MANAGEMENT INFORMATION SYSTEM

UNIT-2
DECISION MAKING AND INFORMATION
SYSTEMS
Decision making is one of essential management tasks. Effective decision making is informed decision
making. Managers get informed via information systems, oral communication, and possibly in other ways.
This chapter explores decision making from the perspective of a standard rational model and two
alternatives that exist in reality. The chapter also discusses information systems for making decisions at
different levels of management – Decisions Support Systems (DSS), and TPS and MIS, which were
already described in great detail.
DECISION MAKING AND MANAGEMENT

• A big part of management is decision making. It is involved in almost anything

managers do. A classical list of managerial tasks includes planning, organizing,
staffing, delegating or directing, coordinating or controlling, reporting, and
budgeting (note the acronym POSDCORB). Some of these tasks are a direct
application of decision making, such as planning and delegating or directing.
Other tasks usually result in decisions.
• So for example, organizing work in organizational departments and offices
requires analyzing a current work situation and the next step may be deciding on
changes. Similarly, hiring new employees and assigning employees to jobs
(staffing tasks) also end up with a management decision. A decision is about
choice making.
• A decision maker needs to have two or more choices (options) available and then
choose (select) one of those that makes the decision. Recall that in process
diagrams a decision is represented with a question inserted in a diamond shape,
followed by optional output steps resulting from possible answers (choices). In
more detailed diagrams, the decision diamond can be broken down to an entire
process. The choices can be carefully evaluated to arrive at the best one. This is
the case of ideal, rational decision making. However, when decision makers work
under some pressure they may need to settle for a choice that is good enough
rather than perfect. Even more of deviation from rational decision making happens
when decision making is performed over prolonged periods without delivering a
clear decision.
ATTRIBUTES OF INFORMATION

• Information Quality
• Accuracy:
• • Accuracy means more than just one plus one equals
two.
• • It means that information is free from mistakes and
errors, is clear and accurately reflects the meaning of data
on which it is based.
• • It also means that information is free from bias.
INFORMATION QUALITY

• Relevance:

• Information is said to be relevant if it answers,

• What,
• Why,
• Where,
• When,
• Who, and
• How
• For the recipient.
• However, what is relevant for one may not be relevant for
another. For example, the relevance of a specific customer
order may vary among the employees of a company.
• Adequacy:
• • Means information must be sufficient in quantity. • MIS
report should not give inadequate information or more
than adequate information.
• • Whereas inadequacy of information leads to a crisis, its
overload results in chaos.
• Completeness:
• • Information must be complete and should meet all the
needs of a manager.
• • Incomplete information may result in wrong decisions.
• Explicitness:
• • Means fully and clearly expressed
• • A report is said to be of good quality if it does not require
any further analysis by the recipient.
• • Reports should be such that manager does not waste any
time on further processing, and must be able to extract the
required information directly
Exception-Based:
• Today most of the organizations are being run on the principle of
management by exception.
• Top managers need only exception reports.
• Exception reporting principle states that only those items of
information be reported which will of particular interest to a
manager.
• Usually these items indicate that normal operations have gone
away from the expected direction.
• This approach helps save precious time of the top management.

Quality, however, is not an absolute concept. It is defined within a

context. Roman R. Andrus has suggested a utility approach to
determine the quality of information. In this regard he discusses
four types of utilities of information, which are as follows:
Form Utility:

form of information should closely match the requirements of

the user.
• Time Utility: information, if available, when needed, has a
greater value.
• Place Utility: value of information will increase if can be
accessed easily.
• Possession Utility: the person who has the information
influences its value by controlling its dissemination to others.
TRANSACTION PROCESSING SYSTEM (TPS)
Transaction processing systems are used to record day to day business transactions
of the organization. They are used by users at the operational management level. The
main objective of a transaction processing system is to answer routine questions such
as;
How printers were sold today?
How much inventory do we have at hand?
What is the outstanding due for John Doe?
By recording the day to day business transactions, TPS system provides
answers to the above questions in a timely manner.
The decisions made by operational managers are routine and highly structured.
The information produced from the transaction processing system is very detailed.
For example, banks that give out loans require that the company that a person works
for should have a memorandum of understanding (MoU) with the bank. If a person
whose employer has a MoU with the bank applies for a loan, all that the operational
staff has to do is verify the submitted documents. If they meet the requirements, then
the loan application documents are processed. If they do not meet the requirements,
then the client is advised to see tactical management staff to see the possibility of
signing a MoU.
Examples of transaction processing systems include;
Point of Sale Systems – records daily sales
Payroll systems – processing employees salary, loans management, etc.
Stock Control systems – keeping track of inventory levels
Airline booking systems – flights booking management
TRANSACTION PROCESSING SYSTEM (TPS)
MANAGEMENT INFORMATION SYSTEM (MIS)
MIS
•Management Information Systems (MIS) are used by tactical managers to monitor the
organization's current performance status. The output from a transaction processing
system is used as input to a management information system.
•The MIS system analyzes the input with routine algorithms i.e. aggregate, compare and
summarizes the results to produced reports that tactical managers use to monitor, control
and predict future performance.
•For example, input from a point of sale system can be used to analyze trends of products
that are performing well and those that are not performing well. This information can be
used to make future inventory orders i.e. increasing orders for well-performing products
and reduce the orders of products that are not performing well.
•Examples of management information systems include;

•Sales management systems – they get input from the point of sale system

•Budgeting systems – gives an overview of how much money is spent within the
organization for the short and long terms.
•Human resource management system – overall welfare of the employees, staff
turnover, etc.
•Tactical managers are responsible for the semi-structured decision. MIS systems provide
the information needed to make the structured decision and based on the experience of
the tactical managers, they make judgement calls i.e. predict how much of goods or
inventory should be ordered for the second quarter based on the sales of the first quarter.
DECISION SUPPORT SYSTEM (DSS)
Decision support systems are used by senior management to make non-
routine decisions. Decision support systems use input from internal systems
(transaction processing systems and management information systems)
and external systems.
The main objective of decision support systems is to provide solutions to
problems that are unique and change frequently. Decision support systems
answer questions such as;
What would be the impact of employees' performance if we double the
production lot at the factory?
What would happen to our sales if a new competitor entered the market?
Decision support systems use sophisticated mathematical models, and
statistical techniques (probability, predictive modeling, etc.) to provide
solutions, and they are very interactive.
Examples of decision support systems include;

Financial planning systems – it enables managers to evaluate alternative

ways of achieving goals. The objective is to find the optimal way of
achieving the goal. For example, the net profit for a business is calculated
using the formula Total Sales less (Cost of Goods + Expenses). A financial
planning system will enable senior executives to ask what if questions and
adjust the values for total sales, the cost of goods, etc. to see the effect of
the decision and on the net profit and find the most optimal way.
Bank loan management systems – it is used to verify the credit of the loan
applicant and predict the likelihood of the loan being recovered.
ARTIFICIAL INTELLIGENCE TECHNIQUES IN BUSINESS
ARTIFICIAL INTELLIGENCE TECHNIQUES IN BUSINESS
•Artificial
intelligence systems mimic human expertise to identify patterns
in large data sets. Companies such as Amazon, Facebook, and Google,
etc. use artificial intelligence techniques to identify data that is most
relevant to you.
•Let's use Facebook as an example, Facebook usually makes very
accurate predictions of people that you might know or went with to school.
They use the data that you provide to them, the data that your friends
provide and based on this information make predictions of people that you
might know.
•Amazon uses artificial intelligence techniques too to suggest products
that you should buy also based on what you are currently getting.
•Google also uses artificial intelligence to give you the most relevant
search results based on your interactions with Google and your location.
•These techniques have greatly contributed in making these companies
very successful because they are able to provide value to their
customers.
ONLINE ANALYTICAL PROCESSING (OLAP)

Online analytical processing (OLAP) is used to query and

analyze multi-dimensional data and produce information that
can be viewed in different ways using multiple dimensions.
Let's say a company sells laptops, desktops,
and Mobile device. They have four (4) branches A, B, C and
D. OLAP can be used to view the total sales of each product
in all regions and compare the actual sales with the projected
sales.
Each piece of information such as product, number of sales,
sales value represents a different dimension
The main objective of OLAP systems is to provide answers to
ad hoc queries within the shortest possible time regardless of
the size of the datasets being used.
OPERATIONS OF OLAP
CONCEPT OF DECISION-MAKING
•Decision-making is a cognitive process that results in the selection of a course of action among several
alternative scenarios.
•Decision-making is a daily activity for any human being. There is no exception about that. When it comes
to business organizations, decision-making is a habit and a process as well.
Decision-Making Process
THE RATIONAL/CLASSICAL MODEL:
DECISION MAKING AND INFORMATION
SYSTEMS
The rational model is the first attempt to know the decision-making-process. It is considered
by some as the classical approach to understand the decision-making process. The
classical model gave various steps in decision-making process which have been discussed
earlier.
Features of Classical Model:
1. Problems are clear.
2. Objectives are clear.
3. People agree on criteria and weights.
4. All alternatives are known.
5. All consequences can be anticipated.
6. Decision makes are rational.
i. They are not biased in recognizing problems.
ii. They are capable of processing ail relevant information
iii. They anticipate present and future consequences of decisions.
iv. They search for all alternatives that maximizes the desired results.
 BOUNDED RATIONALITY MODEL OR HERBERT
MODELMODEL A. SIMON ADMINISTRATIVE
•
MAN MODEL:
Decision-making involve the achievement of a goal. Rationality demands that the
DECISION
decision-maker MAKING
should
reaching the goals.
AND
properly understandINFORMATION
the alternative courses of action for

•SYSTEMS
He should also have full information and the ability to analyse properly various
alternative courses of action in the light of goals sought. There should also be a
desire to select the best solutions by selecting the alternative which will satisfy the
goal achievement.
•Herbert A. Simon defines rationality in terms of objective and intelligent action. It
is characterised by behavioural nexus between ends and means. If appropriate
means are chosen to reach desired ends the decision is rational.
•Bounded Rationality model is based on the concept developed by Herbert Simon.
This model does not assume individual rationality in the decision process.
•Instead, it assumes that people, while they may seek the best solution, normally
settle for much less, because the decisions they confront typically demand greater
information, time, processing capabilities than they possess. They settle for
“bounded rationality or limited rationality in decisions. This model is based on
certain basic concepts.
DECISION MAKING AND INFORMATION
SYSTEMS

a. Sequential Attention to alternative solution:

Normally it is the tendency for people to examine possible solution one at a time instead of identifying all
possible solutions and stop searching once an acceptable (though not necessarily the best) solution is
found.
b. Heuristic:
These are the assumptions that guide the search for alternatives into areas that have a high probability for
yielding success.
c. Satisfying:
Herbert Simon called this “satisfying” that is picking a course of action that is satisfactory or “good
enough” under the circumstances. It is the tendency for decision makers to accept the first alternative that
meets their minimally acceptable requirements rather than pushing them further for an alternative that
produces the best results.
Satisfying is preferred for decisions of small significance when time is the major constraint or where most
of the alternatives are essentially similar.
Thus, while the rational or classic model indicates how decisions should be made (i.e. it works as a
prescriptive model), it falls somewhat short concerning how decisions are actually made (i.e. as a
descriptive model).
MANAGEMENT SUPPORT SYSTEMS

 MSS enables senior management to:

 1. access common, shared sources of

 2. internal and external information

 3. that have been summarized in

 4. easy-to-access, graphical displays.

MANAGEMENT SUPPORT SYSTEMS
 function as an integrated approach to sharing
information in an easy-to-use, highly visual,
and personalized way
 system helps promote a shared view of
business activities due to integration of tools
and distributed data/information
 managers can get up-to-date information on
industry news, competitor/market trends and
internal operations
MOST SUCCESSFUL MSS ARE DEVELOPED AS

 1. one aspect of a distributed, enterprise

information system
 2. that enables flexible and integrated
information sharing and communication
 3. both inside orgs. and with external
suppliers, customers and other business
partners.
1980S TO 1990S

 1980s - managers had support tools

designed to run on PCs (e.g. spreadsheets,
statistical packages, graphics packages,
word processing, project management, etc.)
 1990s - MSS provide integrated environment
for these support tools
MSS

 MSS usually designed so that individual

manager can customize the system as
needed
 MSS architecture - client/server environment

 one component of a distributed information

infrastructure
FOUR LEVELS OF FUNCTIONALITY IN MSS

 1. electronic briefing books

 2. exception reporting
 3. active exploration of info. resources using
 4. focused management support
1. ELECTRONIC BRIEFING BOOKS

 graphical information displays that provide

pre-formatte d routine info.

 displays stored as information categories

(e.g. pricing, product)
2. EXCEPTION REPORTING

 critical info. outside range of pre-defined

boundaries is highlighted
 manager may be notified by system

 some orgs. use traffic-light pattern for

exception reporting
 green = no problems
 yellow = caution, marginal condition

 red = trouble, needs immediate attention

3. ACTIVE EXPLORATION OF INFO. RESOURCES
USING
 MSS can build queries to relational data
bases based on point and click of managers
 can move between internal and external DBs

 integrate all different analysis tools

4. FOCUSED MANAGEMENT SUPPORT

 focus support on key management activities

or decisions (e.g. promotion planning,
pricing)
 requires integration of variety of
sophisticated support tools customized for
specific activity
IMPLEMENTING AN MSS
 Four key categories of risk must be
managed:
 1. need thorough understanding of
individual, team, and organizational
information requirements
 2. involves mega-change to formal and
informal policies and practices for information
management and communication information
is power
IMPLEMENTING AN MSS

 Four key categories of risk must be

managed:
 3. implementation of an MSS should be
considered an organizational change
initiative need to manage the change
 4. must manage the simultaneous evolution
of both the organization and the
technological infrastructure
PAST

 Back in 1980s, management support tools

consisted of stand-alone (e.g. not
integrated!!) systems.
 Two major types of support systems were
(are) termed (1) DSS and (2) EIS/ESS.
 Here’s some info. on these stand-alone
systems.
1. DECISION SUPPORT SYSTEMS
 systems that support rather than replace
"managers" in their decision-making activities
 give decision maker access to data and models,
but the intelligence, intuition, and judgment of the
decision maker are integral parts of the system
 DSS provide decision support - don't automatically
make the decision. They help with the decision.
 Primarily support planning function
TYPES OF DECISIONS

 Organizational problems differ in terms of

how structured the problems are
 the extent to which a solution procedure can be
stated
 structured - routine, repetitive
 unstructured - novel, nonroutine
 semistructured - somewhere in between
DSS

 DSS - computer system at management

level that combines data, analytical models,
and user-friendly software to support
semistructured and unstructured decision
making
 give uses capability to analyze data - provide
software tools
 a DSS is focused on a specific decision
CAN DEFINE DSS AS

 computer-based systems
 that help decision makers
 confront un-structured and semi-structured
problems
 through direct interaction
 with data and analysis models
DIFFERENCES BETWEEN DSS AND MIS

 (note - MIS refers to formal systems

developed by IS professionals; e.g.
management reporting systems)
 DSS - end-user control of data and tools

 aimed at top and middle managers

 emphasize change, flexibility and quick

response iterative development process
DIFFERENCES BETWEEN DSS AND MIS

 MIS - dominated by IS professionals

 focuses on structured information flows to

 middle managers

 traditional development process

CORE DSS CAPABILITIES
 representations - heavy use of graphs and charts
 operations - mathematical manipulations of data
(e.g. assigning risks, generating statistics,
simulating alternatives)
 memory aids - databases, views of data, work
spaces, libraries
 control aids - user control activities of the DSS;
include software language for user control of
representations, operations, and memory
DSS

 DSS is a decision-making scratch pad,

backed up by databases - used to support
decision-making processes
 can be applied to problems with quantifiable
dimensions that provide criteria for
evaluation of alternative solutions
 helps DM identify best alternative
3 BASIC COMPONENTS OF DSS
 1. DSS database - collection of current or historical data
which has been extracted from corporate databases; DSS
manipulates live organizational data to support decision
making
 2. model base - collection of mathematical and analytical
models
 model - abstract representation, e.g. statistical functions
 sensitivity analysis - models that ask “what-if” questions to
determine the impact of changes in one or more factors on
outcomes
 e.g. what is we increase price by 5%?
3 BASIC COMPONENTS OF DSS

 3. DSS software system - permits easy

interaction between users and the DSS
database and model base
 Building a DSS - requires intense user
interaction because customized to specific
users and specific type of decision; must be
flexible and able to evolve; use an iterative
development method like prototyping
DSS SUBSYSTEMS & THE
CAPABILITIES THEY OFFER

Data Management Creation,

for Retrieval
Data Model Maintenance,
Management Management and Use of
Data Extraction Models
from Internal and
External Databases
Menus, Icons,
Dialog Natural Language,
Management Graphics

DSS on a Computer Platform

Human Decision Maker

User
MODELS

 Model is built by using a variety of

assumptions about the relationship between
its variables
 by comparing alternatives (what if’s), you can
vary the premises and compare the
outcomes
DSS SUPPORTS ASKING 2 TYPES OF QUESTIONS

 Scenario generation - what-if mode

 user considers alternative scenarios and their
results
 e.g. what if advertising expenditures are
increased by 5%
 goal-seeking
 user asks “what would it take in terms of input
factors to achieve a particular outcome
SPREADSHEETS FOR DECISION SUPPORT
 very popular tools for decision support activities:
 1) based on familiar way to view data (table) and
relationships between data take form of a report
 2) very easy to use
 allow users to make corrections, additions, and
deletions quickly and easily
 can perform “what if” analyses by changing some
values and viewing results
SPREADSHEETS FOR DECISION SUPPORT

 thousands of templates for spreadsheet

packages to help users - templates are
prepared spreadsheet models into which
users only enter data - all relationships and
calculating formulas are provided and in
place
EXAMPLES FOR FINANCIAL PLANNING

 loan amortization
 depreciation
 lease versus buy
 break-even analysis
 discounted cash flows and net present value
SPREADSHEETS

 about 20-30% of users will become

dissatisfied with spreadsheets for decision
support and will want more powerful tools,
but many users will stay with spreadsheets
as primary DSS, especially for smaller
problems
DEVELOPMENT & ADAPTATION OF DSS
Problem Definition by
Users and Developers

Development of
Adaptation
Initial Prototype Loop

Prototype/DSS
Evaluation

Develop- Are Current

yes
ment Requirements
Loop Satisfied? Validation and
no Documentation of DSS
Prototype/DSS
Modification
DSS Ready for Use
2. EXECUTIVE SUPPORT SYSTEMS (ESS)

 help senior level managers with unstructured

problems dealing with monitoring and control
functions
 monitor organizational performance
 track activities of competitors
 spot problems
 identify opportunities
 forecast trends
ESS COMBINES COMPUTING AND
COMMUNICATIONS
 includes functions for providing summary performance data
 data typically covers sales, production, earnings, budgets,
and forecasts
 uses graphics to display and visualize data in a very easy to
use fashion
 combine data from internal and external sources
environmental scanning/alerting - for news on government
regulations, competition, financial and economic
developments, and scientific topics
ESS COMBINES COMPUTING AND
COMMUNICATIONS
 support electronic communications
ESS

 used by both top level execs. and managers

several levels below
RELATIONSHIP BETWEEN EIS AND DSS
User Task Primary Support
Areas

Executive EIS Problem/Opportunity Monitoring and

Discovery and Control,
Assessment Strategic Planning
Flow of Problems

Analyst/
Middle DSS Seeking Problem Planning
Manager Solution:
Decision-Making
Process