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200032 Lecture Notes - Lecture 10: Central Tendency, Standard Deviation

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Measures of central location: measures of central tendency yield information about the centre, or middle part, of a group of numbers. The most familiar measure is the arithmetic mean, which is most commonly referred to as the average: for example, suppose we run a company with ten salespeople. We can record the number of sales for each person in each week. Then one way to describe the ten salespeople is by determining the average number of sales per week for each person. Measure of shape: distributions of actual data can assume any shape or form; and we can determine the shape of the distribution by comparing the measures of central location. The distribution having a pronounced tail" on one side or the other are said to be skewed. Measures of variability: while measures of central tendency are used to estimate.

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Related Questions

Can you summarize this article and wrtite down some important points regarding GDP?

NEW YORK – Striving to revive the world economy while simultaneously responding to the global climate crisis has raised a knotty question: are statistics giving us the right “signals” about what to do? In our performance-oriented world, measurement issues have taken on increased importance: what we measure affects what we do. If we have poor measures, what we strive to do (say, increase GDP) may actually contribute to a worsening of living standards. We may also be confronted with false choices, seeing trade-offs between output and environmental protection that don’t exist. By contrast, a better measure of economic performance might show that steps taken to improve the environment are good for the economy. Eighteen months ago, French President Nicolas Sarkozy established an international Commission on the Measurement of Economic Performance and Social Progress, owing to his dissatisfaction – and that of many others – with the current state of statistical information about the economy and society. On September 14, the Commission will issue its long-awaited report. The big question concerns whether GDP provides a good measure of living standards. In many cases, GDP statistics seem to suggest that the economy is doing far better than most citizens’ own perceptions. Moreover, the focus on GDP creates conflicts: political leaders are told to maximize it, but citizens also demand that attention be paid to enhancing security, reducing air, water, and noise pollution, and so forth – all of which might lower GDP growth. The fact that GDP may be a poor measure of well-being, or even of market activity, has, of course, long been recognized. But changes in society and the economy may have heightened the problems, at the same time that advances in economics and statistical techniques may have provided opportunities to improve our metrics. For example, while GDP is supposed to measure the value of output of goods and services, in one key sector – government – we typically have no way of doing it, so we often measure the output simply by the inputs. If government spends more – even if inefficiently – output goes up. In the last 60 years, the share of government output in GDP has increased from 21.4% to 38.6% in the US, from 27.6% to 52.7% in France, from 34.2% to 47.6% in the United Kingdom, and from 30.4% to 44.0% in Germany. So what was a relatively minor problem has now become a major one. Likewise, quality improvements – say, better cars rather than just more cars – account for much of the increase in GDP nowadays. But assessing quality improvements is difficult. Health care exemplifies this problem: much of medicine is publicly provided, and much of the advances are in quality. The same problems in making comparisons over time apply to comparisons across countries. The United States spends more on health care than any other country (both per capita and as a percentage of income), but gets poorer outcomes. Part of the difference between GDP per capita in the US and some European countries may thus be a result of the way we measure things. Another marked change in most societies is an increase in inequality. This means that there is increasing disparity between average (mean) income and the median income (that of the “typical” person, whose income lies in the middle of the distribution of all incomes). If a few bankers get much richer, average income can go up, even as most individuals’ incomes are declining. So GDP per capita statistics may not reflect what is happening to most citizens. We use market prices to value goods and services. But now, even those with the most faith in markets question reliance on market prices, as they argue against mark-to-market valuations. The pre-crisis profits of banks – onethird of all corporate profits – appear to have been a mirage. This realization casts a new light not only on our measures of performance, but also on the inferences we make. Before the crisis, when US growth (using standard GDP measures) seemed so much stronger than that of Europe, many Europeans argued that Europe should adopt US-style capitalism. Of course, anyone who wanted to could have seen American households’ growing indebtedness, which would have gone a long way toward correcting the false impression of success given by the GDP statistic. Recent methodological advances have enabled us to assess better what contributes to citizens’ sense of well-being, and to gather the data needed to make such assessments on a regular basis. These studies, for instance, verify and quantify what should be obvious: the loss of a job has a greater impact than can be accounted for just by the loss of income. They also demonstrate the importance of social connectedness. Any good measure of how well we are doing must also take account of sustainability. Just as a firm needs to measure the depreciation of its capital, so, too, our national accounts need to reflect the depletion of natural resources and the degradation of our environment. Statistical frameworks are intended to summarize what is going on in our complex society in a few easily interpretable numbers. It should have been obvious that one couldn’t reduce everything to a single number, GDP. The report by the Commission on the Measurement of Economic Performance and Social Progress will, one hopes, lead to a better understanding of the uses, and abuses, of that statistic. GDP Fetishism - Project Syndicate 2/8/10 4:05 PM http://www.project-syndicate.org/commentary/stiglitz116/English Page 2 of 3 The report should also provide guidance for creating a broader set of indicators that more accurately capture both well-being and sustainability; and it should provide impetus for improving the ability of GDP and related statistics to assess the performance of the economy and society. Such reforms will help us direct our efforts (and resources) in ways that lead to improvement in both. Copyright: Project Syndicate, 2009. www.project-syndicate.org Reprinting material from this website without written consent from Project Syndicate is a violation of international copyright law. To secure permission, please contact [email protected]. tvselvakumaran 05:30 30 Sep 09 The official consensus Professor Martin Feldstein's latest article, "The G-20's Empty Promises" on Project Syndicate needs careful consideration. In his article, Professor Feldstein essentially adopts the "official consensus" of the economics profession on the current economic crisis. This official consensus, in its various mainfestations, has also been elaborated on by other famous economists, notably Professor Robert Lucas in his article in the Economist in early August, and by Professor Paul Krugman in his recent article in the New York Times Magazine. One characterizing feature of this official consensus is a confidence (a.k.a. triumphalism) in the certainty of outcomes predicted by modern economic theory. The main precepts of this official consensus are (i) Professor Ben Bernanke, the Chairman of the Board of Governors of the Federal Reserve, has at his disposal all the theoretical tools of economics that are necessary and sufficient to deal with the current economic crisis. As Professor Lucas explains it in his Economist article, if one were able to predict in advance exactly when a market crash would occur, it would imply that the market entertains arbritrage opportunities. Hence, it is not possible to predict financial crises in advance. However, except for the precise timing of the occurrence of financial crises, macroeconomic theory could explain the workings of the economy completely. In particular, to avert the recurrence of the Great Depression, certain actions were needed to be taken by the Fed -- the specifics of these actions were all clearly understood by the economics profession. However, it was politically untenable to take these actions before there was a financial crisis. Once the financial crisis occurred though, Professor Bernanke could intervene in the markets and take the necessary actions (in the Fall of 2008). These actions include the injection of several trillion dollars into the economy and making the availability of credit the cheapest possible. The actions taken by the Fed have now resulted in the economy avoiding a recurrence of the Great Depression. This is, in brief, what Professor Lucas has stated in his Economist article. (ii) Thus in Professor Lucas' interpretation of things, the collapse of Lehman Brothers, for example, was necessary, in order to justify the intervention of the Federal Reserve in the functioning of the markets. The collapse of Lehman Brothers was, although regrettable, an unavoidable event. But, on the whole, monetary policy, even if it is a profligate one, would be necessary and sufficient to prevent the recurrence of the Great Depression, in Professor Lucas' view. Furthermore, the old wisdom of the Chicago School that government should be kept minimal at all times continues to hold, even in light of the current economic crisis. The Keynesians led by Professor Krugman, on the other hand, believe that Lehman Brothers should never have been allowed to fail. In their view, when the Fed's fund rate is at zero, monetary policy is largely ineffective for sustaining and stimulating economic activity. This is because of liquidity traps caused by businessmen who don't see economic opportunities that would induce them to borrow the cheap money available from the banks. Hence the government should step in to provide massive fiscal assistance to the economy by taking on spending directly, even if it means assuming trillions of dollars of public debt. (iii) Professor Krugman scored a lot of points by pointing out that the current state of economic theory, highly influenced as it is by the efficient market hypothesis of the Chicago School, indicated that a crisis of such magnitude as the current economic crisis could not happen at all. This fundamental failure to recognize that an enormous crisis could indeed happen, calls for the overthrow of the policy that markets provide the best social gain when they are completely free from government interference. From first impressions, it might seem that the views of the monetarists and Keynesians are vastly different. However, it is important to note that in the view of the Keynesians too, once large scale government spending as prescribed by the Keynesians is instituted, there is again enough assurance that modern economic theory (although with a heavy Keynesian tilt) would be sufficient to deal with the current economic crisis. (iv) In this regard, perhaps it is relevant to refer here to Professor Robert Shiller's latest article, "Re-inventing Economics" on Project Syndicate. Professor Shiller points out that the free market ideology fails to identify bubbles. Because of the belief that markets know best on all occasions, bubbles cannot occur according to the free market ideology. Professor Shiller's approach pursues a different branch of the Keynesian school of thought than the big spenders. Rather than advocate large government spending to avert a depression, Professor Shiller proposes using techniques from behavioral psychology to predict bubbles in advance. In this way, the socially harmful effects of massive misallocations of capital that arose in the case of the housing bubble or the tech bubble could be prevented in the future. In his other recent article, "Echo Chamber of Boom and Bust" in the New York Times, Professor Shiller elaborates further on the techniques that one could use for studying bubbles. Briefly, the process by which confidence or panic spreads in markets is very similar to the process by which diseases spread among populations. This outlook allows for introducing methods that scientists use to study epidemics into the study of bubbles. (v) The Keynesians have also managed to re-write the conventional wisdom on the advantages of a strong dollar. Through the works of Professors Barry Eichengreen, Jeffrey Sachs and Ben Bernnake, a consensus has developed that attempting to support the gold standard was a major cause for the prolongation of the Great Depression. This has resulted in a viewpoint among economists that a devaluation of the dollar at present would help to reduce global imbalances by restoring the American manufacturing industry. The implications of this viewpoint were analyzed by Professor Feldstein in his July 2009 article "America's Saving Rate and the Dollar's Future" on Project Syndicate, with the conclusion that devaluation of the dollar would necessarily lead to a better future for GDP Fetishism - Project Syndicate 2/8/10 4:05 PM http://www.project-syndicate.org/commentary/stiglitz116/English Page 3 of 3 America. Lost in this new interpretation is the fact that a stable dollar provides many economic benefits for America. The equity premium for American companies taking more risks globally, the transaction charges for providing market making facilities in global markets, and the provisions of liquidity for the currency of international trade are major drivers of economic growth for America, which derive from the dollar being the global reserve currency. (vi) Some other Keynesians have gone beyond questioning just the free market ideology. For example, in his latest article, "GDP Fetishism" on Project Syndicate, Professor Joseph Stiglitz proposes a broad set of economic indicators like health, well-being and sustainability rather than a narrow focus on GDP growth. Yet other developments imply that the rest of the world is steadily moving away from using the dollar as the main reserve currency. To finance this new global reserve system, the IMF has created $250 billion worth of Special Drawing Rights (SDR), and the IMF has indicated its intention to triple this allocation of $250 billion in the future. It would need a strong commitment from the policy-makers in America to re-claim for the dollar its position as the predominant global reserve currency. However, judging from the writings of American economists like Professor Feldstein, it appears that the consensus among professional economists favors devaluing the dollar instead. (vii) The official consensus is a result of a grand compromise between the Chicago School economists and the Keynesians.The conservative economists of the Chicago School would like to avoid the embarassment of getting publicly criticized for the failures of the efficient market hypothesis that this current economics crisis has severely exposed. So famous conservative economists like Professor Lucas have reached out for a consensus by indicating their willingness for a compromise. This compromise involves among other things, (a) foregoing raising concerns about the government's mismanagement of Fanie Mae and Freddie Mac, and (b) lending support to the Fed and the Treasury in their efforts to stabilize the economy, even if the methods that the Fed and the Treasury employ are highly inefficient. What are the Keynesians compromising on? Well, the Western liberal tradition has been intellectually bankrupt ever since the late 1960s. It is only the free market ideology of the Chicago School that has served as the driver of wealth creation in the advanced countries during the last four decades. Hence, the official consensus is a convenient compromise for the Keynesians to avoid asking difficult questions about the future of the Western liberal tradition. Instead, they would like to enact much drama in the media about the resurrection of their hero, John Maynard Keynes. (viii) One other characterizing feature of the official consensus in the economics profession is a collective tendency to "Blame It All On Obama". The conservative economists blame President Obama for not focusing adequately on America's ballooning national debt. The liberals, led by Professor Krugman, fault President Obama for getting distracted from the left's free spending ways by concerns on the size of the fiscal deficit. In the confusion that has ensued, President Obama's own team of economics advisors has fallen back on the official consensus in the economics profession. Availing themselves of the security provided by this official consensus, President Obama's economics team has misled the President thoroughly in economic matters. To begin with, the President is only empowered to administer the nation's affairs for a four year term. The projections put out by the Congressional Budget Office (CBO) for the deficits in the next decade are only a non-authoritative guidance for where the nation's finances would be, if current policies hold for the next decade. Instead, the democrats have been behaving as if the $9 trillion of additional public debt that the CBO projects for the next decade is already a given certainty. In particular, they have not been careful to mention clearly in public discussions how much of this extra spending can be attributed to the President's own spending plans in his current four-year term. Neither have they shown any concerns for taking the Fed and the Treasury to taks for their highly inefficient methods to stabilize the economy. Because of these instances of neglect, the public is not willing to trust the government in financial matters. President Obama has rapidly lost his approval ratings. Professor Lawrence Summers, Professor Christina Romer, Professor Austan Goolsbee and Professor Peter Orszag are directly responsible for this abuse of public trust. (ix) The official consensus has also prevented economists from recognizing that President Obama's universal message of tolerance and justice, which has been received very favorably all around the world, actually opens up vast areas of economic opportunity for America. Unfortunately, it does not matter, for the economists, whether George W. Bush or Barack Obama is in office. The most they can do is re-work their models to favor Keynesian policies, and to argue that the policies they propose arise directly from their number-crunching methods. One might be tempted to attribute this widespread consensus among economists to stick to a narrow theoretical interpretation of the current economic crisis, to the certainty afforded by the mathematical models, which have become indispensible through the course of the 20th century, for the development of economic theory. However, this would be a big mistake. The official consensus in the economics profession is primarily a result of undue influences of power and money. It is much less a result of mathematically based economic theory. In the longterm, this attitude among economists of sticking to an official consensus is going to do serious damage to the American economy. Some other aspects of the official consensus have been explained very well by Professor Kenneth Rogoff in his recent article, "The Confidence Game" on Project Syndicate. I recommend that the reader go through that article. The official consensus is the single largest threat to a robust recovery in the global economy. The official consensus also gravely misinterprets the events of the Great Depression. The implications of this misinterpretation bear directly on the economic health of America.


On the morning of October 31st, Elaine Black, Chief InformationOfficer at Robatelli’s Pizzeria, was waiting for both Jim Saxton,database administrator, and Peter Greyton, operations manager, tocome to her office for a meeting. While waiting, Elaine wasthinking about the surge of telephone and Internet orders expectedto be received through the company’s customer order center withinthe next 12 hours. Halloween had always been the most popular dayof the year for people in the greater Pittsburgh area to orderpizza from Robatelli’s. There were 53 restaurant locations to servethese customers, but only one location to receive all of the ordersand forward them to the right restaurant. Elaine’s thoughts wereinterrupted as Jim and Peter entered her office. The followingconversation took place:

ELAINE: Well, guys, it’s here again, our biggest day of theyear. Not only is Halloween a busy day, but we have the upcomingday after Thanks- giving, the week before Christmas, and Super BowlSunday. Can our current computer system’s infrastructure and peoplekeep pace with the orders we expect?

JIM: I think our systems are all running at peak performance. Weshouldn’t have any computer concerns for today or those other busydays.

PETER: Everyone in the customer order center is focused onmaking sure that our customers get their pizzas as ordered. We haveplenty of people scheduled to work tonight, so we’re good togo.

ELAINE: Terrific. But every time we face one of these peak salesdays, I start wondering about the long-term capacity andeffectiveness of our computer systems. Jim, we need to think longterm about our com- puter system. I was just reading an articlethat I’d like you to take a look at. It’s about Anheuser-BuschCompanies and their use of data mining.

JIM: I do agree with you, Elaine; we should always be thinkingabout how newer IT systems can help us. Could you e-mail me thelink to the article?

ELAINE: Sure, and I would like you to think about how we mightuse the same approach in our business. Pete, your order centerpeople are doing a great job, but again there’s something I’d likeus to think about in the long run. As you know, we now have tomanually enter all customer order center sales and store sales intoour general ledger (GL). I think we could improve a lot of thingsif those sales fed automatically into our GL software. Why don’tyou think about any advantages you see for an automatic interface,and we’ll look at the costs compared to those advantages. How’sthat sound?

PETER: I’ll do that. I’ll give it some thought and work on areport about an automatic interface between our GL software and thepoint of sale systems in our restaurants as well as the phone andInternet sales. How soon do you want to meet again to look at theseissues?

ELAINE: Let’s say, in two weeks at the same time.

Continuing Case: Robatelli’s Pizzeria 33

As Jim and Peter left her office, Elaine continued to thinkabout the features of the company’s accounting information systemsand whether or not data extracted from these systems couldfacilitate the multiple needs of the company. The focus had alwaysbeen on providing accurate financial accounting information fromthe various locations; however, the company’s aggressive growthstrategies meant increased emphasis on the system’s ability toanalyze detailed customer information that could be translated intoincreased sales opportunities.

ability to maintain its competitive advantage. She realized thather department must continually improve the company’s informationsystems to help it achieve growth strategies. Operatingstate-of-the-art systems was imperative to position the company toexecute those growth plans. However, she was concerned about thepossibility that restrictions of the current information systemscould actu- ally prevent the company from doing what it wanted todo. Allowing restrictive systems to prevent them from achievingbusiness strategies was a risk that Elaine would not tolerate!

BACKGROUND

Robatelli’s Pizzeria is a great American success story. Startedby Dino Robatelli in the 1960s, the business impetus was a familypizza recipe. Introduced to the public at a church festival inPittsburgh’s Little Italy, Robatelli’s pizzas are now a recognizedtradition in the Greater Pittsburgh area. A full menu and localexpansion have led to its growing popularity over the years andhave helped it achieve nearly 50 percent of the area market share.Annual sales now exceed $100 million. Following is a timeline ofmilestones in the company’s history:

1962 Dino and Gloria Robatelli contributed$500 and the family pizza recipe to a partnership that opened thefirst Robatelli’s Pizzeria.

1965 The Robatellis bought out their businesspartners.

1967 The first Robatelli’s franchiseopened.

1971–77 Dozens of new Robatelli’s franchises opened throughoutthe surrounding region.

1983 Home delivery service began.1992 A central, one-number calling system for allrestaurants was launched.2003 Internet ordering began. The first “prototype pizzeria” opened.Today Atotal of 53 locations are in operation.

The company has been known for its ability to get ahead ofnational trends. For instance, in the early 1980s, Robatelli’sbegan offering delivery service; however, while the competitorswere merely delivering pizzas, Robatelli’s delivered manyadditional items from its extensive menu. The company was also onthe cutting edge when it launched its one-number telephone orderingsystem whereby a single telephone number was used to service salesorders for the entire region. Additional conveniences becameavailable about ten years later when Robatelli’s introduced onlineordering. Recently, it has expanded its menu offerings and openedprototype restaurants specially designed with new features (such asa full- service bar and a retail counter) that appeal to variouscustomer groups. Each of these advancements has propelledRobatelli’s growth over the past four decades.

Dino Robatelli’s name is also well known for its tradition ofsupporting neighborhood organizations. Robatelli’s promotesschools, amateur athletics, and other community groups.Interestingly, some local student athletes were a tremendous helpto Robatelli’s in 1971 when the business was in trouble. A fire haddestroyed much of the building containing Robatelli’s originalpizzeria and commissary. The commissary made menu ingredients forall of the Robatelli’s pizzerias, so the entire business was injeopardy when this facility became inop- erable. Area students andcoaches helped with the clean-up and rebuilding efforts that madeit possible for the facility to be reopened in a fraction of theanticipated time. Dino Robatelli thanked them by establishing ahall of fame that has become a fixture of Greater Pittsburgh highschool athletics.

Robatelli’s reputation for great Italian food and innovations inboth customer service and community service have contributed to thecompany’s ability to grow into the most popular pizzeria in theGreater Pittsburgh region. Robatelli’s sales include an average of110,000 pizzas per week. It has managed to stay ahead of thenational competitors, which is an unusual feat. In fact, manypeople in and around Pittsburgh believe that pizza can only beRobatelli’s!

MULTIPLE SYSTEMS, MULTIPLE FUNCTIONS, MULTIPLE USES OFINFORMATION

There are three ways to place an order at Robatelli’s: in-store,via telephone, or online. The order processing systems areillustrated in Figure 1. Here’s how they work:

In-store orders

In-store orders are taken by restaurant staff serving patronsdining in one of Robatelli’s restaurants or walking in to place anorder. Servers manually complete an order ticket at the tablesideand input the information into the company’s point of sales systemthrough computer terminals located in the food preparationstations. Walk-in orders are typically entered directly into thesystem by staff using the computer terminal located at thecounter.

Telephone orders

Approximately two-thirds of the company’s business is processedvia the tele- phone. Robatelli’s phone ordering system is called aone-number system, referring to the convenience of ordering througha single phone number, regardless of the restaurant locationnearest the customer.

Most phone orders are received by an operator, who enters theorder directly into a computer terminal while speaking with thecustomer. Customer phone numbers are used to present the customerwith a choice of the nearest pizzeria for preparation and carry-outor delivery. The software in the system references a streetdatabase to verify that the street address exists. Credit cardnumbers are obtained from customers paying by credit card. Thecustomer service rep- resentative verifies the order and creditcard number before ending the call.

Upon confirmation of an order, the order is sent directly to therestaurant, where it is processed through the company’s transactionprocessing system and printed at the appropriate food preparationstation(s). Credit card numbers are included in the transmission,and all credit card transactions are processed at the restaurantsat the time the order is received.

There are several advantages of handling phone orders through acustomer order center rather than at individual restaurantlocations. Above all, the reduc- tion in background noise improvesthe accuracy of the order-taking process. In addition, thecustomer’s wait time is greatly reduced. Before Robatelli’simplemented its one-number system, customers’ wait time at peakcould be up to 15 minutes. The order center’s average wait timegoal is now one minute or less.

Internet orders

To place an online order, a customer must be registered.Registration is a sim- ple process that can occur anytime duringbusiness hours. Customers are asked to provide identifyinginformation that will be retained in the system. Repeat customerswill not have to go through the registration process again.

Web-based ordering is tied to the company’s one-number system.When a customer enters an order online, customer information ispulled from the one- number system. Identifying data such as phonenumber and address do not have to be entered. Menu offerings arepresented on the screen in various drop-down boxes so that anycombination of items can be ordered with many different choices oftoppings or accompaniments. A customer must answer a series ofquestions regarding the order, similar to the questions that wouldbe asked if the customer had been speaking with a telephoneoperator.

Online orders also require confirmation of the menu items andrestaurant location before the call is ended. Credit cardinformation may be entered online, and the transaction will beprocessed at the restaurant filling the order (as is done fortelephone orders). Two firewalls protect the security of customerinfor- mation submitted online.

Customer Service

Up to 135 customer service representatives may be on hand at thecustomer order center to process orders coming in to the businessat peak times. In addition, Robatelli’s employs approximately tenhome-based agents to handle incoming orders. Home-based agents mayperform any of the customer service functions from a computerterminal located within their homes.

All operators are required to undergo a one-week trainingprogram before they begin serving customers. After the trainingprogram, operators are subject to one week of supervised on-the-jobtraining, followed by ongoing perform- ance evaluations.Supervisors at the customer order center perform order scanning,whereby orders are randomly reviewed for reasonableness. Orderscanning is performed more frequently for orders taken by newoperators. Supervisors also follow up on errors and customercomplaints, and may listen in on calls to review the operator’sperformance.

If customers are in need of customer service, they may call ore-mail the com- pany. Supervisors handle these types of calls ande-mail messages, and will respond either via telephone or replye-mail. Restaurant managers can also print customer complaints attheir respective locations.

Accounting functions

Robatelli’s ordering systems and transaction processing systemsare the source of all sales information sent to the accountingdepartment. Restaurant managers prepare daily sales summaries andsubmit them to the company’s administra- tive offices on thefollowing day. These summaries are transmitted electronically viathe intranet and are received in the accounting department.Accounting staff prepare general ledger entries based upon thesesales summaries and key the information into the company’saccounting software. The transaction processing system providessales by restaurant for call-in and Internet orders, which arereconciled to the restaurant summaries on a daily basis. Once theaccounting system is updated and the daily reconciliations areperformed, the data are stored in an on-site server.

Although a lot of accounting information comes from manydifferent loca- tions, the capacity of the system is nearly 25times its current load.

Information Technology

The information technology staff at Robatelli’s is continuouslyengaged in sys- tem maintenance activities. Because the businesschanges so frequently, systems maintenance is an ongoing process.Every time a new coupon is offered, a price is changed, or a newmenu item becomes available, the related information must beintegrated into the transaction processing system.

Each menu addition has its own level of complexity, and many ofthe items include options to customize to individual tastes in aplethora of combinations. This poses a challenge in ordering;however, the menu presentation continues to be improved toeliminate chances of an incomplete or incorrect order. The optionsare available online and to customer service representatives viadrop- down boxes on their computer screens. Most screens require anentry, even if it is “none,” in order to ensure that no part of theorder is forgotten.

Notice that only a couple of years prior to the case time frame,the management of Robatelli’s had begun an Internet order system.As management of Robatelli’s considered the advantages of theInternet order system, it should also have considered the inherentrisks of conducting business via the Internet.

Required:

1. Describe the new risks of Internet orders that Robatelli’smanagement should have considered. The risks you describe should bespecific to the Internet order system.