Transcript for:
Analyzing Cash Receipts with Z-Score

The daily cash receipt at a local store followed a mound-shaped distribution with a mean of $9,200 per day and a standard deviation of $400 per day. So, drawing this on my graph, we'll ultimately see $9,200 at the center of the graph. Again, it means that x-bar always goes at the center of the graph, and from there, we are going to take that standard deviation of $400 and add or subtract that amount to move from tick mark to tick mark. So, adding upwards, we'll get $9,600, $10,000, $10,400. Or going in the other direction, you subtract by $400, getting us $8,800, $8,400, $8,000. So what's my observation here? My observation is that the day a new employee was hired, the store took in $8,300. So my observation is the $8,300. And here's the question, guys. The question is then, was this an unusually low receipt total? When you see the word "unusual" pop up in a prompt, that should automatically tell you I got to find the z-score. Whenever you see the phrase "unusual" appear in your prompt, that should automatically trigger in your brain that you need to find the z-score, where the z-score is (X - X-bar) / S. X is the observed value, X-bar is the mean, and S is the standard deviation. By this point, if you just write this z-score on your note sheet, I want you to note that everything else was given to us. Remember, X-bar is the mean, and S is the standard deviation. Now it's about plugging in these numbers into your calculator. $8,300 being subtracted by $9,200 gives you $900. Let me first talk about what this negative $900 represents. This negative sign emphasizes that we are going below the mean. The observed value is below the mean, and below the mean by how much? It's by $900. So if you are the employer at this point, you would be telling this new employee, "Your receipt total is below the mean by $900." And yet, $900 is kind of ambiguous. For some people, $900 is a lot, but for a Fortune 500 company like Facebook or Google, $900 is a drop in the bucket, practically nothing. To understand how big of a difference this $900 is in the context of this local store, you then divide that difference by the standard deviation. Dividing $900 by $400 gives you -2.25. This negative 2.25 emphasizes that this observed value of $8,300 is below the mean by 2.25 standard deviations. Now, let's answer the question. If you're asking, "Is this unusual?" This is where we go back to the empirical rule. When you are within two standard deviations of the mean, you're looking at 95% of your data. If you go beyond two standard deviations, you're looking at the little tips of 2.5% of your data above and 2.5% below. Once you breach two standard deviations away from the mean, your data is pretty unusual. If you are beyond three standard deviations from the mean, your data is definitely unusual. In this case, our z-score is -2.25. It's between -2 and -3 standard deviations from the mean. So, for those z-scores, the observation might be unusual.