALSE)
d. =BINOMDIST(6, 10, 0.6, FALSE)
e. =NORMSDIST(0)
f.
=NORMSDIST(-2.5)
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Exercise 5:
Use Excel to produce a normal distribution table, an example is shown over page. The table should
show P(Z z), with Z a random variable. Read z to the first decimal place from first column with the
second decimal place read along top row.
Then investigate the following sites;
http://econ.lse.ac.uk/ie/iecourse/ec220course_statstables0203.pdf (accessed 15th March 2011)
www.reading.ac.uk/ssc/publications/stats_tables.pdf (accessed 15th March 2011)
z
-3.00
-2.90
-2.80
-2.70
-2.60
-2.50
-2.40
-2.30
-2.20
-2.10
-2.00
-1.90
-1.80
-1.70
-1.60
-1.50
-1.40
-1.30
-1.20
-1.10
-1.00
-0.90
-0.80
-0.70
-0.60
-0.50
-0.40
-0.30
-0.20
-0.10
-0.00
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
1.20
1.30
1.40
1.50
1.60
1.70
1.80
1.90
2.00
0
0.0013
0.0019
0.0026
0.0035
0.0047
0.0062
0.0082
0.0107
0.0139
0.0179
0.0228
0.0287
0.0359
0.0446
0.0548
0.0668
0.0808
0.0968
0.1151
0.1357
0.1587
0.1841
0.2119
0.2420
0.2743
0.3085
0.3446
0.3821
0.4207
0.4602
0.5000
0.5000
0.5398
0.5793
0.6179
0.6554
0.6915
0.7257
0.7580
0.7881
0.8159
0.8413
0.8643
0.8849
0.9032
0.9192
0.9332
0.9452
0.9554
0.9641
0.9713
0.9772
1
0.0013
0.0018
0.0025
0.0034
0.0045
0.0060
0.0080
0.0104
0.0136
0.0174
0.0222
0.0281
0.0351
0.0436
0.0537
0.0655
0.0793
0.0951
0.1131
0.1335
0.1562
0.1814
0.2090
0.2389
0.2709
0.3050
0.3409
0.3783
0.4168
0.4562
0.4960
0.5040
0.5438
0.5832
0.6217
0.6591
0.6950
0.7291
0.7611
0.7910
0.8186
0.8438
0.8665
0.8869
0.9049
0.9207
0.9345
0.9463
0.9564
0.9649
0.9719
0.9778
2
0.0013
0.0018
0.0024
0.0033
0.0044
0.0059
0.0078
0.0102
0.0132
0.0170
0.0217
0.0274
0.0344
0.0427
0.0526
0.0643
0.0778
0.0934
0.1112
0.1314
0.1539
0.1788
0.2061
0.2358
0.2676
0.3015
0.3372
0.3745
0.4129
0.4522
0.4920
0.5080
0.5478
0.5871
0.6255
0.6628
0.6985
0.7324
0.7642
0.7939
0.8212
0.8461
0.8686
0.8888
0.9066
0.9222
0.9357
0.9474
0.9573
0.9656
0.9726
0.9783
3
0.0012
0.0017
0.0023
0.0032
0.0043
0.0057
0.0075
0.0099
0.0129
0.0166
0.0212
0.0268
0.0336
0.0418
0.0516
0.0630
0.0764
0.0918
0.1093
0.1292
0.1515
0.1762
0.2033
0.2327
0.2643
0.2981
0.3336
0.3707
0.4090
0.4483
0.4880
0.5120
0.5517
0.5910
0.6293
0.6664
0.7019
0.7357
0.7673
0.7967
0.8238
0.8485
0.8708
0.8907
0.9082
0.9236
0.9370
0.9484
0.9582
0.9664
0.9732
0.9788
4
0.0012
0.0016
0.0023
0.0031
0.0041
0.0055
0.0073
0.0096
0.0125
0.0162
0.0207
0.0262
0.0329
0.0409
0.0505
0.0618
0.0749
0.0901
0.1075
0.1271
0.1492
0.1736
0.2005
0.2296
0.2611
0.2946
0.3300
0.3669
0.4052
0.4443
0.4840
0.5160
0.5557
0.5948
0.6331
0.6700
0.7054
0.7389
0.7704
0.7995
0.8264
0.8508
0.8729
0.8925
0.9099
0.9251
0.9382
0.9495
0.9591
0.9671
0.9738
0.9793
5
0.0011
0.0016
0.0022
0.0030
0.0040
0.0054
0.0071
0.0094
0.0122
0.0158
0.0202
0.0256
0.0322
0.0401
0.0495
0.0606
0.0735
0.0885
0.1056
0.1251
0.1469
0.1711
0.1977
0.2266
0.2578
0.2912
0.3264
0.3632
0.4013
0.4404
0.4801
0.5199
0.5596
0.5987
0.6368
0.6736
0.7088
0.7422
0.7734
0.8023
0.8289
0.8531
0.8749
0.8944
0.9115
0.9265
0.9394
0.9505
0.9599
0.9678
0.9744
0.9798
6
0.0011
0.0015
0.0021
0.0029
0.0039
0.0052
0.0069
0.0091
0.0119
0.0154
0.0197
0.0250
0.0314
0.0392
0.0485
0.0594
0.0721
0.0869
0.1038
0.1230
0.1446
0.1685
0.1949
0.2236
0.2546
0.2877
0.3228
0.3594
0.3974
0.4364
0.4761
0.5239
0.5636
0.6026
0.6406
0.6772
0.7123
0.7454
0.7764
0.8051
0.8315
0.8554
0.8770
0.8962
0.9131
0.9279
0.9406
0.9515
0.9608
0.9686
0.9750
0.9803
Page 21 of 76
7
0.0011
0.0015
0.0021
0.0028
0.0038
0.0051
0.0068
0.0089
0.0116
0.0150
0.0192
0.0244
0.0307
0.0384
0.0475
0.0582
0.0708
0.0853
0.1020
0.1210
0.1423
0.1660
0.1922
0.2206
0.2514
0.2843
0.3192
0.3557
0.3936
0.4325
0.4721
0.5279
0.5675
0.6064
0.6443
0.6808
0.7157
0.7486
0.7794
0.8078
0.8340
0.8577
0.8790
0.8980
0.9147
0.9292
0.9418
0.9525
0.9616
0.9693
0.9756
0.9808
8
0.0010
0.0014
0.0020
0.0027
0.0037
0.0049
0.0066
0.0087
0.0113
0.0146
0.0188
0.0239
0.0301
0.0375
0.0465
0.0571
0.0694
0.0838
0.1003
0.1190
0.1401
0.1635
0.1894
0.2177
0.2483
0.2810
0.3156
0.3520
0.3897
0.4286
0.4681
0.5319
0.5714
0.6103
0.6480
0.6844
0.7190
0.7517
0.7823
0.8106
0.8365
0.8599
0.8810
0.8997
0.9162
0.9306
0.9429
0.9535
0.9625
0.9699
0.9761
0.9812
9
0.0010
0.0014
0.0019
0.0026
0.0036
0.0048
0.0064
0.0084
0.0110
0.0143
0.0183
0.0233
0.0294
0.0367
0.0455
0.0559
0.0681
0.0823
0.0985
0.1170
0.1379
0.1611
0.1867
0.2148
0.2451
0.2776
0.3121
0.3483
0.3859
0.4247
0.4641
0.5359
0.5753
0.6141
0.6517
0.6879
0.7224
0.7549
0.7852
0.8133
0.8389
0.8621
0.8830
0.9015
0.9177
0.9319
0.9441
0.9545
0.9633
0.9706
0.9767
0.9817
Title Here
2.10
2.20
2.30
2.40
2.50
2.60
2.70
2.80
2.90
3.00
0.9821
0.9861
0.9893
0.9918
0.9938
0.9953
0.9965
0.9974
0.9981
0.9987
0.9826
0.9864
0.9896
0.9920
0.9940
0.9955
0.9966
0.9975
0.9982
0.9987
0.9830
0.9868
0.9898
0.9922
0.9941
0.9956
0.9967
0.9976
0.9982
0.9987
0.9834
0.9871
0.9901
0.9925
0.9943
0.9957
0.9968
0.9977
0.9983
0.9988
0.9838
0.9875
0.9904
0.9927
0.9945
0.9959
0.9969
0.9977
0.9984
0.9988
0.9842
0.9878
0.9906
0.9929
0.9946
0.9960
0.9970
0.9978
0.9984
0.9989
0.9846
0.9881
0.9909
0.9931
0.9948
0.9961
0.9971
0.9979
0.9985
0.9989
Page 22 of 76
0.9850
0.9884
0.9911
0.9932
0.9949
0.9962
0.9972
0.9979
0.9985
0.9989
0.9854
0.9887
0.9913
0.9934
0.9951
0.9963
0.9973
0.9980
0.9986
0.9990
0.9857
0.9890
0.9916
0.9936
0.9952
0.9964
0.9974
0.9981
0.9986
0.9990
Title Here
2.4
Tutorial Exercises
Exercise 1:
A new employee sits a preliminary Health and Safety examination. The examination consists of 10
multiple choice questions, wherein each question has four possible answers from which to choose.
The pass mark is 40%. What is the probability that the employee passes by guessing only?
Exercise 2:
Clients arrive at a point of service at a rate of 20 per hour. What is the probability of exactly 20
clients arriving in a given hour? What is the probability of 20 to 25 clients arriving in a given hour?
Assuming a client has just arrived, what is the probability that the next client arrives within 2
minutes? Assuming a client has just arrived, what is the probability that the next client arrives after 4
minutes have passed? (Assume client arrivals are described by the Poisson distribution.)
Exercise 3:
A company has supplied 10,000 projection lamps. Previous data indicates that the lifetime of the
projection lamps is approximately normally distributed with mean of 6000 hours and standard
deviation of 1000 hours. How many projection lamps are expected to fail in less than 5000 hours?
How many projection lamps are expected to last more than 8000 hours?
Exercise 4:
Review of Private Study Exercises
Page 23 of 76
Title Here
Page 24 of 76
Topic 3
Topic 3:
3.1
Inferential Statistics 1
Learning Objectives
This topic provides an overview of introductory inferential statistics.

Recognise the terms sample statistic and population parameter

Use confidence intervals to indicate the reliability of estimates
Know when approximate large sample or exact confidence intervals are appropriate
3.2
Timings
Lectures:
1 hour
Private Study:
9.5 hours
Tutorials:
2 hours
Page 25 of 76
Title Here
3.3
topic.
Exercise 1:
Exercise 2:
A cruise ship was interested in the typical duration each client spent in the breakfast buffet. The
entry and exit times of 30 cruisers was noted. The time spent at breakfast for the 30 were:
43
35
39
34
34
33
Time (minutes) Spent Dining

35
36
25
42
28
18
43
34
38
38
41
19
39
19
36
24
40
31
30
21
27
44
29
18
Calculate an approximate 99% confidence interval for the mean breakfasting time.
Exercise 3:
A country is due to hold a referendum on a constitutional change. A market research company
asked 1,112 people whether they would vote yes or no. 667 of the people polled indicated that
they would vote yes. Calculate a 95% confidence interval for the proportion of the electorate that
will vote yes.
Page 26 of 76
Title Here
Exercise 4:
Use Excel to produce a table of percentage points of the Student t-distribution.
1
5.00%
2.50%
1.00%
0.50%
2 10.00%
90.00%
5.00%
95.00%
2.00%
98.00%
1.00%
99.00%
= n-1
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
6.3138 12.7062 31.8205 63.6567

2.9200
4.3027
6.9646
9.9248
2.3534
3.1824
4.5407
5.8409
2.1318
2.7764
3.7469
4.6041
2.0150
2.5706
3.3649
4.0321
1.9432
2.4469
3.1427
3.7074
1.8946
2.3646
2.9980
3.4995
1.8595
2.3060
2.8965
3.3554
1.8331
2.2622
2.8214
3.2498
1.8125
2.2281
2.7638
3.1693
1.7959
2.2010
2.7181
3.1058
1.7823
2.1788
2.6810
3.0545
1.7709
2.1604
2.6503
3.0123
1.7613
2.1448
2.6245
2.9768
1.7531
2.1314
2.6025
2.9467
1.7459
2.1199
2.5835
2.9208
1.7396
2.1098
2.5669
2.8982
1.7341
2.1009
2.5524
2.8784
1.7291
2.0930
2.5395
2.8609
1.7247
2.0860
2.5280
2.8453
Exercise 5:
Investigate the following site (sections 1 to 4 and 10).
http://davidmlane.com/hyperstat/confidence_intervals.html (accessed 21st March 2011)
Page 27 of 76
Title Here
3.4
Tutorial Exercises
Exercise 1:
The mean time taken for 20 workers to each complete a similar task was found to be 1 hour 12
minutes. The sample standard deviation was calculated as 14 minutes 20 seconds. Assuming the
data is taken from a normally distributed population calculate an exact 99% CI of the mean.
Exercise 2:
Using the people in your tutorial group calculate 95% and 99% confidence intervals for the height of
a human. State any assumptions you make.
Exercise 3:
Page 28 of 76
Topic 4
Topic 4:
4.1
Inferential Statistics 2
Learning Objectives
This topic provides an overview of using inferential statistics in hypothesis testing.

Perform a single sample t-test of the mean

Perform a two sample t-test
Interpret significance probabilities
Perform a chi-squared goodness of fit test
4.2
Timings
Lectures:
1 hour
Private Study:
9.5 hours
Tutorials:
2 hours
Page 29 of 76
Title Here
4.3
topic.
Exercise 1:
Exercise 2:
A company will consider opening a new branch of its restaurant chain within a town if the mean
amount spent per head when dining out is greater than 30. A lower figure would not match the
companys offering. One Saturday evening, market researchers successfully questioned 16 people
who had dined out in the town and found a sample mean of 32.50 and sample standard deviation
of 4.76. Test the following hypotheses at the 5% significant level.
H0: 30
H1: > 30
Exercise 3:
A fair trading investigation is being carried out in the European Union. As a first step the selling price
(before tax) of a particular car model is being compared in two member countries. The following data
have been collected:
Country 1:
22 cars, sample mean 14,500 euros, sample standard deviation 725 euros
Country 2:
18 cars, sample mean 14,000 euros, sample standard deviation 550 euros
The null hypothesis is that the mean selling price is equivalent in both countries. Test the null
hypothesis at the 1% and 5% significance levels.
Exercise 4:
Study and critique the following website;
www.usablestats.com/tutorials/twoSamplet (accessed 11th April 2011)
Study the hypothesis testing material at http://stattek.com;
http://stattrek.com/Lesson5/HypothesisTesting.aspx (accessed 11th April 2011)
Page 30 of 76
Title Here
4.4
Tutorial Exercises
Exercise 1:
A software call centre wishes to improve its efficiency in solving clients questions.
Eight workers were selected at random to undertake additional training. Before and after training the
performance of the workers was monitored. Calculate the mean number of solved problems per day,
before and after training. Test the following hypotheses at the 5% significant level;
H0: Mean increase in performance 0
H1: Mean increase in performance > 0
solved problems per day
before training
following training
Worker 1
Worker 2
Worker 3
Worker 4
Worker 5
Worker 6
Worker 7
Worker 8
50
63
57
45
40
62
64
53
55
66
58
49
38
67
69
50
Exercise 2:
Label
Market research questioned 1085 managers about their preferred fashion brand and their career
level. Are these associated?
Fashion Brand 1
Fashion Brand 2
Other
Career Level
Trainee
Junior
Middle
245
93
30
221
110
77
185
122
2
Exercise 3:
Page 31 of 76
Title Here
Page 32 of 76
Topic 5
Topic 5:
5.1
Differentiation 1
Learning Objectives
This topic provides an overview of gradient, the definition of the derivative and the rules of
differentiation.
Find the derivatives of variables raised to a power

Use the rules of differentiation
Relate differentiation to optimization
o Obtain the economic order quantity formula
5.2
Timings
Lectures:
1 hour
Private Study:
9.5 hours
Tutorials:
2 hours
Page 33 of 76
5.3
topic.
Exercise 1:
Exercise 2:
For each case differentiate y with respect to x.
a.
= 2 b. = 5 4 c. = 2 2 d. =
f. =
Ad
e. =
+ B + K where A, d, B and K are constants.
1
+
+7
Exercise 3:
Watch the following video from the http://mathcentre.ac.uk site;
(accessed 7th March 2011)
http://mathcentre.ac.uk/video/1086/
Exercise 4:
For each case differentiate y with respect to x.
a.
= 2 (3 2 + 2) b. = 2 c.
e. = (2 + 5)10
f. =
2 ++1
d.
= ( 2 )
Exercise 5:
The following sections of the http://mathcentre.ac.uk (accessed 7th March 2011) site provide useful
material for further practice.
http://mathcentre.ac.uk/resources/Refresher%20Booklets/basic%20diff%20refresh1Emathcentre/fin
al0203-ltsn-basicdiff.pdf
Page 34 of 76
http://mathcentre.ac.uk/resources/uploaded/mc-ty-diffxtothen-2009-1.pdf
http://mathcentre.ac.uk/resources/uploaded/mc-ty-firstppls-2009-1.pdf
http://mathcentre.ac.uk/resources/uploaded/mc-ty-maxmin-2009-1.pdf
There is much other helpful material on the http://mathcentre.ac.uk site.
Page 35 of 76
5.4
Tutorial Exercises
Exercise 1:
EdTec Ltd sells basic oscilloscopes to educational customers. A combined project by the marketing
and operations team has identified the following expressions to represent demand and total cost
curves (in GBP).
price = 5000 4
total cost = 5000 + 3000
Write down an expression for the annual profit, and show this on a graph. Differentiate profit to
determine the annual quantity, x, that EdTec produce to maximise profit? What is that profit?
Exercise 2:
Assume that average revenue has a downward sloping linear curve;
= c k,
Where c and k are constants and the variable x is the quantity of goods sold. Use differentiation to
show that the marginal revenue curve, MR, is downward sloping with twice the gradient of the AR
curve.
Exercise 3:
Page 36 of 76
Topic 6
Topic 6:
6.1
Differentiation 2
Learning Objectives
This topic provides an overview of partial differentiation and, briefly the total differential.
Carry out partial differentiation

Relate partial differentiation to optimization
Calculate partial point elasticities
Recognise the total differential
6.2
Timings
Lectures:
1 hour
Private Study:
9.5 hours
Tutorials:
2 hours
Page 37 of 76
6.3
topic.
Exercise 1:
Exercise 2:
For each case find the partial derivatives of z with respect to x and y.
a. = a 2 + b + c + d 2
b. = e2+3
c. =
(+)2
(3+)
Exercise 3:
For each case find the partial derivatives of z with respect to x and y.
a. = 2 + 2 10 10 + 50
b. = 2 + 2 + 10 10 + 50
c. = 2 2 + 10 + 10 + 50
Find the values of x and y such that both partial derivatives are zero. Use Excel to produce 3D
surface plots of each case, and interpret the result.
Exercise 4:
The following sites (accessed 11th March 2011) provide useful material for further practice.
www.metalproject.co.uk/METAL/Resources/Films/Differential_equations/#film501
www.analyzemath.com/calculus.html#multivariable
Page 38 of 76
6.4
Tutorial Exercises
Exercise 1:
Use differentiation to find a relationship between marginal revenue and own price elasticity.
Exercise 2:
Use partial differentiation to find expressions for own and cross price elasticities for the demand
function;
1 = 250 81 + 52
Assuming brand 2 has a price of p2 = 80, evaluate the own price elasticity for p1 = 20, 40 and
60.
Exercise 3:
Find own and cross price elasticities for the demand function;
1 = a1 2
where a, and are constants.
Exercise 4:
A company sells a product at price P per unit, whether drop shipped or from held inventory. The
annual demand, D, for the product is known for sure. Inspired by the classic economic order quantity
model, the company has built an initial model to determine what proportion of the demand for
product, x, should be met from inventory, and the order quantity, Q. The company has collected data
for
Cd the cost of purchasing a unit of the product inclusive of drop shipping
Ci the cost of purchasing a unit of the product from a wholesaler plus shipping from inventory to
end customer
Co ordering cost
Ch annual holding cost for one unit.
The initial model for profit, , is described by the equation;
Page 39 of 76
= PD DCi (1 )DCd
DCo Ch
By differentiating profit with respect to x and Q find expressions for the optimum fraction of demand
met from inventory and the optimum order quantity.
Exercise 5:
Page 40 of 76
Topic 7
Topic 7:
7.1
Regression Analysis 1
Learning Objectives
This topic provides an overview of simple linear regression and correlation.

Understand a straight line fit to bivariate data

Calculate and interpret Pearsons correlation coefficient
Calculate and interpret Spearmans correlation coefficient
7.2
Timings
Lectures:
1 hour
Private Study:
9.5 hours
Tutorials:
2 hours
Page 41 of 76
7.3
topic.
Exercise 1:
Exercise 2:
A hand car wash service has been monitoring its daily demand as it has changed price. Calculate
the simple linear regression line and the Pearson correlation coefficient.
Price per Wash
5.00
5.50
6.00
6.50
7.00
Number Cars
105
113
99
94
87
Exercise 3:
a. An advertising company decides which adverts to place in particular magazines. To aid this
decision the company studies the response of subjects to adverts. One study examines the
relationship between subject age and response. For one advert design, the results of a very
small pilot study are below. Calculate the rank coefficient of correlation.
Person
Anastasia
Beryl
Cheryl
Deborah
Elizabeth
Age Band
15-29
25-34
35-44
45-54
>54
Attitude
very good
neither good nor poor
good
very poor
poor
b. A separate study for another advert resulted in the following data. Calculate the rank
coefficient of correlation.
Person
Alan
Bertie
Christopher
Dennie
Eric
Frank
Age Band
15-29
25-34
35-44
25-34
45-54
>54
Page 42 of 76
Attitude
very good
neither good nor poor
good
good
poor
poor
Exercise 4:
Calculate the simple regression line and the coefficient of determination for each of the following
four data sets (Anscombe, 1973). Describe your findings.
Set A
x
10
8
13
9
11
14
6
4
12
7
5
Set B
y
8.04
6.95
7.58
8.81
8.33
9.96
7.24
4.26
10.84
4.82
5.68
x
10
8
13
9
11
14
6
4
12
7
5
Set C
y
9.14
8.14
8.74
8.77
9.26
8.1
6.13
3.1
9.13
7.26
4.74
x
10
8
13
9
11
14
6
4
12
7
5
Set D
y
7.46
6.77
12.74
7.11
7.81
8.84
6.08
5.39
8.15
6.42
5.73
x
8
8
8
8
8
8
8
19
8
8
8
y
6.58
5.76
7.71
8.84
8.47
7.04
5.25
12.5
5.56
7.91
6.89
Reference:
Anscombe, FJ. (1973). Graphs in Statistical Analysis The American Statistician 27(1),17-21.
Exercise 5:
Investigate the Excel function TREND.
Investigate the Excel options for adding trend lines to scatter graphs. (First produce a scatter graph.
Excel 2010: Single click on scatter graph. Drop down menu from Chart tools / Layout / Trendline.
Excel 2003: Single click on scatter graph. Chart / Add Trendline.)
Exercise 6:
Study the following pages at http://stattrek.com
http://stattrek.com/AP-Statistics-1/Correlation.aspx (accessed 9th April 2011)
http://stattrek.com/AP-Statistics-1/Regression.aspx (accessed 9th April 2011)
Page 43 of 76
7.4
Tutorial Exercises
Exercise 1:
Use differentiation to minimise the SSE and so derive the simple regression formulae for the
gradient m and the intercept c.
Suggested Answer:
Exercise 2:
Show that the total variation can be expressed as the sum of unexplained and explained variation.
Exercise 3:
Page 44 of 76
Topic 8
Topic 8:
8.1
Regression Analysis 2
Learning Objectives
This topic provides an overview of multiple regression and its extension with dummy variables. The
topic is set at a level suitable for a future general manager, rather than a statistician or
econometrician.
Evaluate results from regression analysis

Interpret results from regression analysis
Recognize the possibility to extend regression analysis
8.2
Timings
Lectures:
1 hour
Private Study:
9.5 hours
Tutorials:
2 hours
Page 45 of 76
8.3
topic.
Exercise 1:
Exercise 2:
Data has been collected for advertised house prices in regions over a city.
Property
1
2
3
4
5
6
7
8
9
10
11
12
Price
507
488
314
231
280
503
288
418
291
356
342
490
Area
156
167
104
73
110
210
95
164
121
155
178
200
Land School
1690
3
888
1
759
3
792
4
630
2
655
1
1000
2
902
2
1185
3
780
1
600
3
1234
1
Region
R1
R1
R1
R1
R2
R2
R2
R2
R3
R3
R3
R3
Give an expected value for the advertised house price of a property with the following
characteristics: Area = 150, Land = 850, School = 1.5 and Region = R3. Explain your answer
carefully.
Exercise 3:
Plastic Sheds Ltd. wish to develop a demand function for their acrylic garden sheds. Develop the
demand function based on the data below. All other things being equal, what would be the effect of
a 100 decrease in the price of the competitor product?
Quarterly
Quantity
1990
Own
Price
()
750
Competitor
Price ()
Median
Income ()
860
18025
Page 46 of 76
1960
2090
2080
2030
2100
2110
2170
2160
2090
2100
2190
600
840
790
660
830
730
850
760
600
630
740
730
820
770
730
870
700
790
690
630
690
680
18151
18278
18406
18535
18665
18796
18928
19060
19193
19327
19462
Exercise 4:
Two alternative presentations of multiple regression are at;
www.statsoft.com/textbook/multiple-regression (accessed 14th April 2011)
http://davidmlane.com/hyperstat/prediction.html (accessed 14th April 2011)
A more advanced presentation can be found out;
http://simon.cs.vt.edu/SoSci/converted/MRegression/ (accessed 14th April 2011)
Page 47 of 76
8.4
Tutorial Exercises
Exercise 1:
A healthcare service provider calculates a performance index in a way mandated by government.
Each staff member within the organization is classed as either Supervisory or Frontline. As a
consultant you have been asked to develop a model relating the performance index to the numbers
of Supervisory and Frontline staff. You have been provided with data from 10 of the service
providers centres.
Centre
A
B
C
D
E
F
G
H
I
J
Performance
Index
36
34
28
37
46
45
30
57
40
57
Supervisory
Staff
310
388
240
359
723
470
471
657
510
677
Frontline
Staff
7010
4405
3501
3619
3098
5136
1260
4517
4319
5104
Exercise 2:
For the set of data investigated in Exercise 1, create a third variable FxS by multiplying the number
of Frontline and Supervisory staff for each case. Construct two more regression models. For the
first include the variables Frontline and FxS, for the second include Supervisory and FxS.
Exercise 3:
Page 48 of 76
Topic 9
Topic 9:
9.1
Time Series Analysis
Learning Objectives
This topic provides an overview of time series analysis, with particular focus on decomposition and a
brief introduction to exponential smoothing.
Understand calendar, inflation and population adjustments

Deseasonalise data using additive or multiplicative decomposition.
Apply simple exponential smoothing.
9.2
Timings
Lectures:
1 hour
Private Study:
9.5 hours
Tutorials:
2 hours
Page 49 of 76
9.3
topic.
Exercise 1:
Exercise 2:
A fruit stall operates at the exit of a London tube station. Its sales figures are given below.
Day 1
Day 2
Day 3
Day 4
08:30 to 11:30
218.00
212.00
200.00
193.00
11:30 to 14:30
112.00
116.00
115.00
92.00
14:30 to 17:30
59.00
66.00
67.00
55.00
Use a 3 point moving average to smooth the data. Plot the time series, Y, and the trend, T. On a
separate graph plot Y-T. Calculate appropriate seasonal adjustments.
Exercise 3:
Over the past four years the hotel zone of a popular Latin American tourist destination has been
increasing its number of rooms. During this period of change the local tourism office has tracked
occupancy rates. Extract the trend-cycle and seasonality adjustments from the data. (Use CMA4
and multiplicative decomposition). Plot and discuss any graphs that you think are relevant. What
other data would be useful to characterise quantitative changes in the hotel zone?
2007
2008
Q1
Y (Occupancy Rate %)
86
Q2
85
Q3
83
Q4
91
Q1
87
Q2
77
Q3
78
Q4
89
Page 50 of 76
2009
2010
Q1
79
Q2
67
Q3
78
Q4
78
Q1
73
Q2
69
Q3
59
Q4
73
Exercise 4:
Study the following sites.
The Australian Bureau of Statistics (www.abs.gov.au) discusses time series decomposition and the
importance of seasonality. In particular the section The Basics is a useful read at:
www.abs.gov.au/Ausstats/abs@.nsf/7d12b0f6763c78caca257061001cc588/af6b411c65fbe6b8ca25
71090080a510!OpenDocument accessed 2nd April 2011.
A brief overview of exponential smoothing is given in the Engineering Statistics Handbook of NIST,
an agency of the US Department of Commerce, at:
www.itl.nist.gov/div898/handbook/pmc/section4/pmc431.htm
Page 51 of 76
9.4
Tutorial Exercises
Exercise 1:
The number of rats captured in a grain store are summarised below. Use simple exponential
smoothing with = 0.2 and = 0.7 to forecast the number of rats that will be caught in week 7.
Week
week 1
week 2
week 3
week 4
week 5
week 6
Rats
216
224
217
233
245
229
Exercise 2:
Calculate the mean squared error (MSE) and the Mean Absolute Error (MAE) for the sales data and
forecast figures below.
Sales
January
2910
February
2990
March
2837
April
3015
May
3069
June
2996
July
3268
August
3580
September
3236
October
3308
Forecast 1
2910
2910
2926
2908
2929
2957
2965
3026
3137
3157
Forecast 2
2910
2910
2958
2885
2963
3027
3008
3164
3414
3307
Page 52 of 76
Exercise 3:
Locate an inflation adjusted House Price Index, such as that available from the UKs Nationwide
building society, www.nationwide.co.uk/hpi/historical.htm. Investigate your time series using Excel
and, for example a 12 point Centred Moving Average.
Exercise 4:
Page 53 of 76
Page 54 of 76
Topic 10
Topic 10: Linear Programming
10.1 Learning Objectives
This topic provides an overview of Linear Programming, with a particular focus on graphical solution
of a 2 variable problem.
Recognize the concept of constrained optimisation

Formulate a two variable linear programme
Find a graphical solution to a two variable linear programme
Appreciate the process of sensitivity analysis
10.2 Timings
Lectures:
1 hour
Private Study:
9.5 hours
Tutorials:
2 hours
Page 55 of 76
10.3 Private Study Exercises

topic.
Exercise 1:
Exercise 2:
Solve the following simultaneous equations;
a. Y = 5, 6X + 7Y = 210
b. Y = 5, 7X + 15Y = 525
c. 7X + 15Y = 525, 5X + 28Y = 700
d. 6X + 7Y = 210, 5X + 28Y = 700
Exercise 3:
Minimise: cost = 9X + 3Y
Subject to the following constraints:
Constraint 1: Y 5
Constraint 2: 6X +7Y 210
Constraint 5: X, Y 0
Which constraints are binding and which are non-binding?
Exercise 4:
Use the web to find and study some presentations of the graphical solution of linear programming
problems. For example:
Page 56 of 76
www.purplemath.com/modules/linprog.htm accessed 4th April 2011.

www.msubillings.edu/BusinessFaculty/Harris/LP_Problem1.htm accessed 4th April 2011.
Page 57 of 76
10.4 Tutorial Exercises

Exercise 1:
Maximise: profit = 39X + 42Y
Subject to the following constraints:
Constraint 1: Y 5
Constraint 5: X, Y 0
Which constraints are binding and which are non-binding?
Exercise 2:
For the previous exercise what happens if constraint 1 is relaxed to Y 4? What is the shadow price
of constraint 1? For what increases and decreases of constraint 1 is this shadow price valid?
Exercise 3:
Page 58 of 76
Topic 11
Topic 11: Linear Programming with Solver Routines
This topic provides an overview of Linear Programming with the Excel Solver.
To formulate an LP for solution with a Solver

Interpret LP output
o Binding and non-binding constraints
o Allowed increases and decreases
o Shadow price
Recognise extensions to LP e.g. integer programming.
11.2 Timings
Lectures:
1 hour
Private Study:
9.5 hours
Tutorials:
2 hours
Page 59 of 76

topic.
Exercise 1:
Exercise 2:
You are required to prepare a 3 slide presentation on the following problem. The presentation
should include; (i) the problem expressed as an objective function and constraint inequalities and,
(ii) a management discussion of the Answer and Sensitivity Reports. (First solve the problem without
integer constraints so that Answer and Sensitivity Reports can be obtained. After this you might
choose to solve the problem with integer constraints).
The small and independent company, Bedroom Furniture Factory manufactures five items of
bedroom furniture. Each month the company decides how many of each item to manufacture based
on three sets of constraints: upstream material supply, in factory process and downstream demand.
The companys monthly labour costs are known and fixed. The contribution for each type of unit of
furniture is known.
Profit Information:
Fixed Labour Costs: 55,000
Furniture
Item
Wardrobe
Ottoman
Drawers
Dressing table
Chair
Contribution
(Selling price Material Costs)
190
370
250
310
100
Upstream (monthly supply side constraints):
Material
Lumber
Fabric
Monthly
Availability
10 m3
422 m2
wardrobe
0.03
0
Required per Unit Manufactured

ottoman
drawers
d. table
0.01
0.02
0.015
3
0
0
Page 60 of 76
chair
0.005
1
Internal Process Constraints (monthly):
Process
Shaping
Plane&sand
Spray
Wash&trim
Assemble
Pack
Hours
Available
300
300
200
102
1000
150
wardrobe
0.4
0.5
0.5
0
1
0.1
Hours Required per Unit Manufactured

ottoman
drawers
d. table
0.4
0.5
0.3
0.1
0.5
0.2
0.8
0.5
0.1
0.3
0
0
1.5
0.5
1.5
0.1
0.5
0.1
Downstream (demand side constraints):

Unit
Wardrobe
Ottoman
Drawers
D. table
Chair
Monthly
Demand
200
50
250
100
290
Exercise 3:
Browse the following websites:
www.solver.com/optimization.htm accessed 5th April 2011.
www.cheresources.com/refinery_planning_optimization.shtml accessed 5th April 2011.
Page 61 of 76
chair
0.3
0.2
0.1
0.3
0.5
0.15

Exercise 1:
A company is in the fortunate position of having six projects available with positive Net Present
Value. Sadly the company has a current year capital ration of 4m. All other things being equal
which projects should the company fund? [Tip: assume the projects are indivisible and use the
binary constraint in Excels Solver.]
Project
A
B
C
D
E
F
Required Current Year Investment

2
3
2
1
2
3
Net Present Value

3.94
7.24
4.08
3.07
7.53
3.35
Exercise 2:
A company has two production centres P1 and P2. It has four distribution centres D1, D2, D3 and D4.
Production centre P1 has a weekly production volume of up to 15,000 units. Production centre P2
has a weekly production volume of up to 25,000 units. Each week the company decides what
quantity of units to ship from each production centre to each distribution centre, based on the weekly
requirement at each distribution centre, Q, and of the costs of shipping one unit, C:
P1
P2
D1
Q11
Q21
D2
Q12
Q22
D3
Q13
Q23
D4
Q14
Q24
P1
P2
D1
C11
C21
D2
C12
C22
D3
C13
C23
D4
C14
C24
Where,
C11 = 0.12, C12 = 0.15, C13 = 0.20, C14 = 0.10, C21 = 0.25, C22 = 0.20, C23 = 0.15, C24 =
0.15,
Next weeks requirements for the four distribution centres are; 10,000 for D1, 5200 for D2, 7500 for
D3, 13,800 for D4. How many units should each of the production centres produce and ship to each
of the distribution centres?
Exercise 3:
Page 62 of 76
Topic 12
Topic 12: Decision Tree Analysis
This topic provides an overview of decision tree analysis.
Represent a sequential management decision with a tree diagram

Use rollback to solve a decision tree and to inform a management decision
Understand the difference between a priori and a posteriori probabilities
Recognise 1st, 2nd and 3rd order uncertainty.
12.2 Timings
Lectures:
1 hour
Private Study:
9.5 hours
Tutorials:
2 hours
Page 63 of 76

topic.
Exercise 1:
Exercise 2:
Rollback the following decision tree assuming that the numbers represent a positive flow variable
such as profit, revenues or net present value.
Exercise 3:
Rollback the decision tree from exercise 2, but now assume that the numbers represent a negative
flow variable such as losses or costs. Comment on your answer.
Exercise 4:
A clothing retailer is due to open a new store in a city in which it is not yet represented. From
previous experience the retailer knows that 70% of new store openings are profitable within the first
year, whilst 30% are not. The company contracts a market research organisation to improve these
estimates before opening the new store. The market research organisation estimates the reliability
of its survey procedure as follows. If the new store is going to be profitable within the first year then
the survey will be positive 50% of the time, neutral 30% of the time and negative 20% of the time. If
Page 64 of 76
the store is not going to be profitable in the first year the survey will be positive 30% of the time,
neutral 30% of the time and negative 40% of the time. Calculate the posterior probabilities for the
stores first year profitability.
Exercise 5:
A company employs a large number of salespeople. You have been offered the job of travelling
salesperson and can choose whether to work in Region 1, Region 2 or Region 3. You will be paid
based on your performance. Of the existing salespeople with greater than median pay 30% are in
Region 1, 40% are in Region 2. Of the existing salespeople earning less than median pay 40% are
in Region 2 and 40% are in Region 3. In which Region would you choose to work and why?
Exercise 6:
Read the following articles;
Coopersmith E, Dean G, McVean J and Storaune E (2000) Making Decisions in the Oil and Gas
Industry Oilfield Review 12(4), p2-9.
Available at www.slb.com/resources/publications/oilfield_review/en/2000/or2000_win.aspx accessed
1st April 2011.
Bryant I, Malinverno A, Prange M, Gonfalin M, Moffat J, Swager D, Theys P and Verga F. (2002)
Understanding Uncertainty Oilfield Review 14(3) p2-15
Available at www.slb.com/resources/publications/oilfield_review/en/2002/or2002_aut.aspx accessed
1st April 2011.
Page 65 of 76

Exercise 1:
A manager is deciding whether to undertake a detailed seismic survey prior to drilling a well. The
alternative to drilling the well is to sell the rights to the tract. Based on existing information, the
probability that the well is dry is 0.3 hence the probability that the well is rich is 0.7.
Seismic surveys improve knowledge of the tract but do not provide perfect knowledge.
The probability of a positive survey given that the well is actually rich is 0.5. The probability of a
neutral survey given that the well is actually rich is 0.3. The probability of a negative survey given
that the well is actually dry is 0.2.
The probability of a positive survey given that the well is actually dry is 0.3. The probability of a
neutral survey given that the well is actually dry is 0.3. The probability of a negative survey given
that the well is actually dry is 0.4.
Present values have been estimated for each of the rich and dry outcomes. Present costs of a
seismic survey are known, as are present sale values for similar drilling rights.
Survey cost
Rich well
Dry well
Tract sale with no survey
Tract sale with neutral survey
Tract sale with positive survey
Tract sale with negative survey
4
100
-120
30
30
60
0
Should the manager undertake the seismic survey?
Exercise 2:
Page 66 of 76
Appendix
Equations and Statistical Tables
Management Statistics
Population mean and standard deviation
=
( )2
= ( )2
Population Coefficient of Variation

=
Sample mean and standard deviation

=
( )2
=
1
Sample skewness
( 1)( 2)
=1
Sample Coefficient of Variation

=
Simple Index Number

=
100
0
Laspeyres and Paasche Price Index Numbers

= 100

= 100
Laspeyres and Paasche Quantity Index Numbers

= 100
0

Page 67 of 76
= 100
Probability
(1 or 2 ) = (1 ) + ( 2 ) (1 2 )
Theorem of Bayes
(|) =
(|)()
()
Theorem of Total Probability
() = (| )( )
Binomial Distribution B(n, p)

( = ) =
=
!
(1
!()!
)()
= (1 )
Poisson Distribution Po()

( = ) =
=
e
!
=
Exponential Distribution
() = e , 0
( < ) = 1
=
Standard Normal Distribution
() =
2
2
Page 68 of 76
Hypothesis Testing
Distribution of sample means
=
Large sample confidence interval of the mean (n 30)

( , + ) =
, +
Large sample confidence interval of proportion (np and n(1 - p) 5)

(1 )
(1 )
( , + ) =
, +
Exact confidence interval (underlying population has normal distribution)

( , + ) =
, +
Approximate large sample test of the mean

=

Under the null hypothesis Z ~ N(0, 1), approximately.

Students one sample t-test of the mean.

=

Under the null hypothesis T ~ t (n - 1)

Independent two sample t-test
=
1
2
1
1
+
1 2
2 =
(1 1)12 +(2 1)22

1 +2 2
Under the null hypothesis T ~ t (n1 + n2 - 2)
Page 69 of 76
Fitting Data
2 Goodness of fit test (Ei 5 for all i)
2 = =1
( )2
Under the null hypothesis 2 ~ 2 ( 1)

k is number of categories, m is number of model parameters estimated from data
2 Test of Association (Ei 5 for all i)

2 = =1
( )2
Under the null hypothesis 2 ~ 2 ( 1)( 1)

r is number of rows, c is number of columns
Simple Linear Regression
= mi + c
m =
is the least SSE straight line where;
i i
m =
c = m
n i i i i
n i2 ( i )2
The Coefficient of Determination

( )2
= =
( )2
2
The Pearson Correlation Function

R = r =
n i i i i
(n i2 ( i )2 )(n i2 ( i )2 )
Spearmans Rank Correlation (with no ties)

= 1
6 2
(2 1)
Page 70 of 76
Differentiation
Definition
() =
( + ) ()
= lim
Standard Derivatives
= n1
= ea
1
=

=
= ea
= () = e ()
Rules of Differentiation
() + () = +
() =
()() = () + ()
()
() =
()
()
()
Elasticities of Demand
Own price
=
Cross price
1 1
1 1
12 =
1 2
2 1
Income
=
1
1
The Total Differential

= (1 + 2 + 3 +...)
1
1
1
1
2
2
2
2
3
3
3
3
+...
+...
Page 71 of 76
Time Series
The additive decomposition model
= + +
The multiplicative decomposition model
=
Three Point Moving Average
Tn = (Yn-1 +Yn +Yn+1)
Four Point Centred Moving Average
1
= 8(2 +21 +2 +2+1 + )

Simple Exponential Smoothing
Ft+1 = Yt + (1 )Ft
Errors
=
1

=1
1
=

=1
Page 72 of 76
Probabilities under the Normal Distribution Curve
P(Z < z)
z
4 z
-3.50
0.0002
0.0002
0.0002
0.0002
0.0002
0.0002
0.0002
0.0002
0.0002
0.0002
-3.40
0.0003
0.0003
0.0003
0.0003
0.0003
0.0003
0.0003
0.0003
0.0003
0.0002
-3.30
0.0005
0.0005
0.0005
0.0004
0.0004
0.0004
0.0004
0.0004
0.0004
0.0003
-3.20
0.0007
0.0007
0.0006
0.0006
0.0006
0.0006
0.0006
0.0005
0.0005
0.0005
-3.10
0.0010
0.0009
0.0009
0.0009
0.0008
0.0008
0.0008
0.0008
0.0007
0.0007
-3.00
0.0013
0.0013
0.0013
0.0012
0.0012
0.0011
0.0011
0.0011
0.0010
0.0010
-2.90
0.0019
0.0018
0.0018
0.0017
0.0016
0.0016
0.0015
0.0015
0.0014
0.0014
-2.80
0.0026
0.0025
0.0024
0.0023
0.0023
0.0022
0.0021
0.0021
0.0020
0.0019
-2.70
0.0035
0.0034
0.0033
0.0032
0.0031
0.0030
0.0029
0.0028
0.0027
0.0026
-2.60
0.0047
0.0045
0.0044
0.0043
0.0041
0.0040
0.0039
0.0038
0.0037
0.0036
-2.50
0.0062
0.0060
0.0059
0.0057
0.0055
0.0054
0.0052
0.0051
0.0049
0.0048
-2.40
0.0082
0.0080
0.0078
0.0075
0.0073
0.0071
0.0069
0.0068
0.0066
0.0064
-2.30
0.0107
0.0104
0.0102
0.0099
0.0096
0.0094
0.0091
0.0089
0.0087
0.0084
-2.20
0.0139
0.0136
0.0132
0.0129
0.0125
0.0122
0.0119
0.0116
0.0113
0.0110
-2.10
0.0179
0.0174
0.0170
0.0166
0.0162
0.0158
0.0154
0.0150
0.0146
0.0143
-2.00
0.0228
0.0222
0.0217
0.0212
0.0207
0.0202
0.0197
0.0192
0.0188
0.0183
-1.90
0.0287
0.0281
0.0274
0.0268
0.0262
0.0256
0.0250
0.0244
0.0239
0.0233
-1.80
0.0359
0.0351
0.0344
0.0336
0.0329
0.0322
0.0314
0.0307
0.0301
0.0294
-1.70
0.0446
0.0436
0.0427
0.0418
0.0409
0.0401
0.0392
0.0384
0.0375
0.0367
-1.60
0.0548
0.0537
0.0526
0.0516
0.0505
0.0495
0.0485
0.0475
0.0465
0.0455
-1.50
0.0668
0.0655
0.0643
0.0630
0.0618
0.0606
0.0594
0.0582
0.0571
0.0559
-1.40
0.0808
0.0793
0.0778
0.0764
0.0749
0.0735
0.0721
0.0708
0.0694
0.0681
-1.30
0.0968
0.0951
0.0934
0.0918
0.0901
0.0885
0.0869
0.0853
0.0838
0.0823
-1.20
0.1151
0.1131
0.1112
0.1093
0.1075
0.1056
0.1038
0.1020
0.1003
0.0985
-1.10
0.1357
0.1335
0.1314
0.1292
0.1271
0.1251
0.1230
0.1210
0.1190
0.1170
-1.00
0.1587
0.1562
0.1539
0.1515
0.1492
0.1469
0.1446
0.1423
0.1401
0.1379
-0.90
0.1841
0.1814
0.1788
0.1762
0.1736
0.1711
0.1685
0.1660
0.1635
0.1611
-0.80
0.2119
0.2090
0.2061
0.2033
0.2005
0.1977
0.1949
0.1922
0.1894
0.1867
-0.70
0.2420
0.2389
0.2358
0.2327
0.2296
0.2266
0.2236
0.2206
0.2177
0.2148
-0.60
0.2743
0.2709
0.2676
0.2643
0.2611
0.2578
0.2546
0.2514
0.2483
0.2451
-0.50
0.3085
0.3050
0.3015
0.2981
0.2946
0.2912
0.2877
0.2843
0.2810
0.2776
-0.40
0.3446
0.3409
0.3372
0.3336
0.3300
0.3264
0.3228
0.3192
0.3156
0.3121
-0.30
0.3821
0.3783
0.3745
0.3707
0.3669
0.3632
0.3594
0.3557
0.3520
0.3483
-0.20
0.4207
0.4168
0.4129
0.4090
0.4052
0.4013
0.3974
0.3936
0.3897
0.3859
-0.10
0.4602
0.4562
0.4522
0.4483
0.4443
0.4404
0.4364
0.4325
0.4286
0.4247
-0.00
0.5000
0.4960
0.4920
0.4880
0.4840
0.4801
0.4761
0.4721
0.4681
0.4641
Page 73 of 76
0.00
0.5000
0.5040
0.5080
0.5120
0.5160
0.5199
0.5239
0.5279
0.5319
0.5359
0.10
0.5398
0.5438
0.5478
0.5517
0.5557
0.5596
0.5636
0.5675
0.5714
0.5753
0.20
0.5793
0.5832
0.5871
0.5910
0.5948
0.5987
0.6026
0.6064
0.6103
0.6141
0.30
0.6179
0.6217
0.6255
0.6293
0.6331
0.6368
0.6406
0.6443
0.6480
0.6517
0.40
0.6554
0.6591
0.6628
0.6664
0.6700
0.6736
0.6772
0.6808
0.6844
0.6879
0.50
0.6915
0.6950
0.6985
0.7019
0.7054
0.7088
0.7123
0.7157
0.7190
0.7224
0.60
0.7257
0.7291
0.7324
0.7357
0.7389
0.7422
0.7454
0.7486
0.7517
0.7549
0.70
0.7580
0.7611
0.7642
0.7673
0.7704
0.7734
0.7764
0.7794
0.7823
0.7852
0.80
0.7881
0.7910
0.7939
0.7967
0.7995
0.8023
0.8051
0.8078
0.8106
0.8133
0.90
0.8159
0.8186
0.8212
0.8238
0.8264
0.8289
0.8315
0.8340
0.8365
0.8389
1.00
0.8413
0.8438
0.8461
0.8485
0.8508
0.8531
0.8554
0.8577
0.8599
0.8621
1.10
0.8643
0.8665
0.8686
0.8708
0.8729
0.8749
0.8770
0.8790
0.8810
0.8830
1.20
0.8849
0.8869
0.8888
0.8907
0.8925
0.8944
0.8962
0.8980
0.8997
0.9015
1.30
0.9032
0.9049
0.9066
0.9082
0.9099
0.9115
0.9131
0.9147
0.9162
0.9177
1.40
0.9192
0.9207
0.9222
0.9236
0.9251
0.9265
0.9279
0.9292
0.9306
0.9319
1.50
0.9332
0.9345
0.9357
0.9370
0.9382
0.9394
0.9406
0.9418
0.9429
0.9441
1.60
0.9452
0.9463
0.9474
0.9484
0.9495
0.9505
0.9515
0.9525
0.9535
0.9545
1.70
0.9554
0.9564
0.9573
0.9582
0.9591
0.9599
0.9608
0.9616
0.9625
0.9633
1.80
0.9641
0.9649
0.9656
0.9664
0.9671
0.9678
0.9686
0.9693
0.9699
0.9706
1.90
0.9713
0.9719
0.9726
0.9732
0.9738
0.9744
0.9750
0.9756
0.9761
0.9767
2.00
0.9772
0.9778
0.9783
0.9788
0.9793
0.9798
0.9803
0.9808
0.9812
0.9817
2.10
0.9821
0.9826
0.9830
0.9834
0.9838
0.9842
0.9846
0.9850
0.9854
0.9857
2.20
0.9861
0.9864
0.9868
0.9871
0.9875
0.9878
0.9881
0.9884
0.9887
0.9890
2.30
0.9893
0.9896
0.9898
0.9901
0.9904
0.9906
0.9909
0.9911
0.9913
0.9916
2.40
0.9918
0.9920
0.9922
0.9925
0.9927
0.9929
0.9931
0.9932
0.9934
0.9936
2.50
0.9938
0.9940
0.9941
0.9943
0.9945
0.9946
0.9948
0.9949
0.9951
0.9952
2.60
0.9953
0.9955
0.9956
0.9957
0.9959
0.9960
0.9961
0.9962
0.9963
0.9964
2.70
0.9965
0.9966
0.9967
0.9968
0.9969
0.9970
0.9971
0.9972
0.9973
0.9974
2.80
0.9974
0.9975
0.9976
0.9977
0.9977
0.9978
0.9979
0.9979
0.9980
0.9981
2.90
0.9981
0.9982
0.9982
0.9983
0.9984
0.9984
0.9985
0.9985
0.9986
0.9986
3.00
0.9987
0.9987
0.9987
0.9988
0.9988
0.9989
0.9989
0.9989
0.9990
0.9990
3.10
0.9990
0.9991
0.9991
0.9991
0.9992
0.9992
0.9992
0.9992
0.9993
0.9993
3.20
0.9993
0.9993
0.9994
0.9994
0.9994
0.9994
0.9994
0.9995
0.9995
0.9995
3.30
0.9995
0.9995
0.9995
0.9996
0.9996
0.9996
0.9996
0.9996
0.9996
0.9997
3.40
0.9997
0.9997
0.9997
0.9997
0.9997
0.9997
0.9997
0.9997
0.9997
0.9998
3.50
0.9998
0.9998
0.9998
0.9998
0.9998
0.9998
0.9998
0.9998
0.9998
0.9998
Page 74 of 76
Percentage Points of the Student Distribution
df
5.00%
10.00%
5.00%
2.00%
1.00%
90.00%
95.00%
98.00%
99.00%
6.3138
12.7062
31.8205
63.6567
2.9200
4.3027
6.9646
9.9248
2.3534
3.1824
4.5407
5.8409
2.1318
2.7764
3.7469
4.6041
2.0150
2.5706
3.3649
4.0321
1.9432
2.4469
3.1427
3.7074
1.8946
2.3646
2.9980
3.4995
1.8595
2.3060
2.8965
3.3554
1.8331
2.2622
2.8214
3.2498
10
1.8125
2.2281
2.7638
3.1693
11
1.7959
2.2010
2.7181
3.1058
12
1.7823
2.1788
2.6810
3.0545
13
1.7709
2.1604
2.6503
3.0123
14
1.7613
2.1448
2.6245
2.9768
15
1.7531
2.1314
2.6025
2.9467
16
1.7459
2.1199
2.5835
2.9208
17
1.7396
2.1098
2.5669
2.8982
18
1.7341
2.1009
2.5524
2.8784
19
1.7291
2.0930
2.5395
2.8609
20
1.7247
2.0860
2.5280
2.8453
21
1.7207
2.0796
2.5176
2.8314
22
1.7171
2.0739
2.5083
2.8188
23
1.7139
2.0687
2.4999
2.8073
24
1.7109
2.0639
2.4922
2.7969
25
1.7081
2.0595
2.4851
2.7874
26
1.7056
2.0555
2.4786
2.7787
27
1.7033
2.0518
2.4727
2.7707
28
1.7011
2.0484
2.4671
2.7633
29
1.6991
2.0452
2.4620
2.7564
30
1.6973
2.0423
2.4573
2.7500
31
1.6955
2.0395
2.4528
2.7440
32
1.6939
2.0369
2.4487
2.7385
33
1.6924
2.0345
2.4448
2.7333
34
1.6909
2.0322
2.4411
2.7284
35
1.6896
2.0301
2.4377
2.7238
36
1.6883
2.0281
2.4345
2.7195
37
1.6871
2.0262
2.4314
2.7154
38
1.6860
2.0244
2.4286
2.7116
39
1.6849
2.0227
2.4258
2.7079
40
1.6839
2.0211
2.4233
2.7045
2.50%
1.00%
0.50%
Page 75 of 76
1
-t
1.6449
1.9600
2.3263
2.5758
Critical Values for the 2 Distribution

0.05
0.01
5.00%
1.00%
3.841
6.635
5.991
9.210
7.815
11.345
9.488
13.277
11.070
15.086
12.592
16.812
14.067
18.475
15.507
20.090
16.919
21.666
10
18.307
23.209
11
19.675
24.725
12
21.026
26.217
13
22.362
27.688
14
23.685
29.141
15
24.996
30.578
16
26.296
32.000
17
27.587
33.409
18
28.869
34.805
19
30.144
36.191
20
31.410
37.566
21
32.671
38.932
22
33.924
40.289
23
35.172
41.638
24
36.415
42.980
25
37.652
44.314
26
38.885
45.642
27
40.113
46.963
28
41.337
48.278
29
42.557
49.588
30
43.773
50.892
df
Page 76 of 76

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ADVANCED BUSINESS MATHEMATICS

ABM Student Guide V1.0

NCC Education Limited, 2011

Module Overview and Objectives .............................................................................. 7

Learning Outcomes and Assessment Criteria .......................................................... 7

Related National Occupational Standards ................................................................ 9

Teaching and Learning............................................................................................... 9

Private Study ................................................................................................................ 9

Further Reading List ................................................................................................. 10

Introductory Management Statistics ....................................................................... 13

Learning Objectives .................................................................................................... 13

Private Study Exercises .............................................................................................. 14

Tutorial Exercises ....................................................................................................... 16

Probability Distributions .......................................................................................... 19

Learning Objectives .................................................................................................... 19

Private Study Exercises .............................................................................................. 20

Tutorial Exercises ....................................................................................................... 23

Inferential Statistics 1 ............................................................................................... 25

Learning Objectives .................................................................................................... 25

Private Study Exercises .............................................................................................. 26

Tutorial Exercises ....................................................................................................... 28

Inferential Statistics 2 ............................................................................................... 29

Learning Objectives .................................................................................................... 29

Private Study Exercises .............................................................................................. 30

Tutorial Exercises ....................................................................................................... 31

Learning Objectives .................................................................................................... 33

Private Study Exercises .............................................................................................. 34

Tutorial Exercises ....................................................................................................... 36

ABM Student Guide V1.0

Learning Objectives .................................................................................................... 37

Private Study Exercises .............................................................................................. 38

Tutorial Exercises ....................................................................................................... 39

Regression Analysis 1.............................................................................................. 41

Learning Objectives .................................................................................................... 41

Private Study Exercises .............................................................................................. 42

Tutorial Exercises ....................................................................................................... 44

Regression Analysis 2.............................................................................................. 45

Learning Objectives .................................................................................................... 45

Private Study Exercises .............................................................................................. 46

Tutorial Exercises ....................................................................................................... 48

Time Series Analysis ................................................................................................ 49

Learning Objectives .................................................................................................... 49

Private Study Exercises .............................................................................................. 50

Tutorial Exercises ....................................................................................................... 52

10.1 Learning Objectives .................................................................................................... 55

Linear Programming with Solver Routines ............................................................. 59

11.1 Learning Objectives .................................................................................................... 59

Decision Tree Analysis............................................................................................. 63

12.1 Learning Objectives .................................................................................................... 63

Module Overview and Objectives

Learning Outcomes and Assessment Criteria

The learner will be able to

The learner can

Use summary and inferential

1.1 Calculate and interpret standard scores

2.1 Use differentiation in marginal analysis

Understand and apply

3.1 Use Pearson and Spearman correlation analysis

4.1 Formulate a decision tree representation of a management

Simple probability review

Hypothesis testing with a sample

Frequency data and the 2 test