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Enhancing Decision Making

Nirav Halvadia CMS-Ganpat University

Management Information System

Learning Objectives
Describe different types of decisions and the decision-making process. Focuses on the specialized systems that firms use to achieve better decision making: Management Information Systems (MIS), Decision-support Systems (DSS), Group Decision-support Systems (GDSS), and Executive Support Systems (ESS).

Assess how information systems support the activities of managers and management decision making.

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Systems and Technologies for Business Intelligence

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Business Value of Improved Decision Making


Improving hundreds of thousands of small decisions adds up to large annual value for the business

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Types of Decisions
Unstructured: Non-routine decisions in which the decision maker must provide judgment, evaluation, and insights; there is no agreed-upon procedure for making the decision (e.g., decide on corporate objectives). Structured: Are repetitive, routine, and involve a definite procedure for handling (e.g., restock inventory) Semistructured: Only part of problem has clear-cut answer provided by accepted procedure (e.g., develop a marketing plan)

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Types of decisions being made at the different levels within an organization


Senior managers: Make many unstructured decisions E.g., Should we enter a new market? Middle managers: Make more structured decisions but these may include unstructured components E.g., Why is order fulfillment report showing decline in Minneapolis? Operational managers, rank and file employees Make more structured decisions E.g., Does customer meet criteria for credit?

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Information Requirements of Key DecisionMaking Groups in a Firm

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Organizational Level and Systems for Decision Support

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The Decision-Making Process (Simons four stages)


Simon (1960) describes four different stages in decision making:

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Decision Making and Information Systems


Information systems can only assist in some of the roles played by managers Classical model of management Five functions of managers Planning, organizing, coordinating, deciding, and controlling More contemporary behavioral models Actual behavior of managers appears to be less systematic, more informal, less reflective, more reactive, and less well organized than in classical model Mintzbergs behavioral model of managers defines 10 managerial roles falling into 3 categories

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Mintzbergs 10 Managerial Roles


Category Interpersonal roles: Role Figurehead Leader Liaison Nerve center Disseminator Spokesperson Entrepreneur Disturbance handler Resource allocator Negotiator Support System None None E-mail MIS, ESS Mail, office systems Office systems None None DSS None

Informational roles:

Decisional roles:

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Information Quality Dimensions


Accuracy: Do the data represent reality? Integrity: Are the structure of data and relationships among the entities and attributes consistent? Consistency: Are data elements consistently defined? Completeness: Are all the necessary data present? Validity: Do data values fall within defined ranges? Timeliness: Are data available when needed?

Accessibility: Are the data accessible, comprehensible, and usable?

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Decision Making and Information Systems


Three main reasons why investments in information technology do not always produce positive results 1. Information quality One or more dimensions of information quality are poor (e.g., accuracy, completeness, timeliness, etc.) Management filters Only see the good news and ignore the bad Organizational culture & politics Strong forces within organizations resist making decisions calling for major change

2.

3.

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Systems for Decision Support


Four kinds of systems for decision support 1. Management information systems (MIS)

2.
3. 4.

Decision support systems (DSS)


Executive support systems (ESS) Group decision support systems (GDSS)

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Management information systems (MIS)


Help managers monitor and control business by providing information on firms performance and address structured problems Typically produce fixed, regularly scheduled reports based on data from TPS E.g., Taco Bells TACO system that provides information on food, labor, and period-to-date costs for each restaurant. How MIS differ from DSS? MIS primarily address structured problems, DSS support semistructured and unstructured problem analysis. An MIS provides managers with reports based on routine flows of data and assists in the general control of the business, whereas a DSS emphasizes change, flexibility, and a rapid response.

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Decision-support Systems
Decision support systems (DSS) are computer-based systems that provide managers and business professionals interactive information support for semistructured and unstructured decisions. Model-driven DSS: Use some type of model to perform what-if and other kinds of analyses. Earliest DSS were heavily model-driven Data-driven DSS: Support decision making by enabling users to extract useful information that was previously buried in large quantities of data. Online analytical processing (OLAP) and data mining can then be used to analyze the data. Some contemporary DSS are data-driven

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Components of DSS
Database: Used for query and analysis Current or historical data from number of applications or groups May be small database or large data warehouse User interface: Permits easy interaction between users of the system and the DSS software tools. Often a Web interface Software system: With models, data mining, other Management Information System analytical tools
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Important Decision Support Systems Analytical Models


Model: It is an abstract representation that illustrates the components or relationships of a phenomenon. May be a physical, mathematical, verbal. Statistical models: To helps establish relationships, such as relating product sales to differences in age, income or other factors. Model libraries contain the full range of expected statistical functions, including means, medians, deviations, and scatter plots. The software has the ability to project future outcomes by analysing a series of data. What-If Analysis: An end user makes changes to variables, or relationships among variables, and Management Information 18 observes the resulting change in the value ofSystem other variables.

Important Decision Support Systems Analytical Models


Sensitivity analysis models:
A special type of what-if analysis in which the value of only one variable is changed repeatedly, and the resulting changes on other variables are observed. What happens if we raise the price by 5 percent or increase the advertising budget by $100,000? What happens if we keep the price and advertising budget the same? Desktop spreadsheet software, such as Microsoft Excel or Lotus 1-2-3, is often used for this purpose.

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Example-Sensitivity Analysis

This table displays the results of a sensitivity analysis of the effect of changing the sales price of a necktie and the cost per unit on the products break-even point. It answers the question, What happens to the break-even point if the sales price and the cost to make each unit increase or decrease?
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Important Decision Support Systems Analytical Models


Goal-Seeking Analysis:
Instead of observing how changes in a variable affect other variables, goal-seeking analysis sets a target value for a variable, and then repeatedly changes other variables until the target value is achieved. Backward sensitivity analysis software is used for goal seeking: If I want to sell 1 million product units next year, how much must I reduce the price of the product?

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Important Decision Support Systems Analytical Models


Optimization models: A more complex goal-seeking model. Instead of setting a specific target value for a variable, the goal is to find the optimum value for one or more target variables, given certain constraints. Often using linear programming, determine optimal resource allocation to maximize or minimize specific variables such as cost and time. A classic use of optimization models is to determine the proper mix of products within a given market to maximize profits.

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Forecasting models:

Important Decision Support Systems Analytical Models

Used to forecast future conditions, such as sales, given a range of historical data.

The decision maker could vary those future conditions (entering, for example, a rise in raw materials costs or the entry of a new, low-priced competitor in the market) to determine how new conditions might affect sales.
Companies often use this software to predict the actions of competitors. Model libraries exist for specific functions, such as financial and risk analysis models.

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Using Spreadsheet Pivot Tables To Support Decision Making


Even without complex, advanced enterprise software, small businesses can use spreadsheet software and data analysis tools to create information meaningful to the firm. Pivot table: Categorizes and summarizes data very quickly Displays two or more dimensions of data in a convenient format Where do most customers come from? Where are average purchases higher? What time of day do people buy? What kinds of ads work best?

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Example
Sample List of Transactions for Online Management Training This list shows a portion of the order transactions for Online Management Training Inc. (OMT Inc.) on October 28, 2008.

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A Pivot Table that Determines Regional Distribution of Customers

This graphic shows the same Microsoft Excel spreadsheet with a PivotTable with one dimension it shows where customers come from in terms of region.

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A Pivot Table that Examines Customer Regional Distribution and Advertising Source
This graphic shows the same Microsoft Excel spreadsheet with a PivotTable with two dimensions it shows where customers come from in terms of region and advertising source. It appears nearly 30 percent of the customers respond to e-mail campaigns, and there are some regional variations
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Data Visualization And Geographic Information Systems


Data visualization tools: Presenting data in graphical form (graphics, charts, tables, maps, digital images, three-dimensional presentations, animations) Help users see patterns and relationships in large amounts of data that would be difficult to discern if the data were presented as traditional lists of text. Geographic information systems (GIS): Category of DSS that use data visualization technology to analyze and display data in form of digitized maps Used for decisions that require knowledge about geographic distribution of people or other resources, e.g.: Helping local governments calculate emergency response times to natural disasters
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South Carolina used a GIS-based program called HAZUS to estimate and map the regional damage and losses resulting from an earthquake of a given location and intensity. HAZUS estimates the degree and geographic extent of earthquake damage across the state based on inputs of building use, type, and construction materials.
Management Information System The GIS helps the state plan for natural hazards mitigation and response. 29

Group decision support systems (GDSS)


Support group and organizational decision making. It is an interactive computer-based system used to facilitate the solution of unstructured problems by a set of decision makers. Groupware and Web-based tools for videoconferencing and electronic meetings support some group decision processes, but their focus is primarily on communication. GDSS make meetings more productive by providing tools to Facilitate planning, generating, organizing, and evaluating ideas; Establishing priorities; and Documenting meeting proceedings for others in the firm.

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Components of GDSS
GDSS consist of three basic elements: hardware, software tools, and people. Hardware:

Including the room, the tables, and the chairs. electronic hardware, such as electronic display boards, as well as audiovisual, computer, and networking equipment.
Software: Electronic questionnaires, Electronic brainstorming tools, Idea organizers, Tools for voting or setting priorities, Policy formation tools, Group dictionaries etc.. People: Refers not only to the participants but also to a trained facilitator and often to a staff that supports the hardware and software.
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Overview of a GDSS Meeting


Each attendee has a workstation. The workstations are networked and are connected to the facilitators console.

All data that the attendees forward from their workstations to the group are collected and saved on the file server.
The facilitator is able to project computer images onto the projection screen at the front of the room. Attendees have full control of their own desktop computers. An attendee is able to view the agenda, look at the integrated screen (or screens, as the session progresses), use ordinary desktop PC tools (such as a word processor or a spreadsheet), work on the screen associated with the current meeting step and tool (such as a brainstorming screen).

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Group system tools

The sequence of activities and collaborative support tools used in an electronic meeting system facilitate communication among attendees and generate a full record of the meeting.

Sources: From Nunamaker et al., Electronic Meeting Systems to Support Group Work, Communications of the ACM, July 1991. Reprinted by permission. Management Information System 33

Executive Support Systems (ESS)


Help managers with unstructured and semi structured problems by focusing on the information needs of senior management.
Address non-routine decisions requiring judgment, evaluation, and insight

ESS are designed to give managers an overview of their company.


Incorporate data about external events (e.g. new tax laws or competitors) and summarized information from internal MIS and DSS & create a generalized view. Drill-down capability: Ability to move from summary information to finer levels of detail ESS help senior executives monitor organizational performance, track activities of competitors, spot problems, identify opportunities, and forecast trends. Example: 5-year operating plan
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Model of an Executive Support System

The digital dashboard is a common feature of modern-day ESS.

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Balanced scorecard
Balanced scorecard: It is framework for operationalizing a firms strategic plan by focusing on measurable outcomes on four dimensions of firm performance.
Key performance indicators (KPIs) measure each dimension proposed by senior management An example of a KPI for an online retail firm is the average length of time to deliver a package to a consumer.

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