UGBS 301

QUANTITATIVE METHODS
FOR BUSINESS

Dr. Abeeku Sam Edu

Department of Operations and Management Information Systems
 Session 12

Analysis of Variance
 Session Overview

In the previous session, we looked at comparing means

between two groups (independent and dependent
group). In this session, we shall look at comparing
average values for three independent groups.

3
 Section Goals

After completing this section, you should be

able to:
• Recognize situations in which to use analysis of variance
• Understand different analysis of variance designs
• Perform a single-factor hypothesis test and interpret results
• Conduct and interpret post-analysis of variance pairwise comparisons
procedures
• Analyze two-factor analysis of variance test with replications results

4
 Reading List

1. Read chapter 12 of Groebner, Shannon, Fry, and Smith

2. Read chapter 13 of Anderson, Sweeney, and Williams

5
 Analysis of Variance

 ANOVA is a technique used to test the differences in means of more than

two populations
 All populations are normally distributed.
 The populations have the same . That is, the population variances are equal.
 The sampled observations are independent.
 The data’s measurement level is interval or ratio

6
 Analysis of Variance

 Analysis of Variance: A Conceptual Overview

 Based on the assumption that if the population means are the same, their sample
means would be closer together.
 Alternatively, the more the sample means differ, the more evidence we have for the
conclusion that the population means are not equal.
 Based on the premise that if the means of the populations are the same, there will
be very few variability in the sample means
 Test thus focuses on variation rather than on means to verify differences in means.
 In other words, if the variability among the sample means is “small,” it supports
H0; if the variability among the sample means is “large,” it supports H a.

7
 General ANOVA Setting

Investigator controls one or more independent variables Called factors (or

treatment variables)
 Each factor contains two or more levels (or
categories/classifications)
Observe effects on dependent variable
 Response to levels of independent variable
Experimental design: the plan used to test hypothesis

8
 One-Way Analysis of Variance

Evaluate the difference among the means of three or

more populations
Examples: Accident rates for 1st, 2nd, and 3rd shift
Expected mileage for five brands of tires
Assumptions
– Populations are normally distributed
– Populations have equal variances
– Samples are randomly and independently drawn

9
Completely Randomized Design

• Experimental units (subjects) are assigned randomly to

treatments
• Only one factor or independent variable
– With two or more treatment levels
• Analyzed by
– One-factor analysis of variance (one-way ANOVA)
• Called a Balanced Design if all factor levels have equal
sample size

10
 Hypotheses of One-Way ANOVA

• H0 : μ1  μ2  μ3    μk
– All population means are equal
– i.e., no treatment effect (no variation in means among
HA groups)
: Not all of the population means are the same
•
– At least one population mean is different
– i.e., there is a treatment effect
– Does not mean that all population means are different
(some pairs may be the same)

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 One-Factor ANOVA

H0 : μ1  μ2  μ3    μk
HA : Not all μi are the same

All Means are the same:

The Null Hypothesis is True
(No Treatment Effect)

μ1  μ2  μ3

12
 One-Factor ANOVA

(continued)
H0 : μ1  μ2  μ3    μk
HA : Not all μi are the same
At least one mean is different:
The Null Hypothesis is NOT true
(Treatment Effect is present)

o
r

μ1  μ2  μ3 μ1  μ2  μ3

13
Partitioning the Variation

• Total variation can be split into two parts:

SST = SSB + SSW

SST = Total Sum of Squares

SSB = Sum of Squares Between
SSW = Sum of Squares Within

14
 Partitioning the Variation
(continued)
SST = SSB + SSW

Total Variation = the aggregate dispersion of the individual

data values across the various factor levels (SST)

Between-Sample Variation = dispersion among the factor

sample means (SSB)

Within-Sample Variation = dispersion that exists among

the data values within a particular factor level (SSW)

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 Partition of Total Variation

Total Variation (SST)

Variation Due to Variation Due to Random

= Factor (SSB) + Sampling (SSW)

Commonly referred to as: Commonly referred to as:

 Sum of Squares Between  Sum of Squares Within
 Sum of Squares Among  Sum of Squares Error
 Sum of Squares Explained  Sum of Squares Unexplained
 Among Groups Variation  Within Groups Variation

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Total Sum of Squares

SST = SSB +SSW

k ni
SST   ( x ij  x )2
i1 j1
Where:
SST = Total sum of squares
k = number of populations (levels or
treatments)
ni = sample size from population i
xij = jth measurement from population i
x = grand mean (mean of all data values)

17
 Total Variation
(continued)

SST  ( x11  x )2  ( x12  x )2  ...  ( x knk  x )2

R espon se, X

G rou p 1 G rou p 2 G rou p 3

18
Sum of Squares Between

SST = SSB +
SSW k
SSB   ni ( x i  x )2
i1
Where:
SSB = Sum of squares between
k = number of populations
ni = sample size from population i
xi = sample mean from population i
x = grand mean (mean of all data values)

19
Between-Group Variation

k
SSB   ni ( x i  x )2
i1

SSB
Variation Due to
Differences Among Groups MSB 
k 1
Mean Square Between =
SSB/degrees of freedom

i j

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 Between-Group Variation
(continued)

SSB  n1 ( x1  x )2  n 2 ( x 2  x )2  ...  nk ( x k  x )2

R espon se, X

X3
X2 X
X1

G rou p 1 G rou p 2 G rou p 3

21
Sum of Squares Within

SST = SSB + SSW

k nj
SSW    ( x ij  x i )2
i1 j1
Where:
SSW = Sum of squares within
k = number of populations
ni = sample size from population i
xi = sample mean from population i
xij = jth measurement from population i

22
 Within-Group Variation

k nj
SSW    ( x ij  x i )2
i1 j1
SSW
Summing the variation
MSW 
within each group and then
adding over all groups Nk
Mean Square Within =
SSW/degrees of freedom

i

23
 Within-Group Variation
(continued)

SSW  ( x11  x1 ) 2  ( x12  x1 ) 2  ...  ( xknk  xk ) 2

R espon se, X

X3
X2
X1

G rou p 1 G rou p 2 G rou p 3

24
 One-Way ANOVA Table

Source of SS df MS F ratio
Variation
Between SSB MSB
SSB k-1 MSB = F=
Samples k-1 MSW
Within SSW
SSW N-k MSW =
Samples N-k
SST =
Total N-1
SSB+SSW
k = number of populations
N = sum of the sample sizes from all populations
df = degrees of freedom

25
 One-Factor ANOVA
F Test Statistic

H0: μ1= μ2 = … = μ k
HA: At least two population means are different
• Test statistic
MSB
F
MSW
MSB is mean squares between variances
MSW is mean squares within variances
• Degrees of freedom
– df1 = k – 1 (k = number of populations)
– df2 = N – k (N = sum of sample sizes from all populations)

26
 Interpreting One-Factor ANOVA
F Statistic

The F statistic is the ratio of the between

estimate of variance and the within estimate
of variance
– The ratio must always be positive
– df1 = k -1 will typically be small
– df2 = N - k will typically be large

The ratio should be close to 1 if

H0: μ1= μ2 = … = μk is true
The ratio will be larger than 1 if
H0: μ1= μ2 = … = μk is false
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 One-Factor ANOVA
F Test Example

You want to see if three Club 1 Club 2 Club

different golf clubs yield 3
different distances. You 254 234
randomly select five 200
measurements from trials on an 263 218
automated driving machine for 222
each club. At the .05 241 235
significance level, is there a 197
difference in mean distance? 237 227
206
251 216
204

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 One-Factor ANOVA Example:
Scatter Diagram

Distance
270
Club 1 Club 2 Club3
254 234 200 260 •
•
263
241
218
235
222
197
250 • X1
240 •
237 227 206 230
• ••
251 216 204 220 •
X2 • X
••
210
x1  249.2 x 2  226.0 x 3  205.8 200 •• X3
••
190
x  227.0

1 2 3
Club

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 One-Factor ANOVA Example
Computations
Club 1 Club 2 Club3 x1 = 249.2 n1 = 5
254 234 200 x2 = 226.0 n2 = 5
263 218 222
x3 = 205.8 n3 = 5
241 235 197
237 227 206 N = 15
x = 227.0
251 216 204 k=3

SSB = 5 [ (249.2 – 227)2 + (226 – 227)2 + (205.8 – 227)2 ] = 4716.4

SSW = (254 – 249.2)2 + (263 – 249.2)2 +…+ (204 – 205.8)2 = 1119.6

MSB = 4716.4 / (3-1) = 2358.2 2358.2

F  25.275
MSW = 1119.6 / (15-3) = 93.3 93.3

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 One-Factor ANOVA Example
Solution

H0: μ1 = μ2 = μ3 Test Statistic:

HA: μi not all equal
MSB 2358.2
 = .05 F   25.275
MSW 93.3
df1= 2 df2 = 12

Critical Decision:
Value:
F = 3.885
Reject H0 at  = 0.05
Conclusion:
 = .05
There is evidence that
0 Do not Reject H0 at least one μi differs
reject H0 F = 25.275
F.05 = 3.885 from the rest

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 ANOVA -- Single Factor:
Excel Output

EXCEL: tools | data analysis | ANOVA: single factor

SUMMARY
Groups Count Sum Average Variance
Club 1 5 1246 249.2 108.2
Club 2 5 1130 226 77.5
Club 3 5 1029 205.8 94.2
ANOVA
Source of
SS df MS F P-value F crit
Variation
Between
4716.4 2 2358.2 25.275 4.99E-05 3.885
Groups
Within
1119.6 12 93.3
Groups
Total 5836.0 14

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 The Tukey-Kramer Procedure
• Tells which population means are
significantly different
– e.g.: μ1 = μ2  μ3
– Done after rejection of equal means in ANOVA
• Allows pair-wise comparisons
– Compare absolute mean differences with
critical range

μ1= μ2 μ3 x

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 Tukey-Kramer Critical Range

MSW  1 1 
Critical Range  q 
2  ni n j 


where:
q = Value from standardized range table
with k and N - k degrees of freedom for
the desired level of 
MSW = Mean Square Within
ni and nj = Sample sizes from populations (levels) i and j

34
Tukey-Kramer Critical Range

35
 The Tukey-Kramer Procedure:
Example

1. Compute absolute mean

Club 1 Club 2 Club3 differences:
254 234 200
263 218 222 x1  x 2  249.2  226.0  23.2
241 235 197 x1  x 3  249.2  205.8  43.4
237 227 206
251 216 204 x 2  x 3  226.0  205.8  20.2

2. Find the q value from the table in appendix J

with k and N - k degrees of freedom for
the desired level of 

qα  3.77

36
 The Tukey-Kramer Procedure:
Example

3. Compute Critical Range:

MSW  1 1  93.3  1 1 
Critical Range  qα   3.77     16.285
2  ni n j  2 5 5

4. Compare:
5. All of the absolute mean differences x1  x 2  23.2
are greater than critical range.
Therefore there is a significant x1  x 3  43.4
difference between each pair of
means at 5% level of significance. x 2  x 3  20.2

37
 Fisher’s LSD test

• Tells which population means are

significantly different
– e.g.: μ1 = μ2  μ3
– Done after rejection of equal means in
ANOVA
• Allows pair-wise comparisons
– Compare absolute mean differences with
critical range
μ1= μ2 μ3 x

38
 Fisher’s LSD test

1 1
LSD  t / 2 MSW   
n n 
 i j 

where:
t/2 = Value from t-table at the desired level of  with N-k
degrees of freedom
MSW = Mean Square Within
ni and nj = Sample sizes from populations (levels) i and j

39
 Fisher’s LSD test

1. Compute absolute mean

Club 1 Club 2 Club differences:
3
254 234 x1  x 2  249.2  226.0  23.2
200 x1  x 3  249.2  205.8  43.4
263 218
222 x 2  x 3  226.0  205.8  20.2
241 235
197
237 227 t
α/2, 12  2.179
206
251 216
204

40
 Fisher’s LSD test

3. Compute Critical Range:

1 1 1 1
Critical Range  t α/2 MSW     2.179 93.3    13.31
n n  5 5
 i j 

4. Compare:
5. All of the absolute mean differences x1  x 2  23.2
are greater than critical range.
Therefore there is a significant x1  x 3  43.4
difference between each pair of
means at 5% level of significance. x 2  x 3  20.2

41
 Practical Assignment
The following data are from an experiment designed to investigate the perception of
corporate ethical values among individuals specializing in marketing (higher scores
indicate higher ethical values)
Marketing Managers Marketing Research Advertising
6 5 6
5 5 7
4 4 6
5 4 5
6 5 6
4 4 6
a. Use α 0.05 to test for significant differences in perception among the three groups.
b. At the α 0.05 level of significance, we can conclude that there are differences in the
perceptions for marketing managers, marketing research specialists, and advertising
specialists. Use the procedures in this section to determine where the differences occur.
Use α 0.05.
 Reference

1. Read chapter 8 of Groebner, Shannon, Fry, and Smith

2. Read chapter 8 of Anderson, Sweeney, and Williams