Mis Unit-2

UNIT 2 1
SARITA GOENKA
SARITA GOENKA 04-10-2019

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SARITA GOENKA 04-10-2019 3
 Decision making is the mental process of choosing from a set of
alternatives based on the values and preferences of the decision
maker.
 Every decision-making process produces an outcome that might be
an action, a recommendation, or an opinion.
 Since doing nothing or remaining neutral is usually among the set of
options one chooses from, selecting that course is also making a
decision.
 Decision-making is a vital part of the business world.
 Major operations in an organisations are dependent on decisions
made by the management and other key stakeholders.

 In order for a decision to be effective, a good information system is
crucial.
 MIS is crucial for decision-making as it facilitates effective and
efficient decision-making.

 Some of the important definitions of decision-making are given
as under.
 Decision-making is the selection based on some criteria from two or
more possible alternatives. “-—George R.Terry
 A decision can be defined as a course of action consciously chosen
from available alternatives for the purpose of desired result —J.L.
Massie
 A decision is an act of choice, wherein an executive forms a
conclusion about what must be done in a given situation. A decision
represents a course of behaviour chosen from a number of possible
alternatives. -—D.E. Mc. Farland
 From these definitions, it is clear that decision-making is concerned
with selecting a course of action from among alternatives to achieve a
predetermined objective.
 Management is defined as “the process of Planning, Organizing,
Leading, Controlling, Communicating the resources of an
organization in the effective and efficient pursuit of specified
organisational goals.”
 It is responsible for survival, success and prosperity of an
organization.
 But in discharging its functions, it faces a lot of problems in today’s
dynamic and fiercely competitive world.
 The management has to utilize the resources – Human, Financial and
Physical – effectively, by efficiently ‘doing the right things’, get the
things ‘done’ and ‘deliver goods/results’.
 This involves managing the work, managing people and managing
the operations.
 Utilisation of resources involves exercising choices and hence the
basic job of the management could be considered to be ‘decision-
making’ in discharging various functions assigned to it.

 A decision is a choice made from available alternatives, and as such
all decisions have some impact/influence on the performance of
organisations.
 It is the quality of decisions which make, develop, survive and help
the organisation prosper, expand and make forays into diversified
fields.
 Managers, therefore, have to develop decision-making skills as
managers are evaluated/rewarded on the basis of the importance,
numbers and results of their decisions.
 The yardstick of managers’ effectiveness and value to the
organisation is determined by the quality of decisions taken.

 Certainty – Relationship between inputs and outputs is known and
hence result is also known
 Uncertainty – Unawareness about resources, input/output relations
and the outcome is uncertain or unpredictable
 Risk – result is unknown, might result in profits, or maybe losses.

 Following Are The Elements Of Decision Making.
 1: Goals - goals means aims, objectives, purposes, outcomes. First
goals should be determined. Goals to be served include personal,
institutional, professional, national etc.
 2: Information – The quality and quantity of information both play an
important role in decision making.
 3: Diagnosis - Problem recognition, felt difficulty or a sense of
trouble
 4: Alternatives - Creating and structuring alternative solutions of the
problem.

 5: State Of Nature - Decisions are made under conditions of
complete certainty, complete uncertainty or some point between
these two boundaries. Techniques and methods used to solve the
problems differ according to where the problem lies or appear to lie.
 6: Methodology - Which method should be used to solve the
problem?
 7: Values - Values of both individuals and organizations are the basic
elements of decision making. Individuals hold values connected with
moral, cultural, religious, social, economic etc. which are influenced
by system and goals of organizations in which the individuals
function.

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 Every manager has to take decisions and, every manager is a model
of decision making himself.
 We will consider the following decision-making models:
 The Classical Model
 The Administrative Model
 The Herbert Simon Model

 Classical decision theory assumes that decision making is (or should
be) a rational process whereby decision makers seek out and choose
the course of action that is most likely to maximize the attainment of
their goals and objectives.
 According to the classical theory, the decision-making process can
be broken down into a series of sequential steps.

 1. Discern a Problem or Opportunity.
 The decision-making process can begin either of two ways.
 First, a decision maker may perceive the existence of a problem i.e.
something that is not going well and that requires action.
 For example, a golf course superintendent may notice that
absenteeism and turnover among the employees have been steadily
increasing to the point that adequate staff are not always available to
complete work assignments on schedule and productivity is
declining.

 A second possible trigger to the decision-making process is the
perception of a unique opportunity that may have presented itself
and that should be taken advantage of.
 For example, a country club manager may discover that a
neighbouring beach club is planning to close, opening up
opportunities for the manager's organization to expand its own
operations in that location.
 It is the perception of problems and opportunities, not their actual
existence, that gets the decision-making process started.
 Problems and opportunities may exist all around us, but if they are
not perceived and noticed, they do not initiate the decision-making
process.

 2. Formulate Goals and Objectives.
 Once a problem or opportunity has been identified, the decision
maker must clearly identify the goals and objectives that a good
decision should achieve.
 For example, if a golf professional is experiencing a lack of
satisfaction and fulfilment with his or her current job, the pro's goals
for the decision-making process might be to identify, obtain, and
accept a new job that is most likely to maximize his or her future
satisfaction, development, and feelings of accomplishment at another
club or resort.
 The golf superintendent concerned about declining productivity and
increased turnover might set goals of identifying and implementing
changes in the work system that are most likely to result in increased
productivity and reduced employee turnover.
 3. Produce Alternatives.
 Once goals and objectives have been set, the decision maker then
generates alternative courses of action that might result in goal
attainment.
 This is the stage in the decision-making process that requires the
greatest component of creativity and imagination.
 Ideally, the decision maker should seek to generate as many
alternatives as possible and should try to ensure that the set of
alternatives is relatively diverse.
 In this way the decision maker increases the likelihood that some
good potential alternatives will not be excluded from further
consideration in the decision-making process.
 For example, the golf superintendent concerned about high rates of
absenteeism and turnover should consider changing the pay and
reward systems, changing the design of work for employees,
changing the leadership styles of supervisors, changing the methods
of work assignments and scheduling, and so on.
Restricting the
consideration of
alternatives to changes in
the pay system, for
example, might result in
many potentially effective
courses of action not
being considered in the
decision-making process.

 4. Collect Information.
 The alternatives that have been gathered
must be systematically evaluated.
 However, before evaluation can proceed,
information must be gathered regarding
each of the alternatives and their likely
consequences.
 More specifically, the decision maker
must seek to learn as much as possible
regarding the likelihood that each
alternative will result in the achievement
of the goals and objectives being sought.

 For example, the golf professional who is dissatisfied with his or her
current job must gather a great deal of information regarding other
jobs that might be available.
 Information is required on what specific opportunities are available
at other clubs, how those clubs treat their employees, what the
person's long-term prospects might be at each club, and so on.

 5. Assess the Alternatives.
 Once all available information has been collected regarding all of the
alternatives under consideration, the decision maker must use that
information to evaluate the alternatives in a systematic fashion.
 This requires the decision maker to employ some technique that
permits all of the information collected regarding each of the
alternatives to be analyzed and compared.
 The outcome of this evaluation process should then be a rank
ordering of the alternatives from best to worst according to their
likelihood of leading to the attainment of the goals and objectives of
the decision maker.

 For example, the golf course superintendent dealing with the problem
of increased absenteeism and turnover must systematically evaluate
all of the consequences anticipated to follow each course of action
under consideration.
 If changes in the pay system were made, what improvements would be
expected in absenteeism and turnover at what increased payroll
costs?
 If changes in job design were implemented, how disruptive would
they be and how much improvement could be expected?

 6. Select the Best Alternative.
 This step should be quite straightforward if the evaluation of
alternatives has been conducted comprehensively and
systematically.
 The decision maker simply chooses the alternative that the
evaluation process has indicated to be most desirable.
 Problems may arise at this stage, however, if the evaluation process
leads to the conclusion that two or more alternatives appear equally
likely to be best.
 For example, a graduating hospitality student may have thought she
always wanted to work for Los Angeles Country Club.
 At the conclusion of the interviewing process she simultaneously
receives offers from Los Angeles Country Club and Sawgrass
Country Club.
 No matter how much information she gathers or how much careful
evaluation of alternatives she does, it may remain almost impossible
to tell which of the two offers would be best for her.

 7. Implement the Decision.
 Although, strictly speaking, the decision-making process has ended
once a decision regarding the best alternative has been reached, it is
also true that the decision-making process is no more than a mental
exercise if the chosen course of action is not implemented.
 Further, issues of implementation are frequently important factors in
the choice of an alternative in the previous stages.
 After a great deal of thought and analysis, the golf course
superintendent concerned about high absenteeism and turnover
may have decided that job redesign was the best solution to the
problem.
 While his decision may be a good one, he still has much work ahead
if that decision is to be effectively implemented.
 8. Evaluate Decision Effectiveness.
 The decision-making cycle should not end until the decision maker
judges the extent to which the chosen alternative has succeeded in
solving the initial problem and achieving the goals identified at the
outset of the process.
 If such evaluation indicates success, then the decision-making cycle
is concluded.
 However, if the chosen alternative has not solved the problem or
achieved stated objectives, then the decision maker must recycle
through the decision-making process to generate a new alternative.
 If, after implementing job enrichment, absenteeism and turnover
decline to acceptable levels, the golf course superintendent can feel
satisfied that a decision has resulted in the problem being effectively
solved.
 If, however,
absenteeism and
turnover remain at
high levels, the
superintendent must
go back to the
alternative-generating
phase and attempt to
arrive at a new course
of action.

 The decision-making process can be divided into three major
phases.
1. The first phase includes framing the problem or opportunity, or
determining exactly what the decision maker faces and the
objectives to be accomplished.
2. The second phase requires the generation of ideas,
alternatives, and information.
3. The final phase requires a systematic analysis reduction of the
information and alternatives down to a single choice of what
will be pursued and implemented.

 Classical theory of decision making assumes that decision making
follows the above series of steps and makes certain strong
assumptions regarding what happens at various stages in the
process.
 Some of the critical assumptions are:
1. Goals and objectives are known and agreed upon.
2. All alternatives are considered.
3. All outcomes are taken into account.
4. Perfect information is freely available.
5. Decision makers are rational

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Bounded rationality: There is a large number of alternatives

and information is vast so that managers cannot consider it
all.
 Decisions are limited by people’s cognitive abilities.
 The boundaries on rational decision making imposed by one’s values, abilities,
and limited capacity for processing information.
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

6-43
Satisfice
 To stop the decision-making process when satisfactory alternatives are found,
rather than to review solutions until an optimal alternative is discovered.
 most managers do not see all alternatives and decide based on incomplete
information.
 It is the selection of a course of action whose consequences are good enough.
G.Dessler, 2003
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

04-10-2019 SARITA GOENKA
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 a. In such a model, the manager has more concern for himself.
 b. On confrontation of a manager with a certain decision making
situation, the manager would collect what ever information or the data
that will be available and then will take a decision, which may not be in
the best interests of the organization but will certainly be good for
fulfilling his personal interests.
 c. Expediency and the opportunism, both act as the hallmarks of the
Administrative Model.
 Bounded rationality forces managers to accept decisions that are only
good enough, rather than ideal.
 Such managerial decisions become rational but within the limits of
managers' ability and availability of information.
 Managers make decisions based on alternatives that are satisfactory.
 The examples of satisficing decisions are fair price, reasonable profit,
adequate market share, proper quality products etc.
 This model is linked with the decision making process.
 Explains the core of the decision making.
 Used as the base for explaining the decision making process.
• According to the Herbert

Simon Model, the process of
the decision making consists of
the following phases –

 A. The Intelligence Phase – In this phase, the various activities for
finding out the problems related to the searching of the operating
environment are involved.
 By this, the identification of the various conditions can be done which
ultimately helps in taking the decisions at the different levels.
 Extensive and the comprehensive database is must for the
intelligence phase, making this phase very suitable for searching or
scanning of the environment.

 In this phase, the type of the environment forms a very major factor
and hence the types of the environment can be categorized as the
follows –
 I. The Societal Environment – Mainly includes the economic, the
legal and the social environment and it is this type of the environment
in which the organization operates.
 II. The Competitive Environment: – Includes the understanding and
the analyzing of the characteristics, the trends and the behavior of or
at the market place and also the various players of the market in
which the organization operates.
 III. The Organizational Environment – Includes the various
capabilities, the strengths, the weaknesses, the constraints and the
various other factors that affect the ability of the organization to
discharge or operate its various types of the activities.
 B. The Design Phase – The inventing, the developing and the
analyzing of the various alternatives or the solutions to the particular
problem forms a major part of this phase.
 The various steps that are to be followed in this phase can be
summarized as the follows –
 1. Support in getting the in depth knowledge of the problem.
 2. A correct model of the situation can be made and the assumptions
of the model need to be tested.
 3. Support for the generation of the solutions can be obtained by –
 I. Manipulation of the model for the development of the insights.
 II. Creation of the database retrieval system.
 4. Support for testing the feasibility of the solutions.

 C. The Choice Phase – The selection of a specific alternative or the
course of the action from the ones which have been generated and
considered during the design phase, takes place during this phase.
 The choice procedure and the implementation of the chosen
alternative form a very major part of the Choice phase.
 The flow of the activities takes place from the intelligence phase to
the design phase and then finally to the choice phase.
 But one very important point that must be remembered here is that at
any phase there may be a return to a previous phase.
 Limitations of the Simon Model
 1. This model does not go further than the choice model.
 2. Does not include the cognizance of the implementation and also of
the feedback aspects.

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 The word ‘information’ is used commonly in our day to day working.
 In MIS, information has a precise meaning and it is different from
data.
 The information has a value in decision making while data does not
have.
 Information brings clarity and creates an intelligent human response
in the mind.
 In MIS a clear distinction is made between data and information.
 Data is like raw materials while the information is equivalent to the
finished goods produced after processing the raw material.

 Characteristics of information are:
Improves representation of an entity
Updates the level of knowledge
Has a surprise value in that it tells something the
receiver did not know or could not predict
Reduces uncertainty
Aids in decision-making as it changes the probabilities
attached to expected outcomes in a decision situation
 The quality of information could be called good or bad
depending on the mix of these characteristics.

 According to Davis & Olson “Information is data that has been
processed into a form that is meaningful to the recipient and is of real
or perceived value in current or prospective actions or decisions.”
 Definition recognizes both value of information in a specific decision
and value of information in motivation, model-building, and
background building affecting future decisions and actions.

 The relation of data to information is that of raw material to finished
product.
 An information processing system processes data into information.
 Information system processes data in unusable form into a usable
form that is information to the intended recipient.
 The analogy of raw material to finished product illustrates the
concept that information for one person may be raw data for
another – just as finished product from one manufacturing division
may be the raw material for another division.
 Because of this relationship between data and information, the two
words are often used interchangeably.

 Information resources (in the sense of stored data of all types)
are reusable.
 When information is retrieved and used, it does not lose value; in
fact, it may gain value through the credibility added by use.
 This characteristic of stored data makes it different from other
resources.
 The value of information is described most meaningfully in the
context of a decision.
 If there were no current or future choices or decisions,
information would be unnecessary.
 Theoretically, then, information has value only as it affects the
decision or action to be taken.

 Data, the raw material for information, is defined as groups of
nonrandom symbols which represent quantities, actions,
objects, etc.
 The terms “data” and “information” are often used
interchangeably, but the distinction lies in the fact that data
items are the raw material processed to provide information.
 Information has value within a specific decision-making
context; it also has value within the context of future decisions
and actions.

 Quality of information refers to its fitness for use or its reliability.
 Some of the attributes of information which influence the quality of
information are as follows:
 1) Accuracy
 Accuracy means that information is free from mistakes and errors, is
clear and accurately reflects the meaning of data on which it is based.
 It conveys an accurate picture to the recipient, who may require a
presentation in graphical form rather than tabular form.

 2) Timeliness
 Timeliness means that information must reach the recipients within the
prescribed time frame.
 Timely information can ensure correct executive action at an early
stage.
 The characteristic of timeliness, to be effective, should also include
current information.
 Decision is to be taken within a time frame and therefore, information
must be available within the desired time frame.
 It is well said ‘Information delayed is information denied’.
 Some types of information are required periodically and should be
made available to the user regularly and timely so as to avoid delay in
decision making.

 3) Relevance
 Information is said to be relevant if it answers specifically for the
recipient what, why, where, who and why?
 In other words, the MIS should serve reports to managers, which are
useful, and the information helps them make decisions.
 4) Adequacy
 Adequacy means information must be sufficient in quantity.
 MIS must provide reports containing information, which is required in
deciding processes of decision-making.

 5) Completeness
 The information, which is provided to a manager, must be complete
and should meet all his needs.
 Incomplete information may result in wrong decisions and thus may
prove costly to the organization.
 6) Explicitness
 A report is said to be of good quality if it does not require further
analysis by the recipient for decision-making.
 Thus the reports should be such that a manager does not waste any
time on the processing of the report, rather he should be able to
extract the required information directly.

 7) Exception based.
 Top managers need only exception reports regarding the
performance of the organization.
 Exception reporting principle states that only those items of
information, which will be of particular interest to a manager, are
reported.
 This approach results in saving precious time of the top management
and enables the managers to devote more time in pursuit of
alternatives for the growth of the organization.

 Organisations need information for many purposes.
 Needs of each organisation is different at different levels.
 1. Identification – Each organisation needs to know the resources
that are available and resources that need to be organised
 To plan properly, one needs to identify the information associated
with the existing and required resources like cash, people, raw
material, finished goods, plant and machinery, etc.
 Right information leads to right decisions, so identification of right
information is key usage.

 2. Collection – Information identified needs to be collected and
stored for further processes.
 Information needs to be collected to manage business properly.
 3. Controlling – Control mechanism, is important to ascertain the
quality and relevance of information, which in turn help in managing
the resources better.
 4. Measuring – For the success of any business it is important to
keep measuring its performance.
 Information is a vital resource to manage the business, so it is
important to use information to measure performance of any
business activity.

 5. Decision-making – One of the major usages of information is
decision-making.
 It can be used for taking decisions at all levels in an organisation;
information can be use to take decisions at the lowest possible level
in an organisation to the top most level.

 Presentation of the information is an art.
 The data may be collected in the best possible manner
and processed analytically, bringing a lot of value in the
information; but if not presented properly, may fail to
communicate anything of value to the receiver.
 The degree of communication is affected by the
 methods of transmission,
 the manner of information handling and
 the limitation and constrains of a receiver as the
information processor, and the organization as the
information user.

 Quality of information is determined by how it motivates
human action and contributes to effective decision making.
 Value of information may be theoretically determined by the
value of a change in decision-making behavior.
 Information is a product of data processing.
 The quality of information is high, if it creates managerial
impact leading to attention, decision and action.
 The quality of information can be measured on the
following dimensions viz.,
 utility,
 satisfaction,
 error and bias.

 Andrus suggests that information may be evaluated in terms of
utilities which, besides accuracy of the information, may facilitate or
retard its use.
 He identifies four information utilities:
1. Form utility: As the form of information more closely matches the
requirements of the decision maker, its value increases.
2. Time utility: Information has greater value to the decision maker
if it is available when needed.
3. Place Utility: Information has greater value if it can be accessed
or delivered easily. Online systems maximize both time and
place utility.

4. Possession Utility: The possessor of information strongly affects
its value by controlling its dissemination to others.
 Many of the organizations suffer from the possessive nature of the
managers making an access difficult for the other users of the
information.
 Andrus points out that information has a cost as well as a value
associated with it, in terms of both accuracy and utilities.
 If the cost of acquiring information exceeds its value, there are two
alternatives:
1. Increase its value by increasing accuracy and/or increasing
utilities.
2. Reduce its cost by decreasing accuracy and/or reducing utilities.
 The concept of the utility of the information is subjective to the
individual manager, at least in terms of the form, time and access.
 Since in the organization there are many users of the same
information, the subjectiveness would vary.
 Therefore, the one common key for measuring the quality could be
satisfaction of the decision maker.
 The degree of satisfaction would determine the quality of the
information.
 If the organization has a high degree of satisfaction, then one can be
safe in saying that the information systems are designed properly to
meet the information needs of the managers at all levels.

 Error is a more serious problem because there is no
simple adjustment for it.
 The errors creep in on account of various reasons,
namely:
1. An incorrect data measurement
2. An incorrect collection method
3. Failure to follow the prescribed data processing
procedure
4. Loss of data or incomplete data
5. Poor application of data validation and control
systems
6. A deliberate falsification.
 In most information systems, the receiver of information
has no knowledge of the errors that may affect its
quality.
 The measurement processes which produce reports and
the precision of data in the reports imply an underlying
accuracy that is not warranted.
 An erroneous information is a serious problem because
the decision maker cannot make the adjustments as he
is not aware of it in terms of the location and the
quantum of error.
 To control errors, it is necessary to follow the methods of
systems analysis and design.

 The approach should be that, the errors should be
prevented, failing that they should be detected, and if
not, they should be controlled.
 The processing of data for information processing
should be allowed only after a thorough validation of the
transactions and the contents, as a whole, on a logical
plane.
 Care should be taken that the information is processed
after ensuring the correctness of the data in terms of the
time and the number of documents, and the transactions
in the period.

 The difficulties with errors may be overcome by:
1. Internal controls to detect errors
2. Internal and external auditing
3. Addition of “confidence limits” to data.
4. User instruction in measurement and processing
procedures, so users can evaluate possible errors.

 Given a choice, managers have a strong preference for
improvement in quality of information over an increase
in quantity.
 Information varies in quality because of bias or errors.
 Bias is caused by the ability of individuals to exercise
discretion in information presentation.
 If the bias of the presenter is known to the receiver of
the information, he or she can make adjustments.
 The problem is to detect the bias; the adjustment is
fairly very simple.

 The parameters of good quality are difficult to
determine, however, the information can be termed as
of a good quality if it meets the norms of impartiality,
validity, reliability, consistency and age.
 The quality of information has another dimension of
utility from the user’s point of view.
 The users being many, this is difficult to control.
 Therefore, if one can develop information with due
regards to these parameters, one can easily control the
outgoing quality of the information with the probable
exception of the satisfaction at the user’s end.

 The decision theory suggests the methods of solving the problems of
decision-making under certainty, risk and uncertainty.
 A decision-making situation is of certainty when the decision-maker
has full knowledge about the alternatives and its outcomes.
 This is possible when perfect information is available.
 Therefore, the information has a perceived value in terms of
decision-making.
 The decision-maker feels more secured when additional information
is received in case of decision-making under an uncertainty or a risk.

 The information is called a perfect information, if it wipes out
uncertainty or risk completely.
 However, a perfect information is a myth.
 The decision theory stipulates that the value of the additional
information is the value of the change in the decision behavior
resulted by the information, less the cost of obtaining the
information.
 If the additional information does not cause any change in the
decision behaviour then the value of the additional information
is zero.

 The value of the additional information making the existing information
perfect (VPI) is:
VPI = (V2 – V1) - (C2 - C1)
 Where V is the value of the information and C is the cost of obtaining the
information.
 V1 and C1 relate to 1 set of information and V2, C2 relate to the new set.
 If the VPI is very high, then it is beneficial to serve the additional
information need.
 If new information does not cause a different decision to be made the
value of the new information is zero.

 It may be noted that the information has a value only to those
who have the capability to use it in a decision.
 The experienced manager generally uses the information most
effectively but he may need less information as experience has
already reduced uncertainty for him, when compared to a less
experienced manager.
 In MIS, the concept of the value of information is used to find out
the benefit of a perfect information and if the value is
significantly high, the system should provide it.
 If the value is insignificant, it would not be worth collecting the
additional information.

 A very simple example will illustrate the value of perfect information
in a decision with only one future condition or state of nature.
 Assume that there are three alternatives: A, B and C. The decision-
maker, on the basis of prior knowledge(imperfect information),
estimates that the outcome from A will be Rs. 20, B Rs. 30 and C Rs. 15,
and is therefore ready to choose B.
 Perfect information is then provided which established without doubt
the outcome of C Rs. 30 and for B is only Rs. 22.
 The information causes the decision-maker to select C instead of B,
thereby increasing the outcome for Rs. 22 to Rs. 30.
 The value of the perfect information is therefore Rs. 8 minus the cost
of obtaining it.
 The value of the perfect information is computed as the difference
between the optimal policy without perfect information and the
optimal policy with perfect information.

 Some of the important types of information that are required at
different levels of management are as follows:
 A more functional classification of information is on the basis of types
of decisions.
 Information, as required at different levels of management can be
classified as operational, tactical and strategic.

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 Operational information relates to the day-to-day operations of the
organisation and thus, is useful in exercising control over the
operations that are repetitive in nature.
 Since such activities are controlled at lower levels of management,
operational information is needed by the lower management.
 For example, the information regarding the cash position on day-to-
day basis is monitored and controlled at the lower levels of
management.
 Similarly, in marketing function, daily and weekly sales information is
used by lower level manager to monitor the performance of the sales
force.

 It may be noted that operational information pertains to activities that
are easily measurable by specific standards.
 The operational information mainly relates to current and historical
performance, and is based primarily on internal sources of data.
 The predictive element in operational information is quite low and if
at all it is there, it has a short term horizon.

 Tactical information helps middle level managers allocating
resources and establishing controls to implement the top level plans
of the organisation.
 For example, information regarding the alternative sources of funds
and their uses in the short run, opportunities for deployment of
surplus funds in short- term securities, etc. may be required at the
middle levels of management.
 The tactical information is generally predictive, focusing on short-
term trends. It may be partly current and partly historical, and may
come from internal as well as external sources.

 While the operational information is needed to find out how the given
activity can be performed better, strategic information is needed for
making choices among the business options.
 The strategic information helps in identifying and evaluating these
options so that a manager makes informed choices which are
different from the competitors and the limitations of what the rivals
are doing or planning to do.
 Such choices are made by leaders only.
 Strategic information is used by managers to define goals and
priorities, initiate new programmes and develop policies for
acquisition and use of corporate resources.

 For example, information regarding the long-term needs of funds for
on-going and future projects of the company may be used by top
level managers in taking decision regarding going public or
approaching financial institutions for term loan.
 Strategic information is predictive in nature, relies heavily on
external sources of data, has a long-term perspective, and is mostly
in summary form.
 It may sometimes include ‘what if’ scenarios.
 However, the strategic information is not only external information.
 For long, it was believed that strategic information are basically
information regarding the external environment.
 However, it is now well recognised that the internal factors are
equally responsible for success or failures of strategies and thus,
internal information is also required for strategic decision making.
 A manager or a decision maker uses his sensory receptors, normally
eyes and ears, to pick up information and transmit them to brain for
processing and storage.
 The result of this processing will be a response which may be a
decision, an action or at least a recognition of the event for future use.
 Hence, a manager can be said to be an information processor.

 Model of a Human as a Information processor

 The capacity of a manager to accept and process inputs to produce
output is variable and limited.
 That is why it is observed that all the managers of the same level do
not accept or absorb all the inputs which the information may
provide.
 The limitation arises sometimes on account of the information
overload which is external to the manager.
 This is a case of too much information or extra information creating
a problem for the user of the information to sort out the relevant
from the irrelevant or the appropriate from the inappropriate.
 The manager in such a situation adopts the method of filtering the
information.

 Performance of Human as Information Processor

 The capacity of the human to accept
inputs and produce outputs
(responses) is limited.
 When the human capacity for
processing information is surpassed,
information overload can cause the
response rate to decrease and
performance is degraded.
 The world provides more input than
the human processing system is able
to accept.

 In order to prevent information
overload, the human reduces
input to a manageable quantity
by a filtering or selection
process in which some inputs
are blocked and prevented from
entering processing.

 Filtering is a process whereby a
manager selectively accepts that
much inputs, which his mental
ability can manage to process.
 They establish filters based on
their experience, background,
customs, etc.

 The filtering process blocks the unwanted or the inconsistent data or the
data which does not match the frame of reference.
 An inexperienced manager or a less knowledgeable manager through
filtering may omit data, distort data responses and, therefore may draw
incorrect inferences.

 The information processor establishes the filters based on experience,
knowledge and knowhow.
 The choice of filters may be changed due to stress, urgency of decision-
making and the confidence in a particular method of decision-making.
 Deadlines, for example, may be stressful and force a manager to focus on
only the most important decision inputs, filtering out lesser ones.

 Besides blocking unwanted data, filtering may work to block
data that is inconsistent with an established frame of
reference.
 This factor and the natural limits on the human sense
receptors may lead to information perception errors such as
omission, distortions and inferences.
 The writer of a report may mean one thing; the reader may
perceive another.

 Allen Newell and Herbert A.
Simon proposed a model of
human problem solving which
makes use of the analogy
between computer processing
and human information
processing.
 This is not to say that humans
solve problems like computers,
but the analogy is very useful
in understanding human
information processing.

The figure compares the Newell-Simon Model of information
processing with a general model of a computer system.

 The Human Information Processing System consists of a processor,
sensory input, motor output, and three different memories:
 long-term memory (LTM),
 short-term memory (STM), and
 external memory (EM).
 The system operates in serial fashion rather than in parallel.
 This means that the human can perform only one information
processing task at a time, whereas a computer may operate in either
serial or parallel design.

 A good example of computer parallel processing is the
simultaneous addition of all pairs of bits in two computer data
words.
 Normally, humans add serially a pair of digits at a time from right to
left.

 The fact that a human is a serial processor does
not mean that he or she cannot work on more than
one task concurrently.
 Although this is not described by the Newell-
Simon model, the human probably does it by
rapid switching one task to another with short
bursts of processing for each.
 This is analogous to time-sharing in which a
computer works on several programs at once by
switching from one to another.

 The three memories of the Newell-Simon model
are as in the following diagram:

 The long-term memory has essentially
unlimited capacity.
 Its content consists of symbols and structure of
chunks.
 A chunk is a unit of stored information – it can be
a digit, a word, an image, etc.
 Storage may be quite compact so that an entire
configuration of stimuli may be designed by a
single symbol.

 The short-term memory is part of the processor
and it is quite small.
 It holds only five to seven symbols.
 However, only about two can be retained while
another task is being performed, which suggests
that part of the short-term memory is used for
input and output processing.
 Read and write time are very fast.

 The external memory in the human processing
system consists of external media such as a pad
of paper or a chalkboard.
 The access time for the eye to locate the symbols
at a known location is quite fast(say, about 100
milliseconds), and read times are estimated at 50
milliseconds.
 The write time are much less than the write times
for long-term memory, which accounts for the
efficiency of using external memory in problem-
solving procedures.
 It also eases the constraints of short-term
memory.

 The Newell-Simon model suggests that there are limitations on the
ability of humans as information processors.

 There is some empirical evidence relating to
these limits and their relationship to heuristic
problem solving.
1. One set of limits concerns the processing of
data and is directly related to short-term
memory.
2. Another set of limits is the ability of humans to
detect differences.
3. Humans are also limited in their ability to
generate, integrate, and interpret probabilistic
data.

 Miller coined the phrase “the magical number seven, plus or minus
two” to describe human capability for processing information.
 His survey, supported by empirical research, shows in essence that
the number of symbols of “chunks” humans can hold in short-term
memory and process effectively is five to nine, with a common limit
of seven.
 The limits of 7 ± 2 are most easily observed in human information
processing of codes, quantities, and other data composed of single
symbols.
 The application of the limits to codes is important because
information processing depends heavily on the use of codes and
coded data.

 Graphic representation is
another method for increasing
the input to human processing.
 The visual image becomes an
index to information already
stored away and easily
retrievable.
 Some startling results have been
shown in particular cases where,
after training and practice, an
individual can recall as many as
75 digits.

 The ability of human information processors to identify differences
may be important in detecting errors (i.e. noticing differences
between correct and incorrect data) and also in their reactions to
variations in data they receive.
 In other words, how do humans evaluate the significance of
differences such as profit differences and cost differences?

 Weber’s law of just noticeable differences is a theory in the field of
cognitive psychology with respect to judgments of physical stimuli
such as the brightness of light, the loudness of sounds, and the
heaviness of weights.
 The law says that the difference that is noticeable is a constant
proportion of the physical dimensions of the stimulus.
 In other words, if C denotes a criterion and ∆C is the just noticeable
difference, then:
∆C/C = k for all C.
 This means that as C changes, ∆C changes in order to hold k a
constant.

 Example: If you lift up and hold a weight of 2.0 kg, you will
notice that it takes some effort.
 If you add to this weight another 0.05 kg and lift, you may not
notice any difference between the apparent or subjective
weight between the 2.0 kg and the 2.1 kg weights.
 If you keep adding weight, you may find that you will only
notice the difference when the additional weight is equal
to 0.2 kg.
 The increment threshold for detecting the difference from a
2.0 kg weight is 0.2 kg. The just noticeable difference (jnd)
is 0.2 kg.

 Now start with a 5.0 kg weight.
 If you add weight to this, you will find that the just noticeable
difference is 0.5 kg.
 It takes 0.5 kg added to the 5.0 kg weight for you to notice an
apparent difference.
 The ratio of ∆I/I for both instances (0.2/2.0 = 0.5/5.0 = 0.1) is the
same.
 This is Weber's Law.

 Decision makers are frequently required to perceive, process, and
evaluate the probabilities of uncertain events.
 There is evidence of serious deficiencies in performance of humans
as intuitive statisticians.

 Another related phenomenon
that has been observed is
“illusory correlation”.
 Individuals who expect to
observe causality will often
observe dependencies
between two variables and
make a judgment of observed
association where none in fact
exists.

 Information plays an important role to all in the
organisations.
 The organisational model may be designed on the
basis of functions, products, projects, and the
communication matrix and information needs that
are typical to each of them.
 Organisation may be large or small, performing at
one or multiple locations, but the information need
is typical to all of them.
 It is, therefore, necessary to understand the use of
the information, nature of the information, and the
value of the information, media and structure of
reporting with reference to the type and level in the
organisation.
 MIS should acknowledge the problems and
difficulties in various methods of the data
gathering and their sources in the organization.
 Each of these methods has a bearing on the
quality of the input data which will be processed
by the MIS.
 The necessary checks and controls should be
introduced to control the quality of the input
data.
 The people organization, the business
organization and the infrastructure of the
organization has an influence on the nature, type
and quality of the information.

 Also while attempting to achieve the best design of the MIS; the
conflict between the cost and the benefits arises.
 This can be resolved by applying the concept of value of information.
 Information has a value if it causes changes in the decisions, the
actions or the behaviour of the decision maker.
 With an additional cost of information, if the value of the information
is not changing substantially then, it may not be worthwhile to spend
more money on the additional data and its processing.

 The perfect information which helps in converting a situation of
uncertainty or risk to certainty is a myth and difficult to achieve.
 Since the information is related to the decision-maker, it is not possible to
determine the exact nature and quantum of perfect information.
 The MIS design should find an optimum point where the costs and the
benefits are balanced.

 Decision theory provides approaches for making decision under
certainty, risk and uncertainty.
 Decision-making under certainty assumes perfect information as to
outcomes; risk assumes information as to the probability of each
outcome but not which outcome will occur in any given case; and
uncertainty assumes knowledge of possible outcomes but no
information as to probabilities.
 Value of information can be computed for decisions, which fit these
framework of analysis.

 In decision theory, the value of information is the value of the change
in decision behaviour caused by the information, less the cost of
obtaining the information.
 In other words, given a set of possible decisions, a decision-maker
will select one on the basis of the information at hand.
 If new information causes a different decision to be made, the value
of the new information is the difference in value between the
outcome of the old decision and that of the new decision, less the cost
of obtaining the new information.
 If the new information does not cause a different decision to be made
the value of the new information is zero.

1. Explain Humans as Information Processors.
2. Define Information. Give the characteristics of information.
3. Elaborate the types and attributes of information.
4. Explain the Herbert Simon Model in Decision Making.

1. Explain value of information in decision making.
2. Explain the relevance of information in decision making.
3. Explain the Administrative Model of Decision making.
4. Discuss the decision making process and explain the various
models of decision making.
5. Explain Quality of Information, and how it can be measured.

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UNIT 2 1

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Bounded rationality: There is a large number of alternatives

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

• According to the Herbert

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