A Quantitative Approach to Commercial Damages: Applying Statistics to the Measurement of Lost Profits, + Website

CHAPTER 1

Case Study 1—Uses of the Standard Deviation

In this and all the other case studies in this book, you will come across statistical terms that will be unfamiliar to you. Rather than explain each term in the body of the case study, or populate each case study with explanatory foot- or endnotes, we have provided a glossary at the end of the book to facilitate your understanding of the text.

The Steps of Data Analysis

An important step in data analysis, and hence forecasting, is to determine the shape, center, and spread of your data set. That is, how are the data distributed (normally, uniformly, or left- or right-skewed), what is its mean and median, and to what degree is it dispersed about the mean? The answers to these questions are important, as they will determine what statistical tools we can use as we attempt to determine lost profits. The questions can be answered graphically with histograms, stem and leaf plots, and box plots as well as computationally through the use of various Excel descriptive statistical functions such as AVERAGE, STDEVP, SKEW, and KURT. Knowing a data set's distribution (normal, or at least near–bell shaped), its center (mean), and its spread (standard deviation), we can begin to draw conclusions about it that will allow us to meaningfully compare it with other contemporaneous data points.

Our first case, while not strictly on the subject of lost profits, is about an issue our readers see all the time in their practices. The case concerns the ...