# Standard Deviation in Business Situations

I need a 350 word response to the question below:

Variance and standard deviation are concepts that can be quite confusing. Variance tends to be more confusing than standard deviation. The reason for this is because variance can mean many different things depending on the field of interest. Remember if you say that variance is the difference between an observed and expected value or the difference between actual versus budgeted, then you would be wrong. This is variance in business, but not statistics. Variance is a measure of dispersion around the mean.

With that said, how may variance and standard deviation be applied to a real-world business-related problem? Provide a specific application in which these measures are useful.

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#### Solution Preview

How may variance and standard deviation be applied to a real-world business-related problem? Provide a specific application in which these measures are useful.

Process of calculating Variance and Standard Deviation:

Variance and Standard Deviation measure the dispersion in a data set.

Take a set of data points - such as the closing price (in $) of a stock over a month or diameter of car wheels (in cm.) in a production run- whose variance and standard deviation are to be calculated.

Calculate the mean of this set of data points. Then from each data point subtract the mean to calculate the difference from the mean for each data point.

These differences are squared, added up and then divided by the number of data points in the set to arrive at the average of the squared differences of the data points from the mean. This measure is the variance of the data set.

The ...

#### Solution Summary

The solution discusses a few applications of standard deviation in business situations.