Module - 2

Information and Decisions

BBA 4th Semester MIS Lecture Notes
Module 2 Information and Decisions

Table of Contents
1. INFORMATION ......................................................................................................................................2
2. NEED/ROLE OF INFORMATION IN MANAGEMENT ...............................................................................3
3. SOURCES OF INFORMATION .................................................................................................................3
4. ATTRIBUTES/CHARACTERISTICS OF QUALITY INFORMATION ..............................................................4
5. DECISION AND DECISION MAKING .......................................................................................................5
6. TYPES OF DECISIONS .............................................................................................................................6
7. Simon’s Model of Decision Making.................................................................................................... 10
7.1. Simon’s Model of Decision Making............................................................................................ 10
8. ROLE OF MIS IN DECISION MAKING ................................................................................................... 11
9. TOOLS FOR DECISION MAKING - METHODS FOR DECIDING DECISION ALTERNATIVES .................... 12
9.1. Payoff Matrix.............................................................................................................................. 12
9.2. Decision Tree.............................................................................................................................. 14
10. QUESTION BANK ................................................................................................................................ 16

MIS Study Notes | INFORMATION 1

Module 2 Information and Decisions

1. INFORMATION

In our discussion earlier module we learnt meaning of Data, Information and their differences,
so let’s recap briefly what we have learnt.

What is Data?
Data is a raw and unorganized fact that required to be processed to make it meaningful.
Generally, data comprises facts, observations, perceptions numbers, characters,
symbols, image, etc.
Data is always interpreted, by a human or machine, to derive meaning. So, data is
meaningless. Data contains numbers, statements, and characters in a raw form.

What is Information?
Information is a set of data which is processed in a meaningful way according to the
given requirement.
Information is processed, structured, or presented in a given context to make it
meaningful and useful.
Information assigns meaning and improves the reliability of the data. It helps to ensure
undesirability and reduces uncertainty. So, when the data is transformed into
information, it never has any useless details.

According to Davis and Olson: “Information is a data that has been processed into a form
that is meaningful to recipient and is of real or perceived value in the current or the
prospective action or decision of recipient.”

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Module 2 Information and Decisions

2. NEED/ROLE OF INFORMATION IN MANAGEMENT

Until 1980s, managers were least concerned or bothered about information, but today the
management at all levels (top/middle/operational) needs relevant information for effective
decision making, planning, and controlling.
The relevant information is one, which is usable for the intended purpose, increases knowledge
and reduces uncertainty. The importance of information has immensely increased. Information
plays a very important role for the survival of an organisation.

Information plays the following roles for an organization.

1. Improves Knowledge:
2. Reduces Uncertainty
3. A Critical Organizational Resources
4. A communication Means
5. Aids in Decision-Making: With this concept information provides something extra with
knowledge and subject oriented description which is helpful to decision maker.

3. SOURCES OF INFORMATION
There are many different sources of information for effective decision-making. Information
sources exist from many different potential sources. A clear division can be made between
Published and Unpublished information.
Published
The external information sources are typically related to the environment in which the business
organizations function.
In practice the external sources of information include:
Government Publications
Semi-government Publications
International Publications
Reports of Committee and Commissions
Publication by Trade Business Association
Newspapers, Magazines and Journals
Unpublished
The internal sources of information include the functional or departmental data processing
activities. Within the organization information is generated through reports such as
Sales forecast report
Financial resources & plans report

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Module 2 Information and Decisions
Availability of internal resources report
Budget allocation & utilization report
Management audits report

4. ATTRIBUTES/CHARACTERISTICS OF QUALITY INFORMATION

Success of any organization depends on the quality of information which is very crucial
resource. Further future of an organization depends on using and disseminating the
information wisely according to their objectives.
To run any organisation successfully, when your information is of good quality and when
this information is placed in right context in right time according to their needs then it gives
the way to find out the about opportunities and problems well in advance.
Good quality information: Quality of information refers to its fitness for use, or its reliability.
Following are the essential characteristic features:
1. Timeliness
o Timeliness means that information must reach the recipients within
the prescribed timeframes. For effective decision-making, information
must reach the decision-maker at the right time, i.e. recipients must get
information when they need it. Delays destroy the value of information.
2. Accuracy
o Information should be accurate. It means that information should be free from
mistakes, errors &, clear. Accuracy also means that the information is free from
bias. Wrong information given to management would result in wrong decisions.
As managers decisions are based on the information supplied in MIS reports, all
managers need accurate information.
3. Relevance
o Information is said to be relevant if it answers especially for the recipient what,
why, where, when, who and why? In other words, the MIS should serve reports
to a manager which is useful and the information helps them to make decisions.
The characteristic of relevance, to be effective, should also include up-to-date,
i.e. latest information.
4. Adequacy
o Adequacy means information must be sufficient in quantity, i.e. MIS must
provide reports containing information which is required in the deciding
processes of decision-making. The report should not give inadequate or for that
matter, more than adequate information, which may create a difficult situation
for the decision-maker. Whereas inadequacy of information leads to crises,
information overload results in chaos.

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Module 2 Information and Decisions
5. Completeness
o The information which is given 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
o A report is said to be of good quality if it does not require further analysis by the
recipients for decision making.
7. Impartiality
o Impartial information contains no bias and has been collected without any
distorted view of the situation.
8. Economical
o The cost of producing information should be less than the benefits produced
from such information. In other words, the benefits (direct & indirect) that are
desired from the information should exceed the cost of producing the
information.
o For example; if the cost of developing and implementing a sales analysis system
comes to Rs 20,000 per month (on an average) and the organization increases its
sales just by Rs 10,000 per month due to the system; then there is no point in
producing such information.

5. DECISION AND DECISION MAKING

The word decision has been derived from the latin word ‘decidere’ which means “to cut
off” or “to come to a conclusion”.
Decision may be regarded as a ‘choice’ whereby a decision maker comes to a conclusion
about given situation.
A decision is a choice out of several alternatives available to the decision maker to
achieve some objective at given point of time.
Decision making is a process of selecting an optimum or the most suitable alternatives
from number of alternatives.
Thus, a decision is an outcome or the end result, while decision making is a process.
Example:
Decision to raise a Purchase Order
Decision to give Increment
Decision to promote an employee
Where to advertise a new product
What stock to buy
Which movie to see
Where to go for dinner

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Module 2 Information and Decisions

6. TYPES OF DECISIONS

Types of Decision

Purpose of Level of Knowledge of

Decision Making Programmability Outcome

1) Types of Decisions – Purpose of Decision Making

1. Strategic planning decisions are those decisions in which the decision maker develops long-
term policies, objectives and allocates recourses to achieve these objectives.
Decisions in this category are of long-time period and usually involve a large investment
and effort.
Such decisions are taken by strategic planning level (top level) managers.
Ex: opening a new branch, acquiring a new business, launching a new product,
diversification of business etc
2. Management control decisions: These decisions are concerned with the issues of smooth
and effective implementation of policies.
These decisions are taken by managers at the middle-level management.
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Module 2 Information and Decisions
Such decisions ensure that the organizational resources are utilized in an optimum manner.
For instance, the information on fast and slow moving items may be used to take the
tactical decision to stock more of the former and give discount on the latter.
3. Operational control decisions: These decisions are made to ensure that the day-to-day
work is carried out in an efficient manner.
These decisions are taken by the operation-level managers (bottom level) and deal with the
routine operations of the organizations.
Ex: Production scheduling decisions, inventory control decisions, purchasing decisions are
part of operation control decisions.

2) Types of Decisions - Level of Programmability

Programmability....?
A program is defined as a plan for the automatic solutions of a problem.
Programs are simply a string of instructions to accomplish an assignment.
So programmability refers to decisions which have capability of being programmable/
automatable.

1. STRUCTURED/ PROGRAMMED DECISION

Structured or Programmed decisions are well defined, rule-based, and have some
specified procedure, which may be used to arrive at a decision.
These decisions are repetitive, routine, and involve a definite and well-defined
decisions making process.
These are also called programmed decisions because rules, methods, and guidelines
can be applied to reach a decision.

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Module 2 Information and Decisions
Simply put, if you can apply a rule when deciding what to do, it is a structured
decision.
Example:
Determine special offers to customers.
Sending reminder notice to a customer for an overdue balance based on overdue
date
Approving or rejecting employee leave request based leave policy
Inventory recorder decisions
Paying salaries at the end of the month

2. UNSTRUCTURED/ NON-PROGRAMMED DECISION

Decisions which are not well defined and have no pre-specified procedure or
decision rule are known as unstructured or non- programmed decisions.
Unstructured decisions can’t be programmed and are thus called non-programmed
decisions.
Unstructured decisions are non-routine, infrequent and complex, due to which
such decisions are taken by strategic level managers.
The decision maker must provide judgment, evaluation, and insights.
Example:
Expanding the business
Planning of new services to be offered
moving operations to foreign countries
Planning for R & D
Relocating the manufacturing unit to a new state.

3. SEMI-STRUCTURED DECISIONS
Semi-structured decisions fall between structured and unstructured decisions
It requires a combination of standard procedures and individual judgment.
Annual evaluation of employees,
o Part structured - e.g. access to employee's performance appraisal report
o Part unstructured - e.g. Personally knowing employee how he has handled
customer
Why have sales in a particular branch declined over the last year?
o Part structured - e.g. access to internal company data
o Part unstructured - e.g. knowledge of local economic conditions
Develop marketing plan.

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Module 2 Information and Decisions

3) Types of Decisions – Knowledge of Outcome

Classified on the basis of the degree of knowledge about the outcomes or the
events yet to take place:
If the manager has full knowledge, then it is situation of certainty.
If the manager has partial knowledge or a probabilistic knowledge, then it is DM
under risk.
If he does not have any knowledge whatsoever, then it is DM under uncertainty.

Programmed vs. Non-programmed Decisions

Characteristics Programmed Non-programmed

Also called Structured decision Unstructured

Type of problem Structured, routine, Unstructured, novel,

well defined ill defined

Managerial level Lower level Upper level

Frequency of Repetitive New, unusual

problem

Information Readily available Ambiguous or incomplete

Time frame for solution Short Relatively long

Judgment Objective Subjective

Solution relies on Procedures, rules, and policies Managerial Judgment and creativity

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Module 2 Information and Decisions

7. Simon’s Model of Decision Making

Herbert Simon’s Model

7.1. Simon’s Model of Decision Making

Herbert Simon (1916 – 2001)
• Herbert Simon was an Jewish-American economist and cognitive psychologist, whose
primary research interest was decision-making within organizations
• He is best known for the theories of "bounded rationality" and "satisfying".
• He received the Nobel Prize in Economics in 1978.

MIS Study Notes | Simon’s Model of Decision Making 10

Module 2 Information and Decisions
1. Intelligence Stage
In this stage, the decision maker scans the environment and indentifies the problem or
opportunity.
Intelligence phase of decision-making process involves:
Problem Searching:
o “Problem” is defined as the “difference” between something that is expected
and reality.
o Desired/Expected – Actual/ Reality = Difference(Problem)
Problem Formulation: When the problem is identified, there is always a risk of solving
the wrong problem. To avoid such risk problem has to be well understood and clearly
defined.
The end result of the intelligence phase is a decision statement.

2. Design Stage
This stage involves identifying, developing and analysing all possible alternatives course
of action.
Critically evaluate the different consequence and costs of all the alternative course
available.
This involves spending more time and energy than 1st stage.

3. Choice Stage
In this stage, most appropriate alternative is selected.
The end product of this phase is a decision that we can carry out.

4. Implementation Stage
The selected alternative is then implemented.
It is the process of putting the decision into effect.
After implementing the decision, Decision makers continuously monitor is the decision
is right.

8. ROLE OF MIS IN DECISION MAKING

Decision Stages
1. Intelligence Stage -
Identification of Problem
a) Problem Searching
b) Problem formulation
MIS Study Notes | ROLE OF MIS IN DECISION MAKING
Role of MIS
Information system provides information about internal as
well as external environment.
Then data is scanned, examined, checked and edited.
Further, the data is sorted and merged with other data and
computations are made, summarized and presented.
In this process, the attention of the manager is drawn to all
problem situations by highlighting the significant
differences between the actual and the expected.
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2. Design In the design stage, information system support in deigning

Developing alternatives
and evaluation of
alternatives
3. Choice
Selection of an
alternative
4. Implementation
Implementing and testing
the selected alternative.
various models of business operations and advanced
statistical, optimization techniques which helps in
manipulating information which is already collected from
intelligence stage to develop and evaluate various
alternatives.
In the design phase, the manager develops a model of the
problem situation on which he can generate and test the
different decision alternatives.
Information system provide summarized and organized
information to the decision makers at this stage
It also provide models through which decision maker can
select the most appropriate alternatives and thus helps in
choosing best course of action.
If the decisions maker chooses to return to any of the
preceding stage then information system help them to
return to any previous stages.
Information systems can also help the decisions maker
monitor the successful implementation of decisions by
providing feedback.

9. TOOLS FOR DECISION MAKING - METHODS FOR DECIDING DECISION

ALTERNATIVES
9.1. Payoff Matrix

A Payoff Matrix is decision analysis tool that summarizes pros and cons of a decision in a
tabular form.
The Pay off matrix consists of rows and columns.
The rows represent the alternatives and the columns represent the conditions or the
states of nature with the probability of occurrence.
The intersection of columns and rows are called cells. Each cell contains the pay-off(profit
or loss).

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Module 2 Information and Decisions

In Payoff matrix all alternatives and outcomes are assumed to be known.

The decision maker evaluates the situation and calculates the expected value (EV =
Probability * Outcome).
The decision is taken by choosing the decision alternative that has maximum
expected value of outcome.
Let us try to understand the pay-off matrix with help of an example.
Example:
LUMINOUS battery is facing stiff competition from international competitor APC, So
management of LUMINOUS decides to change the price.
1. Increase the Price
2. Decrease the Price
3. No change in Price
There are three states of nature that affect the pay-off from each of the alternative strategies.
1. Competitor Increase the Price
2. Competitor decrease the Price
3. Competitor does not act, maintain status quo

MIS Study Notes | TOOLS FOR DECISION MAKING - METHODS FOR DECIDING DECISION 13
ALTERNATIVES
Module 2 Information and Decisions
The Decision maker calculates EV and chooses an alternative that has maximum EV.
The expected values are calculated as follows.
Expected Value = Pay-off x states of nature (1) + Pay-off x states of nature (2) + Pay-off x
states of nature (3)
EV of S1 = (5x0.50) + (3x.0.20) + (7x0.30)
o = 2.50 + 0.60 + 2.10= 5.20
EV of S2 = (10x0.50) + (5x.0.20) + (12x0.30)
o = 5.00 + 1.00 + 3.60 = 9.60 Maximum EV
EV of S3 = (8x0.50) + (8x.0.20) + (5x0.30)
o = 4.00 + 1.60 + 1.50= 7.10

9.2. Decision Tree

Decision Tree is a graphical representation of a sequence of decision and actions.
The analysis of alternatives resembles a tree with its branches, and hence is called
decision tree analysis.
o The root of the tree is the starting point of the decision sequence and each
branch represents a possible decision or occurrence.

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ALTERNATIVES
Module 2 Information and Decisions

Consider the case of a computer firm that offers the following discount policy to its
customers.
If the payment is made within 10 days.
o 3% discount is allowed on orders above Rs 10,000
o 2% on orders up to Rs 5,001 to Rs 10,000
o 1% on orders up to Rs 5,000
However, if the payment is made in more than 10 days, no discount is allowed.

Discount Policy can be portrayed in Decision Tree as

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ALTERNATIVES
Module 2 Information and Decisions

10. QUESTION BANK

2 Marks Questions

1. What is unstructured decision? Give an example

2. State any two sources of information.
3. What is attribute? Give an example
4. What is attributes of information?
5. Draw neatly Herbert Simon’s Model.
6. What are the attributes of Information?
7. Explain attributes of information.
8. Mention different sources of information.
9. What is decision and decision making?

8 Marks Questions
1. Explain Herbert Simon’s stages of Decision making model.
2. Classify Managers as per the level of the hierarchy and explain what kind of decision
they take according to their level in the Management
3. Elaborate tools which are used for decision making?
4. Describe the Quality of information.
5. Explain any one decision making model.
6. Describe the quality of information.
7. Discuss various types of decisions.
8. Mention the types and sources of information.
9. Explain the role of MIS in decision making.
10. Which are the methods of deciding decisions alternative? Explain
11. How do MIS support the activities of managers in decision making?
12. Discuss the role of MIS in various stages of decision making.
13. Differentiate between a “decision” and “Decision making process”, Illustrate Simon’s
model of decision making.
14. Explain the difference among structured, unstructured and semi-structured decisions
with examples.
15. Mention the different stages involved in decision making and explain them.

14 Marks Questions

1. What are different models of decision making? Explain each with example.
2. Enumerate the various basis of classifying decisions. Explain structured and
unstructured decisions with the help of examples.
3. Give various bases of classifying decisions. Which is the most widely used basis? Why?

MIS Study Notes | QUESTION BANK 16