Additional Knowledge Material

(Faculty E-notes)
 COURSE BCA 5th SEMESTER
 UNIVERSITY MAHARSHI DAYANAND UNIVERSITY
 SUBJECT MANAGEMENT INFORMATION SYSTEM
 SUBJECT CODE BCAN-301
 UNIT NO & NAME UNIT 4 (Functional MIS)
 NAME OF FACULTY MS. PREETI DAGAR

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 INDEX

Unit 4

Functional MIS

S.NO. TOPIC Page No.

1. A Study of Personnel, Financial and production 3

MIS
2. Introduction to e- business systems, ecommerce – 9
technologies, applications
3. Decision support systems – support systems for 16
planning, control and decision-making

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Functional MIS

(A) MIS for Marketing: In order to pursue market opportunities as well as anticipate
marketing problem, manager need to collect comprehensive and reliable information. Managers
cannot carryout marketing analysis, planning, implementation and control without monitoring
and researching customers, competitors, dealers and their sales and cost data. Every firm has
many information flows of interest to marketing management. Many companies are studying
their executive‘s information needs and design information system for marketing to meet these
needs. Instead of plethora of unrelated data, an MIS combines various inputs and present
integrated reports.
Definition: Marketing Information System is a continuing and interacting structure of people,
equipment and procedures to gather, sort, analyze, evaluate, and distribute pertinent, timely and
accurate information for use by marketing decision makers to improve their marketing planning,
implementation and control activities.
Components of Marketing Information System: As shown in figure below, the box on the left
shows components of the marketing environment that manager must monitor. Trends in the
marketing environment are picked up and analyzed through four subsystems making up the
marketing information system- Internal Accounting System, Marketing Intelligence System,
Marketing Research System and Analytical Marketing System.

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Internal Accounting System is the most basic information system used by marketing executives.
It is the system that reports orders, sales inventory levels, receivable, payable. By analyzing the
information, marketing managers can spot important opportunities and problems.
 The Order Shipping Cycle: Sales representatives, dealers and customers dispatch orders to
the firm. The order department prepares multi-copy invoice and sends them to various
departments. Out of stock items are back ordered. Shipped items are accompanied and sent to
various departments. The company wants to carryout these steps quickly and accurately. The
computer is harnessed to expedite the order shipping billing cycle.
 Improving the Timeliness or Sales Reports: Marketing executives receive sales reports
some times, after the sales have taken place. Many companies complain that sales are not
reported fast enough in their company. Marketing information system can improve these
things rapidly.
 Designing a User Oriented Report System: In designing an advanced sales information
system, the company should avoid certain pitfalls.
The marketing information system should represent a cross between what Managers think they
need, what managers really need and what is economically feasible. Management information
system should provide the reports for all marketing departments. Information system can delete
the unwanted system from the survey and from other departments and prepare reports which are
required by different persons of marketing department.

(B) MIS for Personnel Management: Personnel management has the primary objectiveof
providing suitable manpower in number and with certain ability, skills and knowledge, as the
business organization demands from time to time. Its goal is to control personnel cost through
continuous increase in manpower productivity resorting to the following techniques:
a) Motivation through Leadership and Job Enrichment
b) Grievance Handling
c) Structuring the Organization
d) Promotion and Rewards through Performance Appraisal
e) HRM through Training and Upgrading the Skills
The information and scope of personnel function have resulted in greater complexity in field.
There is need to cope with incredible volume of information and maintaining it. There is need to
classify, reclassify and cross this information. This can be achieved by computerized personnel
system which enables personnel management to manage more efficiently and effectively and to
provide more positive services to the organization.
Input for Personnel Development: The following documents serve as the input in personnel
information system:

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 Productivity Data on the Job

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 Industry Data on Manpower, Skills, Qualification
 Bio-Data of Self and Family
 Personnel Application Form
 Attendance and Leave Record
 Appraisal Form
 Appointment Letter
 Wage/ Agreement
 Record Sources of Manpower, University, Institutes, and Companies
Components of Personnel Information: A computer based personnel information system is
designed to support the operational, managerial and decision making functions of the personnel
division in an organization. Following are the components of the personnel management
information system:
i) Establishment Records: Establishment relates to the setting up of budgets for
appropriate staff levels and grades throughout the organization. The system should encompass
these budgeted posts and report on variations between actual staff numbersand the budget
numbers.
ii) Recruitment Records: Details of all vacancies and applicants should be held by the
system. These should show the status of each vacancy and of each applicant and should perform
as much as possible of the administrative process. This will generally mean thatthe system
should interface with a word processing system.
iii) Personnel Records: These relate to identification data, current and historical salary and
allowances data and various employees attributes such as grades and key dates.
iv) Pensions Records: The system maintains all details of service entitlements of
employees, contribution by both the employee and the organization to pension scheme,details
of dependents, spouse and children, data required for actuarial purpose to verifythe availability
of the scheme and details and entitlements of employees who have become pensioners.
v) Training Records: These include data relating to each employees qualification, skills
and experience. The system would also hold details of internal and external training courses
and its relevant details.
vi) Absence Records: The system should allow for the recording of various absence types
like sick leave, special leave etc. Input of this sub-system should be automatically reflected in
the establishment sub-system.

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vii) Industrial relations Records: The system should hold data to assist management in
negotiations and planning for alternative strategies. Much of this would be held for normal
administrative purpose. It is the facility to extract the data in meaningful terms, toable to project
forward and to test the impact of applying various rules and scenarios.

(C) MIS for Financial Management: Financial management function has a primary objective
of meeting the financial needs of the business. The second objective of FM is to meet the
statutory compliance by way of declaring the auditing financial result, submitting reports and
returns to the govt. and Tax authorities and fulfill the obligations to the shareholders. FM uses
variety of tools and techniques like Break Even Analysis, ABC Analysis, Ratio Analysis,
Management Accounting and Cost Analysis.
Input Documents:
o Receipts from customers, authorities, employees, share holders, financial institution and
others.
o Payment to suppliers, authorities, share holders, financial institutions and others.
o Data from stock exchange on the shares prices consolidated financial results of the other
companies etc.
Transactions are payments and receipts and they are documented through journal vouchers, bills,
debit notes, credit notes, receipts and transfer documents.
Application of Financial Management Information System: The major application of
financial management information system includes financial accounting system, which accounts
for the financial transactions of the company and produces financial results for the company. It
produces balance sheet for the company where the performance of the company is published in
standard format prescribed by the govt. The system is made so comprehensive that it not only
collects financial data but also collects data on different matters such as job, department, and
division and so on. It forms a basis for certain reports which are required by the top level
management. The users of the financial data base are finance managers, cost controller, auditors,
material managers, marketing managers, company secretaries and the top management.

(D) MIS for Production Management: The objective of production management function is
to provide manufacturing services to the organization. This involves the manufacturing of
products of a certain specified quality and within certain costs in a stipulatedtime, fulfilling the
promises given to the customer.
The production management function is supported by other functions like production, planning
and control, industrial engineering, maintenance and quality control. It has a very strong
interface with materials management function. The organization of production management
differs according to the types of production i.e. job shop or continuous. It also varies with the

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production policy of the organization, like whether the production is initiated against a customer
order or for stock.
The system methodology differs with respect to the manufacturing technology the organization
has adopted. The goals of the production management are fuller utilization of the manufacturing
capacity, minimal rejection, maximum uptime of plans and equipments meeting the delivery
promises. The function is of key importance when business strength is in technology and
manufacturing, and the market for product and services exist. The function is pegged with the
responsibility of managing high investment in plant, equipment and machinery. It also has to
control the large labour force at its disposal.
Inputs of Production Management Information System: The production management is
conducted through innumerable transaction. They relate to planning, issuing and controlling the
various task involved in the course of production.
i) Process Planning Sheet
ii) Quality Assurance Rating Form
iii) Production Schedule
iv) Process Planning Sheet
v) Job Cards
vi) Finished Goods Advice
vii) Material Requisition
viii) Customer Order
ix) Breakdown Advice
x) Material requirement
xi) Production Programme
The production management also uses standards and norms extensively developed over a period
of time as input in the system. These are generally known as production rate available capacity,
labour components, material usage standards, rejection norms etc.
Documents mentioned above are indicative and may be more or less different, depending upon
the type of production and nature of production of industry. The input data in each transaction
would also vary from industry to industry as would the production methodology adopted by the
organization. The system and procedures used by the organization in performing the production
function also vary respectively.

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Components of Production Management Information System: The components of
production management information system include:
a) Sales department to find out what the customer wants and to compare this with what the firmcan
provide.
b) Design department to design new requirements and make modifications in established items either
to bring them up to date or to make them meet a specific requirement of the customer.
c) Purchasing department buys the material required at the best possible price and on the most
reliable delivery to make the various items either on one off basis for individual job or replenish
material held in the stores on maximum and minimum levels
d) Manufacturing process sees that the parts are produced as economically as possible for
delivery at the time required by the customer and to meet the standards set by the design
department.

What is E-Business?
Over the last few years, the modes of business have changed overwhelmingly. The electronic mode of
business has taken over the leading role now. People now buy goods and services over the internet right
from their homes with a mobile phone with internet services. The way business is managed is totally
different from what it was in the traditional method for the last few decades. Let’s see how new modes
of business have emerged as the new processes of buying and selling things.
E-Business
Named by the marketing and internet team of Intel in 1996, E-business is a mode of business
where transactions, business activities, and services take place online. The buyer and seller don’t
have to face each other in this mode of business. The process relies on digital methods and the
transactions happen digitally where the payment is made via an online banking process. Therefore, it is a
mode of business where digital payments make way for buying and selling goods and services.
Characteristics of E-Business
E-businesses have some unique characteristics which are as follows −
Easy setup − It is easy to set up e-businesses. One just needs a website and digital banking-enabled
payment gateway to engage in it.
No geographic barriers − as e-businesses are operated online via the internet, there is a barrier to
geographies in it. Customers from anywhere can buy anything from the business any time they wish.
Cost efficient − E-businesses are a cost-efficient mode of business because they save enough money that
would have been required if a physical location had to be opted for the business.
Flexible timing of business − E-businesses can be done any time and from anywhere. There is no limit
on timing as it can be operated 24 hours a day 365 days a year.

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Cheap marketing − E-businesses don’t require elaborate marketing. The costs required are only spent
on digital marketing which is cheaper than traditional modes of marketing and advertising.
No interaction between buyer and seller − in an e-business, no interaction is needed between the seller
and the buyer. Transactions and transfers occur online. The payment is done electronically and the order
is shipped to the consumer’s address by the seller.
Delivery takes extra time − as the seller may be situated far from the buyer, an extra amount of time
may be required to get the items delivered in e-businesses.
The threat of transaction − the transaction threat is more prominent in the case of e-businesses as
hackers may access banking data and steal money from the accounts digitally.
Customers may be situated anywhere, they may buy anything and the process can occur at any time the
consumer wishes.
Advantages of E-Businesses
Some of the most notable advantages are the following −
Less costly − E-businesses need only a website and software which cost less than the establishment of a
traditional business. So, e-businesses are pocket friendly.
Easy to organize − Online businesses can be set up at home with minimum requirements of internet,
website, and a few software.
Lack of geographic barriers − There is no barrier of geography to e-businesses. They can sell things
worldwide. Customers can be located anywhere in the world. The only requirement is that the customers
should have internet and digital payment modes available to them.
Government subsidies − Governments promote and help e-businesses because they promote
digitization. Digitization makes payments transparent and this helps governments keep track of payments
easily.
Flexible timing − There is no fixed working hour for e-businesses. They can be operated round the
clock and consumers may reach the site anytime from anywhere. There is no need for anyone to stay
available from the seller’s end. The process gets done automatically without any errors.
Disadvantages of E-Businesses
Following are the most notable disadvantages of e-businesses −
Lack of interpersonal communication − unlike traditional businesses, e-businesses do not have one-to-
one communication. This may lead to the inability to properly judge the quality of products. Moreover,
as there is no personal connection, it is hard for the business to develop trust with the consumer.
Delivery time − in traditional business, we get the product delivered immediately after payment.
However, in the case of e-business, it takes extra time for the product to reach the consumer.
More risks − as hackers can easily get consumers’ banking details online, e-businesses are considered
riskier than traditional methods.
E-Commerce
E-commerce or electronic commerce is the mode of business where transactions take place via the
Internet, and things are delivered to the consumer’s address by the seller.
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Buyers do not face sellers in this kind of business.
Types of E-Commerce
Business-to-Business (B2B)
In this type of e-commerce, the buying and selling of goods and services occur between businesses.
Usually, manufacturers and wholesalers operate with this kind of electronic commerce. Examples
include Alibaba, Qualcomm, etc.
Business-to-Consumer (B2C)
Here, the goods are sold by the business to the customer. Examples of B2C businesses include Intel,
Dell, etc.
Consumer-to-Consumer (C2C)
The C2C business is done between customers to customers. Some examples include OLX, Quickr, etc.
Consumer-to-Business (C2B)
In this type of business, the transaction happens between customers to the business.
Outsourcing
When a company outsources, it makes another company or firm responsible for the part of
businesses that have been outsourced. Usually, companies outsource their non-core activities to
specialized agencies that are more capable of doing the business.
Outsourcing is growing rapidly because of its cost advantage and the value addition the process adds to
the whole process of the business.
Advantages of Outsourcing
Some of the key advantages of outsourcing are as mentioned below.

 Cost efficiency − There is no need to hire anyone permanently. Hiring costs go down as no
training is required. Labour costs go down as outsourcing can be done to less-costly agents in a different
country where skilled labour is available at a lower cost.
 Increment in performance − as outsource-oriented agencies are more efficient in given tasks,
the performance of the company that outsources goes up due to outsourcing.
 Low investment − the outsourcing company has to incur less cost for the services than what it
will have to incur if it is done by the company itself.
 Resultant high quality of work − the work done by outsourcing-oriented companies is high in
quality which increases the productivity of the outsourcer.
Disadvantages of Outsourcing
 Lack of quality − Sometimes, the work done by the outsourcing agency is lower in terms of
quality which consumes time and costs for the outsourcing company.
 Security threat − as there are chances of confidential data getting leaked, there are security
threats in the outsourcing process.
 Lack of communication − as there is a lack of communication between the outsourcer and
outsourced agency, there may be disagreement in many steps leading to wastage of money and time.
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Difference between E-Commerce and E-Business:

S.No. E-COMMERCE E-BUSINESS

E-Commerce refers to the performing

online commercial activities, E-Business refers to performing all type
01. transactions over internet. of business activities through internet.

E-Commerce is a narrow concept and E-Business is a broad concept and it is

it is considered as a subset of E- considered as a superset of E-
02. Business. Commerce.

Commercial transactions are carried Business transactions are carried out in

03. out in e-commerce. e-business.

In e-commerce transactions are In e-business transactions are not

04. limited. limited.

It includes activities like procurement

of raw materials/goods, customer
It includes activities like buying and education, supply activities buying and
selling product, making monetary selling product, making monetary
05. transactions etc over internet. transactions etc over internet.

It requires the use of multiple websites,

It usually requires the use of only a CRMs, ERPs that connect different
06. website. business processes.

It involves the use of internet, intranet

07. It involves mandatory use of internet. or extranet.

E-commerce is more appropriate in E-business is more appropriate in

08. Business to Customer (B2C) context. Business to Business (B2B) context.

E-Commerce covers outward/external E-Business covers internal as well as

09. business process. external business process/activities.

Most common applications of Ecommerce:

 Retail and Wholesale

Ecommerce has numerous applications in this sector. E -retailing is basically a B2C, and in
some cases, a B2B sale of goods and services through online stores designed using virtual
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shopping carts and electronic catalogues. A subset of retail ecommerce is m -commerce, or
mobile commerce, wherein a consumer purchases goods and services using their mobile
device through the mobile optimized site of the retailer. These retailers use the E -payment
method: they accept payment through credit or debit cards, online wallets or internet
banking, without printing paper invoices or receipts.

 Online Marketing

This refers to the gathering of data about consumer behaviours, preferences, needs, buying
patterns and so on. It helps marketing activities like fixing price, negot iating, enhancing
product features, and building strong customer relationships as this data can be leveraged
to provide customers a tailored and enhanced purchase experience.

 Finance

Banks and other financial institutions are using e -commerce to a significant extent.
Customers can check account balances, transfer money to other accounts held by them or
others, pay bills through internet banking, pay insurance premiums, and so on. Individuals
can also carry out trading in stocks online, and get infor mation about stocks to trade in
from websites that display news, charts, performance reports and analyst ratings of
companies.

 Manufacturing

Supply chain operations also use ecommerce; usually, a few companies form a group and
create an electronic exchange and facilitate purchase and sale of goods, exchange of
market information, back office information like inventory control, and so on. This enables
the smooth flow of raw materials and finished products among the member companies and
also with other businesses.

 Online Booking

This is something almost every one of us has done at some time – book hotels, holidays,
airline tickets, travel insurance, etc. These bookings and reservations are made possible
through an internet booking engine or IBE. It is used the maximum by aviation, tour
operations and hotel industry.

 Online Publishing

This refers to the digital publication of books, magazines, catalogues, and developing
digital libraries.

 Digital Advertising

Online advertising uses the internet to deliver promot ional material to consumers; it
involves a publisher, and an advertiser. The advertiser provides the ads, and the publisher
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integrates ads into online content. Often there are creative agencies which create the ad
and even help in the placement. Different types of ads include banner ads, social media
ads, search engine marketing, retargeting, pop -up ads, and so on.

 Auctions

Online auctions bring together numerous people from various geographical locations and
enable trading of items at negotiated prices, im plemented with e-commerce technologies. It
enables more people to participate in auctions. Another example of auction is bidding for
seats on an airline website – window seats, and those at the front with more leg room
generally get sold at a premium, depe nding on how much a flyer is willing to pay.
E-Commerce is all around us today, and as an entrepreneur, you should also get into this
realm if you want to expand your markets, get more customers and increase your
profitability.
E business technology

E-business technologies are those technologies which are used to grow the e-business. For example
Hardware, internet, world wide web, database management-business security, online payment etc.
Internet technologies have reconstruct the business world by creating a global online marketplace.
Appropriate understanding for the technologies and the impact of different design choices of
technologies (including the Internet and open systems) dramatically affects both functional and non-
functional aspects of the e-business solution.
E-business software application: Those applications which are used to perform electronic business is
called e-business software application. Electronic business, commonly referred to as “e Business" or "e-
business", or an internet business, may be defined as the application of information and communication
technologies (ICT) in support of all the activities of business. Commerce constitutes the exchange of
products and services between businesses, groups and individuals and can be seen as one of the essential
activities of any business. Electronic commerce focuses on the use of ICT to enable the external activities
and relationships of the business with individuals, groups and other businesses to perform all these
activity we need some application which are known as e-business application.
Web for business applications. Used for conducting business through E-commerce. Web is used for the
following. Attracting new customers through E- marketing & E- advertising. Improve service efficiency
through E-service & E- support functions. Enlarge the scope and reach through web by putting products
and services on web. Applications of e-business: Internal business systems: Customer relationship
Management, Enterprise resource planning, Document Management systems, Human resources
Management.
Customer relationship management (CRM) refers to a strategy widely used by companies and
organizations (including related integrated information systems and technology, often in the form of
software) to record and manage their overall data and interactions with current, past and potential
customers.
CRM works to ensure that all customer-interfacing organizational functions (i.e., sales, marketing,
technical support) are efficient and synchronized, ensuring that former and potential customers are
adequately and appropriately served.
Enterprise resource planning (ERP) is a method of efficiently utilizing people, hardware and software
to increase productivity and profit, thus simplifying a company’s business processes. ERP may include
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many software applications or a single (but more complex) software package that smoothly disseminates
data required by two or more unique business departments.
The need for enterprise resource planning (ERP) software grew with big business’ mandate for a
centralized solution to manage all information system requirements. An ERP may consist of many
different business modules, including:
 Manufacturing
 Human Resources/Payroll
 Sales
 Inventory
 Supply Chain/Partners
 Finance and Accounting
 CRM
 Database management system
 Document management system

E Business Security
Security is an essential part of any transaction that takes place over the internet. Customer will loose
his/her faith in e-business if its security is compromised. Following are the essential requirements for
safe e-payments/transactions.
Confidential: Information should not be accessible to unauthorized person. It should not be intercepted
during transmission.
Integrity: Information should not be altered during its transmission over the network
Availability: Information should be available wherever and whenever requirement within time limit
specified. . .
Authenticity: There should be a mechanism to authenticate user before giving him/her access to required
information.
Encryption: Information should be encrypted and decrypted only by authorized user.
Audit ability: Data should be recorded in such a way that it can be audited for integrity requirements

Online payment the on-line payment systems are e-commerce businesses allowing money transfers to
be made only through Internet (most of them maintain fully functional mobile applications). They
function as a fast and secure electronic alternative to traditional methods as cheques money orders or
bank transfers. The systems perform payment processing not only for online vendors, auction sites, and
other corporate users but between their costumers, for which it charges a fee which is much less than the
bank wire transfer equivalent.
In the simple word an online payment system is an Internet-based method of processing economic
transactions. It allows a vendor to accept payments over the web or over other Internet connections, such
as direct database connections between retail stores and their suppliers--a common method of
maintaining just-in-time. Online payment systems greatly expand the reach of a business and its ability to
make sales.
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Online wallets
 Online with informative their credit card details
 Transfer money to each other at very low cost.
 Add and withdraw funds directly to bank accounts
 Most of the companies has prepaid card so there is no need for you to even have a bank account
or bank card

Digital marketing
Digital marketing is an umbrella term for all of your online marketing efforts. Businesses leverage digital
channels such as Google search, social media, email, and their websites to connect with their current and
prospective customers. Marketing has always been about connecting with your audience in the right
place and at the right time. Today, that means that you need to meet them where they are already
spending time: on the internet.
The concept of Digital Marketing is very broad. It brings together all forms of marketing, operating
through electronic devices (i.e. online, on mobile and on-screen).\
 Email marketing: Being one of the earliest forms of digital marketing, it includes delivering
personalized or targeted messages at the correct time. For example, brands like Amazon, Flip kart, etc
 SEO (search engine optimization): Well, it is the most general type of Digital marketing which is used
to increase the website’s visibility across the search engines. There are various techniques involved in
this process ranging from on-site technical analysis and improvement, to blogging, link-building and
content creation.

Social Media:
It is all about managing a brand’s image across multiple social channels including Twitter, Face book,
LinkedIn and many others. This type has become greatly popular, grown- up and complex over the last
few years.
 Online Advertising: This involves the process of advertising on others website. For example, you can
buy a banner space on popular website, paying the website owner for the same.
 Viral marketing: It is a perfect blend of various elements of the marketing. Generally, it always
involves publicizing an element of content across multiple channels. It may include videos on YouTube,
blogs, email marketing, as well as some traditional elements, all with goal to assure that the content grabs
the attention of the market and spreads naturally through online communities.
 Text messaging: it is the widely used Digital marketing type. Especially, with the exponential rise in
usage of smartphones around the world has enhanced the dependency on them for quick and timely
information.

Decision support systems

A decision support system does, let’s understand what exactly it is and how it works. A decision support
system is:

 a computer-based application or program

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  that compiles, combines and analyses raw data, documents, fundamentals of social science,
applied science, mathematics and managerial science, and personal knowledge (of decision
maker/s)
 to identify problems and determine their solutions
 in order to facilitate optimal decision making

A decision support system is an interactive computer application that has complete access to information
about your organization. When used, it offers comparative figures between one period and the next. It
projects revenue figures based on assumptions related to product sales. A DSS is smart enough to help
you understand the expenses involved in and consequences resulting from different decision alternatives.

A decision support system helps overcome the barriers to a good decision making, including:

 lack of experience
 biasness
 shortage of time
 wrong calculations
 not considering alternatives

Gaining Competitive Advantage with Decision Support Systems

Continuous evolution. In particular, technology has made the highest impact on their development.

Experts identify key developments or trends that you may see in this class of software systems in near
future. These include:

 GIS (Geographical Information System) is going to play a crucial role in a borderless business
world in future. It’s a system designed to manage and analyse geographical data, assisting
decision makers in planning location-based services or location-based manufacturing. GIS
technology also coordinates with latitudes and altitudes of a region to determine its suitability for
a plant or manufacturing unit. And when coupled with GPS, it will allow decision makers to
adjust their product supply chain depending upon the behaviour of consumers in a particular
region.
 The role of OR (Operational Research) methods is going to increase in building DSS, to provide
more realistic picture in a given situation to the decision maker.
 Internet technology has a strong impact on almost everything we do. The next-gen DSS, most
likely, will meet search engine to quickly search and address a particular problem.
 A future DSS may be able to determine the near-correct shelf life of a product. It may be
intelligent enough to understand the emotional and psychological factors involved in purchase
decisions.
 A future DSS may be able to utilize cognitive features, intensively using visualization, memory,
reasoning, attention and comprehension.

DSS for Strategic Decision Making

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The speed at which DSS are evolving, it’s pretty clear that they are going to help companies in strategic
or unstructured decision making. The next-gen smart DSS will be more capable of helping decision
makers in making strategic decisions that affect the bottom line of a business in long run. Examples of
strategic decision include:

 Efforts required to design, manufacture and launch a new product

 How to move towards the vision of a company faster and more effectively?
 Which direction your company is headed in?
 What are the best strategies to compete and stay ahead?
 What can lead to stagnation of a business?

Decision support systems are going to be smarter with each passing year. Businesses can really look
forward to computerized systems working alongside human cognition.

Decision Support Systems to Create a Competitive Advantage

Decision making process involves:

 Utilization of resources
 Identifying the impacts of various courses of action
 Investigating the actions taken previously
 Analysing past and present trends to forecast future trends

Simple decisions can be made immediately without much consideration. But complex decisions are
given more time and thought because they directly hit the bottom line of a business. Decision support
system carry out the decision making process in a structured manner and helps decision makers identify
the best acceptable solution for a specific problem. Let’s take an in-depth look at how a decision support
system helps businesses remain at the forefront of competition:

 Shorter Decision Making Cycle: Time plays a substantial role no matter which industry you
operate in and what level you work at. Since inception, all categories of decision support systems
are intended towards simplifying things and saving time. A DSS helps a business in quickly
making an effective decision by analysing its pros and cons. The time taken in studying data and
comparing the possible courses of actions is significantly reduced. The decision time cycle gets
shorter, allowing businesses to act speedily in a given situation, ultimately reducing the time-to-
market.
 Increased Data Accuracy: Businesses had several versions of truth before DSS came into
existence. In fact, the problem still sustains for those who haven’t started using any type of
decision support system. The reason is that analysis and interpretation of data involves human
bias. Since each evaluator thinks differently, there can never be a universal truth. A decision
support system analyses data without any bias and presents it in its accurate form. This enhances
the possibility of improved decision making.
 Strategic Significance: Decision Support System changes the way businesses operate. An
important concept that brings to light the role of computerized decision making is “value chain
management”. A decision support system takes into account economical factors and past and
current trends to determine the costs and profits and the overall value. It provides different
outcomes or courses of actions that are economically distinct and offer different values. In short,
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 it notifies the decision maker of the best course of action that creates higher value at the lower
cost. Definitely, a business gains competitive advantage when it is successful and when the
value it creates surpasses the cost incurred on it.
 Direction and Nimbleness: Moving in the right direction as quickly as possible helps businesses
stay ahead of the competition. In fact, this is what keeps organizations agile and proactive. It’s
essential for them to quickly respond to market changes. Manual processing of data takes longer;
thus, defeats the whole idea of nimbleness. A decision support system, using the available
information, presents projected revenue figures and expected market changes in the times ahead.
For example, a real estate company relies on a DSS to decide how to set the prices for each
apartment so that maximum of them are sold and the profits reach the uppermost limit. In today’s
global marketplace, it’s crucial that companies move in the right direction, from the beginning.
 Reduced Cost of Decision Making: The deployment of a decision support system dramatically
reduces the cost of gathering, sorting, processing and analysing data. Managers have a growing
awareness that automated decision support is no longer an exclusive territory. In fact, the cost of
information storage, hardware and computer and internet technology is falling considerably. This
means the cost of distributing decision-making technology even to the lower levels of hierarchy is
decreasing. The application of DSS will no longer be restricted to the certain departments or
hierarchical levels. The faster decision making at all levels of management will help businesses
stand apart from the pack.

Models
1. Accounting and Financial Models

These model-driven decision support systems aid in decision making in various situations related
to accounting and financial management. The examples include:

 Break-Even Analysis: A DSS with break-even analysis model aids managers in

determining a break-even point for a product. It helps establish a what-if selling price and
analysing the relationship between various related components – prices, marketing spend
and profits. The process begins by assuming fixed and variable costs. Profit is set at zero.
It helps determine a break even cost of a product at which the company is neither loss nor
makes profit.
 Budget Financial Model: DSS with budgeting model is typically an enterprise-wide
application. Many companies use such systems for budget planning and forecasting.
 Pro Forma Financial Statements: A DSS with this model summarizes the anticipated
financial results for a specific time period in future. Costs are estimated based on past
data, gross sales are predicted and profit or loss is then calculated on these relationships.
 Ratio Analysis: This helps a business in evaluating its financial statements. Ratio analysis
makes financial data more meaningful, by showing logical relationships between data.
2. Decision Analysis Models

The main job of decision analysis models is to identify and evaluate alternatives with their
respective pros and cons. The decision makers then evaluate all the alternatives and pick the one
that they think is the best. The aim of decision analysis techniques is to:

 Decompose and restructure the problems

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  Help decision makers gain in-depth understanding of the problem
 Separate facts and figures from preferences and priorities
 Help users study the performance of decision alternatives
 Avoid citing priorities that don’t help in decision making

The following are various types of decision analysis models:

f. Analytical Hierarchy Process (AHP): It’s a multi-criteria decision technique that

combines quantitative and qualitative factors when evaluating alternatives. The analytical
hierarchy process begins with developing a hierarchical representation of a problem, with
the overall objective on the top, decision alternatives at the bottom and relevant attributes
and selection criteria in between.

After you write decision alternatives at the bottom, you need to compare the alternatives
by generating relational data. Consistency ratio is calculated after comparing relative
priority of each attribute. The alternatives with the highest priorities and topmost
objectives are then displayed.

g. Decision Trees: As the name suggests, a decision tree uses a tree-like flowchart of
decisions, draw from left to right, with further branches explaining their consequences,
cost involved, event outcomes and utility. The aim is to identify the most appropriate
strategy to reach a goal. A decision tree has three types of nodes
 Choice node: represented by a square
 Chance node: represented by a circle
 End node: represented by a triangle

The nodes and decision rules are the building blocks of decision trees. The decision trees
are simple to understand, offer valuable insights, determine the best and worst scenarios
and can be combined easily with other decision techniques.

h. Multi-Attribute Utility Analysis (MAUA): Multi-attribute utility analysis gives much

importance to attribute weights. The information is provided about each decision choice
on each attribute. A decision maker then perceives the utility of usefulness of a decision
alternative in terms of its attributes. This method is generally used when the attributes of
an alternative are certain.
i. Influence Diagrams: It’s a diagrammatic representation of a decision situation, to
express the precise nature of relationships between variables. It uses geometric shapes to
represent various elements.
 A decision variable is represented by a rectangle.
 An intermediate variable is represented by a circle.
 A result or outcome variable is represented by an oval.
3. Forecasting Models

Forecasting models form an integral part of a large number of decision support systems. Their
main job is to predict the value of interrelated variables at some point of time in future. The two
main types of forecasts are:
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  Short run forecasts: where the prediction will be used anytime soon mainly in
deterministic models
 Long run forecasts: where the prediction is used for long term investment/planning
decisions

Forecasting may include ambiguity as factors on which decisions depend are uncontrollable and
dynamic in nature. This means that the accuracy of data and time taken in making near-perfect
predictions matter a lot.

The following are various types of forecasting models:

b. Naive Exploration: As is explained by the name itself, naive exploration is not a

sophisticated prediction. Rather it is simple forecasting that provides limited accuracy.
The technique is implemented using a spreadsheet.
c. Judgment Methods: The predictions or forecasting are based on the perceptions and
opinions of experts instead on hard data. It’s a subjective estimate used for long-run
forecasts where external environment plays a critical role. The results are not very
accurate.
d. Moving Average: Used for short-run forecasts, the predictions are based upon the
historical values. DSS with this model is inexpensive and easy to use.
e. Exponential Smoothing: Used for short-term forecasts, it alters the historical data
mathematically to better reflect the assumptions of a decision maker. Similar to moving
average model but claims to obtain better results using exponential smoothing.
f. Time Series Extrapolation: This method takes into account the economic variables that
are measured at consecutive intervals of time. It is believed that the knowledge of past
behaviour of the variable at successive intervals of time will help understand the
behaviour of the variables in future better.
g. Regression and Econometric Models: These types of forecasting models make use of
linear and multiple regressions to establish cause and effect relationships. These methods
are considered more powerful than time-series but also complex at the same time. They
are complex because they use sophisticated models and include more variables. The
results obtained are more accurate.
4. Network and Optimization Models

Network and optimization models are integrated into a DSS when decisions regarding resource
allocation, project control, location, scheduling, transportation, distribution, size, shortages,
multinational cash flow management, inventory management and distribution and network need
to be made. For example:

 The best location for an operation or manufacturing

 The resources needed to carry out the operations
 Most suitable aircraft route to transport products

Network and optimization models typically use linear regression technique, which falls in the
class of mathematical programming tool. Using this technique, problem solvers can find the best
set of values that minimizes or maximizes a specified calculated formula. A linear programming
situation consists of six elements, including:
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  Decision variables, the value of which we try to find by applying the model
 Objective function, a mathematical expression showing linear relationship between the
goal and decision variables
 Coefficients of objective function, the variables that express the pace at which the value of
the objective function alters (increases or decreases) when the values are included in the
equation
 Constraints, the linear inequalities reflecting the fact that the resources are limited
 I/O (Input-Output) Coefficients, the coefficients of constraints which indicate the pace at
which a given resource is utilized/depleted
 Capacities, which express the minimum resources needed

Remember that it’s the managers who determine what ‘best’ means for them.

5. Simulation Models

DSS with simulation models conduct experiments to identify conditions or situations that
approximate the actual conditions. These models are utilized to solve a number of problems,
including

 Manpower planning and assignment

 Inventory control
 Reliability and replacement
 Sequencing and scheduling
 Stock-in and stock-out
 Queuing and congestion

Simulation models:

 Try to imitate reality

 Perform what-if analysis
 Are descriptive tools for forecasting
 Repeat experiments to obtain an optimized estimate of impact of certain actions
 Aid in solving extremely complex problems
 Form elementary relationships and interdependencies among variables
 Are made for one problem and aren’t suitable for another problems
 Reduce the time taken in decision making

Simulation Methodology

The process goes through a number of steps, beginning from problem identification and ending at
evaluating the results.

Simulation models are of following types:

n. Probabilistic: In this method, experts conceptualize one or more independent variables as

a probability distribution of values

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o. Time dependent: Also known as discrete simulation, it takes into account the exact time of
the occurrence of an event
p. Visual Simulation: This method uses visuals and animations of results to foster quick and
deeper understanding.

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