How to Calculate and Find Variance in Excel
Excel is one of the most popular tools used for data analysis in various industries, including finance, accounting, and research. In Excel, one of the essential statistical analyses used is Variance. Variance is defined as the measure of the variation or dispersion of data points from their mean value. In simple terms, it tells how spread out the data is from the mean.
Variance in Excel is easy to calculate and is useful in analyzing data with a finite set of values. Here is how to calculate and find variance in Excel:
Step 1: Select the range of data you want to calculate variance for. Ensure that your data is in a single column or row.
Step 2: Calculate the mean value of the data set using the AVERAGE function. To calculate the mean value, type “=AVERAGE( )” in a blank cell and select or type the range of data you want to calculate the mean for inside the parentheses. Press Enter when done.
Step 3: Calculate the Deviations or Variations of each data point from the Mean. To do this, subtract the mean value from each data point. For example, if the mean value is 10, and the data points are 5,6,7,8, and 12, you calculate the deviations or variations by subtracting 10 from each of the values. (5-10), (6-10), (7-10), (8-10), and (12-10).
Step 4: Square each deviation to eliminate any negative signs from the data set. Use the POWER function to square each deviation. Type “=POWER( )” in an empty cell and select or enter the deviation value you want to square inside the parentheses. Press “Ctrl” and “Shift” simultaneously, followed by the “Enter” button to apply the function to all the other deviations.
Step 5: Average the squared deviations by dividing their sum by the total number of data points. To do this, use the SUM function and the COUNT function. Type “=SUM( )” in an empty cell, select or enter the squared deviations you calculated in step 4, and press Enter. Type “/COUNT( )” inside the parentheses and select the data set’s range to divide by the number of data points. Press Enter. The result is the variance of the data set.
You can also use the built-in VAR function in Excel to calculate variance. Typing “=VAR( )” in an empty cell and selecting or entering the data set’s range will give you the same result. However, note that Excel uses a slightly different formula for calculating variance. It divides the sum of squared deviations by N-1 instead of N.
In conclusion, variance is an essential statistical method in analyzing data sets. Excel has made it easy to calculate and find variance by providing both built-in functions and a straightforward manual method. By following the simple steps outlined above, you can effectively calculate variance and use it to analyze and interpret your data for insights and decision making.