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MANAGEMENT INFORMATION SYSTEMS ENHANCING DECISION MAKING LECTURE NOTES 8. DECISION MAKING AND INFORMATION SYSTEMS. Decision making in businesses used to be limited to management. Today, lower level employees are responsible for some of these decisions, as
MANAGEMENT INFORMATION SYSTEMSENHANCING DECISION MAKINGLECTURE NOTES 8DECISION MAKING AND INFORMATION SYSTEMSDecision making in businesses used to be limited to management.Today, lower level employees are responsible for some of these decisions, asInformation Systems make information available to lower level of business. TYPES OF DECISIONS
  • Structured Decisions
  • Semi -structured Decisions
  • Unstructured Decisions
  • DECISION MAKING AND INFORMATION SYSTEMSSTRUCTURED DECISIONSAre repetetive and routıne decısıons and have a definite procedure for handling them.Structured Decisions do not have to be treated as if they are new .UNSTRUCTURED DECISIONSNonroutine decisions in which the decision maker must provide judgment. Evaluation, and insights into the problem definition; There is no agreedupon procedures for making such decisions.SEMISTRUCTURED DECISIONSDecisions in which only part of the problem has a clear cut answer providedby an accepted procedure.In general Structured Decisions are more prevalent at Lower Organizational Levels,whereas unstructured problems are more common to Higher Levels of organization.DECISION MAKING AND INFORMATION SYSTEMSINFORMATION REQUIREMENTS OF KEY DECISION MAKING GROUPS\Senior Managers, Middle Managers, Operational Managers and Employees have different types of Decisions and Information requirements. DECISION MAKING AND INFORMATION SYSTEMSSENIOR MANAGEMENT DECISIONS
  • Senior Executives face many unstructured decision situations, such as establishing the company’s five or ten years Goals or deciding new markets to enter.
  • Senior Management decision will require information from various informal and external sources; Such as news, government reports, and industry views as well as high level summaries of firm’s performance and also manager’s own best judgment and poll other managers for their opinions.
  • Middle Management faces more Structural decısıon scenarıos but theır decısıons may ınclude Unstructural componentsç A typıcal Mıddle level Management decııson mıght be:
  • Why ıs the reported order fulfılment report showıng a declıne over the past sıx months at a dıstrıbutıon center?
  • Middle Manager need reports from the Enterprise System or Distribution Management System on Order activity and Operational efficiency at the Distribution center to make the structured part of the decision.
  • The middle manager will have to interview employees and gather more unstructured information from external sources about local economics conditions or sales trends before arriving at an answer.
  • Operational Management and Rank- and- File Employees tend to make more Structural decisions.
  • e.g. A Supervisor on an assembly line has to decide whether an hourly paid worker is entitled to overtime pay. If the employee worked more than 8 hours on a particular day. The Supervisor would routinely grant overtime pay for any time beyond 8 hours that was clocked on that day.DECISION MAKING AND INFORMATION SYSTEMSOPERATIONAL MANAGEMENT DECISIONS
  • A Sales Account Representative often has to make decisions about extending credit limit to customers by consulting the Customer Database that contains credit information. If a customer met the prespecified criteria for granting credit Sales Account Representative will grand the customer credit to make a purchase.
  • The decisions in both examples are highly structured and are routinely made thousands of times each day.
  • The answer to the first example has been preprogrammed into the firms Payroll System
  • The answer to the second example has been preprogrammed into the firms Accounts Receivable System.
  • DECISION MAKING AND INFORMATION SYSTEMSMANAGERS ABD THE DECISION MAKING IN THE REAL LIFEManagers play key roles in organizations. Their responsibilities range from making decisions, to writing reports., to attending meetings, toarranging say parties.
  • For a better understanding of Managerial functions and roles you are advised to examine the Classical and Contemporary Models of Managerial Behavior.
  • Managerial RolesManagerial Roles are expectations of the activities that managers should perform in an organization. According to Mitzberg the Managerial Roles fell into three categories:Interpersonal Roles, Informational Roles , and Decisional Roles.DECISION MAKING AND INFORMATION SYSTEMSMANAGERIAL ROLESINTERPERSONAL ROLEManagers act as leaders, attempting to motivate , counsel, and support subordinates. Managers act as liaisons among the members of the management team. Managers provide time and favors, which they expectto be returned.INFORMATIONAL ROLESManagers act as the nerve centers of their organization, receiving the most concrete, up to date information and redistributing it to those who need tobe aware of it. Managers are disseminators and spokespersons for theirorganizations.DECISION MAKING AND INFORMATION SYSTEMSDECISIONAL ROLEManagers act as entrepreneurs by initiating new kinds of activities they handle disturbances arising in the organization;
  • Allocate resources to staff members who need them
  • Negotiate conflicts and mediate between conflicting groups
  • According to Mitzberg‘s Role Classıfıcatıons Information Systems are not helpful for all Managerial Roles. Also investments in Information Systems in those Managerial Roles that can improve decisions do not always produce positive results for the following three main reasons:
  • Information Quality
  • Management Filters
  • Organizational Inertia and Politics
  • DECISION MAKING AND INFORMATION SYSTEMS1. INFORMATION QUALITYHigh Quality decisions require high Quality Information.The Information Quality Dimensions
  • Accuracy
  • Integrity
  • Consistency
  • Completeness
  • Validity
  • Timelines
  • Accessibility
  • If the Output of the Systems does not meet these Quality criteria, Decision making will suffer. DECISION MAKING AND INFORMATION SYSTEMS2. MANAGEMENT FILTERSEven with timely, accurate information, some managers make bad decisions.
  • Managers absorb information through a series of Filters to make sense of the world around them.
  • Managers have selective attention, focus on certain kinds of problems and solutions, and have a variety of biases that reject information that does not conform to their prior conceptions.
  • e.g. CISCO Systems Corporations, one of the most advanced users of Online Decision Support Systems, was forced to write off 3.4 billions USD in excess inventory in 2001 because management had not interpreter the information from systems correctly.DECISION MAKING AND INFORMATION SYSTEMS3. ORGANIZATIONAL INTERIA AND POLITICS
  • Organizations are bureaucracies with limited capabilities and competencies for acting decisively.
  • When environments change and businesses need to adopt new business models to survive, strong forces within organizations resist making decisions calling for major change.
  • Decision taken by a firm often represent a balancing of the firms various interest groups rather than the best solution to the problem.
  • Studies in Business Restructuring find tat firms tend to ignore poor performance until threatened by outside takeovers , and they systematically blame poor performance on external forces beyond their controls such as economic conditions, foreign competition, and rising prices, rather than blaming Senior or Middle Management for poor business judgment.
  • DECISION MAKING AND INFORMATION SYSTEMSSYSTEMS FOR DECISION SUPPORTThere are four kinds of Systems for supporting the different levels and types of decisions.
  • Management Information Systems (MIS)
  • Decision Support Systems (DSS)
  • Executive Support Systems (ESS)
  • Group Decision Support Systems (GDSS)
  • Provide routine reports and summaries of transaction level data to the Middle and Operational level managers.
  • MIS provide answers to Structured and Semistructured decision problems.
  • Help managers monitor and control the business by providing information on the firm’s performance.
  • produce fixed, regularly scheduled reports based on data extracted and summarized from the underlying Transaction Processing Systems (TPS).
  • Sometimes MIS produce Exception Reports highlighting only exceptional conditions, such as when the sales quotas for a specific territory fall below an anticipated level or employees have exceeds their spending limits in a dental care plan.
  • Many MIS reports are available online through Intranet on demand.
  • DECISION MAKING AND INFORMATION SYSTEMSSYSTEMS FOR DECISION SUPPORT2. DECISION SUPPORT SYSTEMS (DSS) Provide Analytical Models or Tools for analyzing large quantities of data for Middle managers who face semistructured and unstructured decision situation.
  • The earliest DSS were heavily Model driven, using some type of model to perform WHAT IF and other kinds of analyses. Their analysis capabilities were based on a strong theory or model combined with good user interface that made the system easy to use.
  • Some contemporary DSS are Data drive, using Online Analytical Processing (OLAP), Data Mining and Excel Spreadsheet Pivot table to analyze pools of data.
  • Data driven DSS support decision making by enabling users to extract useful information that was previously buried in large quantities of data.
  • DECISION MAKING AND INFORMATION SYSTEMSComponents Of DSSThe main components of the DSS are: DSS Database. User Interface, DSS Software SystemDECISION MAKING AND INFORMATION SYSTEMSComponents Of DSS
  • DSS DatabaseDSS Database may be a small Database residing on a PC or on a large Data Warehouse.
  • DSS User Interface
  • Permits easy interaction between Users and the DSS Software tools. Many DSS today have Web Interfaces to take advantage of Graphic displays, interactivity, and ease of use.
  • DSS Software
  • DSS Software contains the software toolsthat are used for data analysis such as OLAP tools, Data Mining Tools, or collection of Mathematical and Analytical Models (e.g. Equation), or Verbal Model (such as Description of a procedure for writing an order).DECISION MAKING AND INFORMATION SYSTEMS
  • DSS Software
  • Statistical Modeling helps establish relationships, such as relating Product sales to differences in age, income, or other factors between communities
  • Optimizing Models determine optimal resources allocation to maximize or minimize specified variables, such as costs or time.
  • A classic use of Optimizing Model is to determine the proper mix of products within a given market to maximize the profits.
  • Forecasting Models are used to forecast Sales etc… The User of this model has to supply a range of historical data to project future conditions and the sales that might result from those conditions, The Decision maker can vary the future conditions to determine how new conditions might affect the sales.
  • Sensitive Analysis Models ask WHAT IF questions repeatedly to determine the impact on outcomes of changes in one or more factors.
  • Foreword Sensitive Analysis Software - What If Analysis works foreword form the known or assumed conditions allowing users to very certain values to test results to better predict outcomes if changes occur in those values.(Excel is oftenused for this purpose)E.g. What happens If we raise the product price by 5% OR increase advertising budget 100000 USD.
  • Backward Sensitive Analysis software helps decision makers with Goal Seeking.
  • E.g. If I want to sell 1 million books next year , how much must I reduce the price of the book. NOTE: MS Excel Spreadsheet Software offers many tools that are helpful for managers to solve problems Such tools like WHAT IF Analysis, Pivot Table and Pivot Chart Reporting and Goal Seeking. A SAMPLE SENSETIVE ANALYSISEXCEL PIVOT TABLE WIZARDDECISION MAKING AND INFORMATION SYSTEMSBUSINESS VALUE OF DSS DSS have become very powerful and sophisticated, providing fine grainedinformation to decisions that enable the firm to coordinate both internal and external business purposes preciously.
  • Some DSS Systems are helping companies with decisions in Customer Relationship Management or Supply Chain Management.
  • Some DSS Systems take advantage of Company wide data provided by Enterprise Systems.
  • DSS today can also harness the interactive capabilities of the Web to provide Decision Support tools to both employees and customers.
  • DECISION MAKING AND INFORMATION SYSTEMSDSS VARIATIONSWith the advent of data visualization technologies and the growth of ElectronicCommerce encouraged many companies to develop special categories of Decision Support Systems such as Data Visualization GIS, and Web based Customer DSS SystemsDATA VISUALIZATION GEOGRAPHIC INFORMATION SYSTEMS (GIS) Geographic Information Systems (GIS) use data visualization technology to analyze and display data for planning and decision making in the form of digitalize maps. The Software assembles, stores, manipulates and displays geographically referenced information, trying data to points, lines, and areas of on a map.DECISION MAKING AND INFORMATION SYSTEMSDATA VISUALIZATION GEOGRAPHIC INFORMATION SYSTEMS GIS have modeling capabilities enabling managers to change data and automatically revise business scenarios to find better solutions. GIS support decisions that require knowledge about the geographic distribution of people or other resources. e.g. GIS might be used to help state and local governments calculate emergency response times to natural disaster. To help retail chains identify profitable new store locations, or to help banks identify the best locations for installing new branches or ATM terminals. New York Police developed a System called CompStat for controlling crime. CompStat use GIS Software to capture data about crime incidents and enforcement activities at each of the citys precincts. GIS display data about where crimes are occurring and is credited with reducing crime rates in new York and other cities.DECISION MAKING AND INFORMATION SYSTEMSWEB-BASED CUSTOMER DECISION-SUPPORT SYSTEMS (CDSS) The growth of e-Commerce has encourage many companıes to develop DSS for customers that use Web Informatıon resources and capabılıtıes for ınteractıvıty and personalization to help users select products and services. People can use more information from multiple sources to make purchasing decisions before they interact with the product or sales staff. e.g. Many automobile companies use Web-based Customer Decision Support Systems (CDSS) that allow Web site visitors to configure their desired car. People interested in purchasing a product or service can use Internet search engines, Intelligent Agents, Online catalog, Web directories, News group discussions, email and other tools to help them locate the information they need to help with their decision.DECISION MAKING AND INFORMATION SYSTEMSWEB-BASED CUSTOMER DECISION-SUPPORT SYSTEMS (CDSS)Companies have developed specific Customer Web Site where all the information. models or other analytical tools for evaluating alternatives are concentrated in one location. Web –based DSS have become especially popular in Financial Services because so many people are trying to manage their own assists and retirement savings.e.g. RiskMetriks Group runs a web site ( that lets users input all their stock, bonds and mutual fund holdings to determine how much their portfolios might decline under various conditions. Users can see how the addition or subscription of a holding might affect overall portfolio volatility and risk DECISION MAKING AND INFORMATION SYSTEMSSYSTEMS FOR DECISION SUPPORT
  • ESS help managers with unstructured and semi structured problems by focusing on the information needs of Senior management. ESS combine data from internal and external sources and help senior executives monitor organizational performance, track activities of competitors, spot problems, identify opportunities, and forecast trends. Use of ESS has migrated down several organizational levels so that the executive and subordinates are able to look at the same data in the same way. ESS try to avoid the problem of data overload because the data can be filtered or viewed in graphic format.DECISION MAKING AND INFORMATION SYSTEMS
  • ESS have the ability to Drill Down, moving from a pieces of a summary data to lower and lower levels of detail. OLAP tools for analyzing large Database have Drill Down capability. A major challenge of ESS has been to integrate data from several systems designed for very different purposes so senior executive can review organizational performances. From a firm wide prespective. Today Enterprise Systems are able to provide managers with timely, comprehensive and accurate firm wide information. ESS based on such data can be considered logical extension s of Enterprise Systems functionality. Executives also need a wide range of external data, from current Stock Market news to Competitor firms information, Industry trends and even projected legislative action.DECISION MAKING AND INFORMATION SYSTEMS
  • Through the ESS many managers have access to news services, financial market databases, Economic information, and whatever other public data they may require. Contemporary ESS include tools for modeling and analysis. Most managers with a minimum experience can use these tools to create graphic comparisons of data by time, region, product, price range etc, ESS however, needs to have some facility for environmental scanning. A key information requirements of managers at the strategic level is the ability to detect signals of problems in the organizational environment that indicate strategic threats and opportunities ESS need to be designed so that both external and internal sources of information can be used for Environmental Scanning purpose.DECISION MAKING AND INFORMATION SYSTEMSBUSINESS VALUE OF EXECUTIVE SUPPORT SYSTEMS (ESS) Much of the value of ESS is found in their flexibility and their Ability to analyze , capture and highlight trends. The easy use of graphics enable the user to lock at more data in less time with greater clarity and insight than paper based Systems provide. Executives are using ESS to monitor key performance indicators for the entire firm and to measure firm performance against changes in the external environment. The timelines and availability of the data result in needed actions being identified and carried out earlier than previously could have been done. Problems can be handled before they become too damaging; opportunities can also be identified earlier. ESS can thus help business move toward a ‘Sense-and-Respond’ strategy DECISION MAKING AND INFORMATION SYSTEMSBUSINESS VALUE OF EXECUTIVE SUPPORT SYSTEMS (ESS) A well desıgned ESS could dramatıcally ımprove management performance and ıncreas upper management’s span of control. Immediate access so much data increases executives ability to monitor activities of lower units reporting to them. That very ability could enable decision making to be decentralized and to take place at lower operating levels. Executives are often willing to push decision making further down into the organization as long as they can be assured that all is going well. Alternatively, ESS based on Enterprise wide data could potentially increase Management centralization enabling senior executives to monitor the performance of subordinat
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