Statistical Noise: What is it?

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Statistical noise refers to unexplained variation or randomness in data. It can be errors or residuals, and can affect business statistics. It is important to remove irrelevant factors to get a true picture of data. Statistical errors and residuals are different, and noise can inspire safeguards to maintain predictable operations.

Strictly defined, noise is a term that refers to the unexplained variation or randomness found within a given sample or formula of data. There are two main forms of it: errors and residuals. A statistical error is simply the part of the final amount that differs from the expected value that was assumed to be the correct answer. A residual is the result of a more random estimate than the expected result. The general idea behind statistical noise is that a particular dataset is not necessarily accurate and may not be duplicable if the same information were collected or recalculated.

Use in business

Many companies are very dependent on statistics. Statistical information is used to identify customer preferences and purchasing habits, production costs and the efficiency of operating structures. While generating statistics is a great way to better understand how a business should work and the direction it should go, the process can also create some worthless data. This is where statistical noise needs to be taken into account.

For example, a fabric manufacturer might develop production statistics on how much fabric can be produced within an hour. There are several factors that can affect the average amount of fabric produced, such as the quality of the base product, machinery malfunctions, operator error, and even the temperature and humidity level on the plant floor. Statistical noise would be accounted for by removing the effects of those elements that simply could not occur over the course of a typical shift, because including them would not produce a true picture of average production.

Differences between errors and residuals
Many people assume that statistical and residual errors are two references for the same occurrence, but they are actually different things. In general, there was some computation involved with statistical errors and some degree of effort applied to the task. An error can cause the final total to be higher or lower. With a statistical residual, there isn’t much effort to come up with a logical process. Instead, it’s little more than a hunch based on a quick review of available data, with little or no calculations involved.

Statistical noise is not something that should be considered useless. In a business setting, the questions raised by statistical noise often point to situations that, while not common during the average workday, are still likely to occur and derail production over an extended period of time. From this point of view, noise can be the inspiration to create and implement safeguards that help maintain constant and predictable operations.

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