Knowledge Management - Business Intelligence

Designing a Decision Support System that implements a New

Decision Theory on Labour Economics

1. Introduction

Knowledge is the codification of information gained from experience or

learning. Knowledge is distinct from simple information. Knowledge is
information that has a purpose or use. The management of knowledge
within organisations is broadly called Knowledge Management (KM).
First generation KM is an issue of information storage and retrieval, while
second generation KM gives priority to the way in which people construct
and use knowledge1. The process of turning data into information and
then into knowledge, is called Business Intelligence (BI)2.

Figure 1

Within corporate environments knowledge may contribute to optimise

business performance. The set of processes (i.e. planning, forecasting)

1
Hierarchical models of organisational structure were replaced by more organic
models, which see effective organisations as capable of structural change in
response to their environment.

2
The term was first used by Gartner and popularised by analyst Howard Dresner.

1
that help organisations optimise business performance is called Business
performance management (BPM), for instance BPM3 can help a firm
discover efficient use of its human capital.

Human capital is peoples' skills and abilities as used in employment and

otherwise contributes to business performance. It has qualitative and
quantitative aspects. The most well-known application of the idea of
human capital is that of the Chicago school4. In this view, a firm's income
depends partly on the rate of return (i.e. education) on the human capital
it owns. Modern labour economics has criticised the simple Chicago-school
theory basically because the concept of human capital includes un-
measurable variables such as personal character or connections with
insiders etc - Qualitative aspects. Economists see the labour market as
similar to any other market in that the forces of supply and demand
jointly determine price (in this case the wage rate) and quantity (in this
case the number of people employed) Quantitative aspects.

Figure 2

3
In our times BPM is a software oriented business intelligence system as it
involves data collection from various sources, querying, and data analysis, and
putting the results into practice.

4
Jacob Mincer and Gary Becker.

2
Perhaps the most important difference between the labour market and
other markets is the function of supply and demand in setting price and
quantity5.

The inputs or resources used in the production process are called factors
by economists. Among these factors is human capital. In the long run
factors of production can be adjusted by management. The short run
however, is defined as a period in which at least one of the factors of
production is fixed6 (i.e. major pieces of equipment, key managerial
personnel).

Figure 3

Human capital is a factor that in the short run can be adjusted in order to
achieve better production results, by examining the rate of production
thru time.

5
In markets for goods, if the price is high there is a tendency in the long run for
more goods to be produced until the demand is satisfied. With labour, overall
supply cannot effectively be manufactured because people have a limited amount
of time in the day, and people are not manufactured. A rise in overall wages will,
in many situations, not result in more supply of labour: it may result in less
supply of labour as workers take more time off to spend their increased wages, or
it may result in no change in supply.
6
A fixed factor of production is one whos quantity cannot readily be changed.

3
It can be stated that the rate of production R p is a function depending on
the labour forces skills, abilities, culture, age, etc.

Rp = (gn (Skills, Abilities, Age, Sex, Education, Culture, Investment )

It is important for an organisation to know per all moment in which

situation is found the line of production or the operation of a department
and how much in the direct future is the differentiation of one of the
above mentioned parameters will create problem. On the other hand the
establishment of such model it gives the flexibility to the organisation to
improve the degree of production or the operation of a department by the
modification of one or more of these parameters. Finally this model
provides the possibility of convenient warning in case that one or more of
these parameters will change in the near future and propose corrective
movements.
The implementation of a such DSS will provide an organisation with
decision regarding
1. the state of a product/section
2. the increase of the degree of production
3. warns about the creation of crisis in the production

The creation of such system presupposes the development of a research

with regard to who are the parameters that influence the function and
who is the degree that every one of them influences it. This can be
examined by the selection of a pilot product or service where the
important element is the human capital.
The aim of this study is the establishment of objective indicators for the
measurement of the rate of productivity, the quality of work and the
reciprocity in the investments in human capital. The objectives are: to
give the occasion to the administration of the company to evaluate the
investments in human capital, second to help personnel comprehend the
reciprocity of the relation between investment and productivity and
improve the quality of work with final objective the increase of
productivity.