1. Consider that I am a department head in a large manufacturer who has not been to business school. I asked you for a number—what are my expected workers compensation losses. You gave me a range of losses between $150,000 and $180,000. Of course this you calculated as one standard deviation. Summarize for me what one standard deviation means, briefly how you calculated it, and why this should be a good estimate of the losses in my department. Be succinct but informative.
2. You have compared the coefficients of variation between like departments in the same large manufacturer. My department’s coefficient of variation is 1.45 and this compares to three other departments that are 1.21, .95, and 1.08 respectively. You suggest that it will be more difficult to forecast my workers compensation losses than these other departments. I complain that my actual dollar losses were less than each of these other departments so how could this be possible. Explain to me the reason why it is more difficult to predict the workers compensation losses in my department.