CHAPTER ONE

INTRODUCTION

Developments in the field of statistical data analysis often parallel or follow advancements in other fields to which statistical methods are fruitfully applied. Because practitioners of the statistical analysis often address particular applied decision problems, methods developments is consequently motivated by the search to a better decision making under uncertainties.

Decision making process under uncertainty is largely based on application of statistical data analysis for probabilistic risk assessment of your decision. Managers need to understand variation for two key reasons. First, so that they can lead others to apply statistical thinking in day to day activities and secondly, to apply the concept for the purpose of continuous improvement. This course will provide you with hands-on experience to promote the use of statistical thinking and techniques to apply them to make educated decisions whenever there is variation in business data. Therefore, it is a course in statistical thinking via a data-oriented approach.

Statistical models are currently used in various fields of business and science. However, the terminology differs from field to field. For example, the fitting of models to data, called calibration, history matching, and data assimilation, are all synonymous with parameter estimation.

Your organization database contains a wealth of information, yet the decision technology group members tap a fraction of it. Employees waste time scouring multiple sources for a database. The decision-makers are frustrated because they cannot get business-critical data exactly when they need it. Therefore, too many decisions are based on guesswork, not facts. Many opportunities are also missed, if they are even noticed at all.

Knowledge is what we know well. Information is the communication of knowledge. In every knowledge exchange, there is a sender and a receiver. The sender make common what is private, does the informing, the communicating. Information can be classified as explicit and tacit forms. The explicit information can be explained in structured form, while tacit information is inconsistent and fuzzy to explain. Know that data are only crude information and not knowledge by themselves.

Data is known to be crude information and not knowledge by itself. The sequence from data to knowledge is: from Data to Information, from Information to Facts, and finally, from Facts to Knowledge. Data becomes information, when it becomes relevant to your decision problem. Information becomes fact, when the data can support it. Facts are what the data reveals. However the decisive instrumental (i.e., applied) knowledge is expressed together with some statistical degree of confidence.

Fact becomes knowledge, when it is used in the successful completion of a decision process. Once you have a massive amount of facts integrated as knowledge, then your mind will be superhuman in the same sense that mankind with writing is superhuman compared to mankind before writing. The following figure illustrates the statistical thinking process based on data in constructing statistical models for decision making under uncertainties.

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