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Chapter 12

Enhancing Decision Making

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2006 by Prentice Hall

Management Information Systems


Chapter 13 Enhancing Decision Making for the Digital Firm
DECISION MAKING AND DECISION-SUPPORT SYSTEMS

Level of Management Decision Making


There are different levels in an organization. Each of
these levels has different information requirements for
decision support and responsibility for different types of
decisions.
Senior management (Strategic Management)
Middle Management (Tactical Management)
Operational Management/ Individual employees
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2006 by Prentice Hall

Management Information Systems


Chapter 13 Enhancing Decision Making for the Digital Firm
DECISION MAKING AND DECISION-SUPPORT SYSTEMS

Senior management (Strategic Management)


Typically, a board of directors, and an executive
committee of the CEO and top executives develop all
organizational goals, strategies, policies, and
objectives as part of a strategic planning process.
They also monitor the strategic performance of the
organization and its overall direction in the political,
economic, and competitive business environment

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Management Information Systems


Chapter 13 Enhancing Decision Making for the Digital Firm
DECISION MAKING AND DECISION-SUPPORT SYSTEMS

Middle Management (Tactical Management)


Increasingly, business professionals in self-directed
teams as well as business unit managers develop
short and medium range plans, schedule, and
budgets, and specify the policies, procedures, and
business objectives for their subunits of the company.
They also allocate resources and monitor the
performance of their organizational subunits,
including departments, divisions, process teams,
project teams, and other workgroups.

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Management Information Systems


Chapter 13 Enhancing Decision Making for the Digital Firm
DECISION MAKING AND DECISION-SUPPORT SYSTEMS

Operational Management/ Individual employees


The members of self-directed teams or operatingmanagers develop short-range plans such as
weekly production schedules.
They direct the use of resources and the
performance of tasks according to procedures and
within budgets and schedules they establish for the
teams and other workgroups of the organization.

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Management Information Systems


DECISION MAKING AND DECISION-SUPPORT SYSTEMS

Types of Decisions
Unstructured decisions:
Are those in which the decision maker must provide
judgment, evaluation, and insight to solve the problem.
Each of these decisions is novel, non-routine, and
there is no well-understood or agreed-on
procedure for making them
Senior Executives face many unstructured decision
situations; e.g., establishing the firms 5 year goal or
deciding new markets to enter
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Management Information Systems


DECISION MAKING AND DECISION-SUPPORT SYSTEMS

Types of Decisions (Continued)


Structured decisions:
Are repetitive and routine, and they involve a
definite procedure for handling them so that they do
not have to be treated each time as if they were new.
Routine decisions with definite procedures
Examples: A supervisor on an assembly line has to
decide whether an hourly worker is entitled to overtime
pay.

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Management Information Systems


DECISION MAKING AND DECISION-SUPPORT SYSTEMS

Types of Decisions (Continued)


Semi-structured decisions:
When only part of decision has clear-cut answers
provided by accepted procedures
Examples: why is the reported order fulfillment report
showing a decline over the past six months at a
distribution centre in Chittagong?

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2006 by Prentice Hall

Management Information Systems


Chapter 13 Enhancing Decision Making for the Digital Firm
DECISION MAKING AND DECISION-SUPPORT SYSTEMS

Information Requirements of Key Decision-Making Groups


in a Firm

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2006 by Prentice Hall

Management Information Systems


Chapter 13 Enhancing Decision Making for the Digital Firm
DECISION MAKING AND DECISION-SUPPORT SYSTEMS

Systems for Decision Support


There are four kinds of systems that support the
different levels and types of decisions:
Management Information Systems (MIS)
Decision-Support Systems (DSS)
Executive Support Systems (ESS)
Group Decision-Support Systems (GDSS)
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Management Information Systems


Chapter 13 Enhancing Decision Making for the Digital Firm
DECISION MAKING AND DECISION-SUPPORT SYSTEMS

Stages in Decision Making

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2006 by Prentice Hall

Management Information Systems


Chapter 13 Enhancing Decision Making for the Digital Firm
DECISION MAKING AND DECISION-SUPPORT SYSTEMS

Decision Making in the Real World


In the real world, investments in decision-support
systems do not always work because of
Information quality: Accuracy, integrity,
consistency, completeness, validity, timeliness,
accessibility
Management filters: Biases and bad decisions of
managers
Organizational inertia: Strong forces within
organization that resist change
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2006 by Prentice Hall

Management Information Systems


Chapter 13 Enhancing Decision Making for the Digital Firm
SYSTEMS FOR DECISION SUPPORT

Management Information Systems: help managers


monitor and control the business by providing information
on the firms performance.
Primarily address structured problems
Provides typically fixed, scheduled reports based on
routine flows of data and assists in the general control
of the business
Produces exception reports, highlighting only
exceptional conditions.
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Management Information Systems


Chapter 13 Enhancing Decision Making for the Digital Firm
SYSTEMS FOR DECISION SUPPORT

Decision Support Systems: are computer-based information


systems that provide interactive information support to
managers and business professionals during decision-making
process.
Support semi-structured and unstructured problems
DSSs use (a) analytical models (b) specialized database
(c) a decision makers own insight and judgments (d) an
interactive computer-based modeling process to support
semi-structured business decisions.
Greater emphasis on models, assumptions, ad-hoc
queries, display graphics
Emphasizes change, flexibility, and a rapid response
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Management Information Systems


Chapter 13 Enhancing Decision Making for the Digital Firm
SYSTEMS FOR DECISION SUPPORT

Overview of a Decision-Support System

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Management Information Systems


Chapter 13 Enhancing Decision Making for the Digital Firm
SYSTEMS FOR DECISION SUPPORT

Components of DSS
DSS database: A collection of current or historical
data from a number of applications or groups
DSS software system: Contains the software tools
for data analysis, with models, data mining, and
other analytical tools
DSS user interface: Graphical, flexible interaction
between users of the system and the DSS software
tools
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Management Information Systems


Chapter 13 Enhancing Decision Making for the Digital Firm
SYSTEMS FOR DECISION SUPPORT

Example: Sales Manager typically rely on MIS to produce


sales analysis report. A DSS would also interactively show a
sales manager the effects on sales performance of changes
in a variety to evaluate and rank alternative combinations of
sales performance factors.
Therefore, DSS are:

designed to be ad-hoc, quick-response systems that are initiated and


controlled by business decision makers.
thus able to support directly the specific types of decisions and the
personal decision-making styles and needs of individual executives,
managers, and business professionals.

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Management Information Systems


Chapter 12 Enhancing Decision Making
SYSTEMS FOR DECISION SUPPORT

Types of Decision-Support Systems


Model-driven DSS: consists of models used in computational
and analytical routines that mathematically express
relationships among variables.
Primarily stand-alone systems
Use a strong theory or model to perform what-if
and similar analyses
Models e.g., linear programming models, multiple regression
forecasting models, and capital budgeting present value models

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Management Information Systems


Chapter 12 Enhancing Decision Making
SYSTEMS FOR DECISION SUPPORT

Data-driven DSS:
Integrated with large pools of data in major
enterprise systems and Web sites
Support decision making by enabling user to
extract useful information
Data mining: Can obtain types of information such
as associations, sequences, classifications,
clusters, and forecasts
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Management Information Systems


SYSTEMS FOR DECISION SUPPORT

Using DSS
What-If Analysis
Sensitivity Analysis
Goal-seeking Analysis
Optimization Analysis

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Activities and examples of the major types of analytical modeling


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Management Information Systems


SYSTEMS FOR DECISION SUPPORT

What-If analysis
In What-If analysis, a user makes changes to variables, or
relationships among variables, and observes the resulting
changes in values of other variables. (e.g., Spreadsheet)
Example: Using a spreadsheet, you might change a
revenue amount (a variable) and/or a tax-rate formula (a
relationship among variables). Then may recalculate all
affected variables in the spreadsheet instantly.

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This what-if analysis involves the evaluation of probability distributions of


net income and net present value (NPV) generated by changes to values
for sales, competitors, product development, and capital expenses
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Management Information Systems


SYSTEMS FOR DECISION SUPPORT

Sensitivity Analysis
Sensitivity analysis is a special case of what-if analysis.
Typically, the value of only one variable is changed
repeatedly, and the resulting changes on other variables
are observed.
Some DSS package automatically make repeated small
changes to a variable when asked
Decision-makers use sensitivity analysis when they are
uncertain about the assumption made in estimating the
value of certain key variables.
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2006 by Prentice Hall

Management Information Systems


Chapter 12 Enhancing Decision Making for the Digital Firm
SYSTEMS FOR DECISION SUPPORT

Sensitivity Analysis

Example: the value of revenue could be changed repeatedly in small


increments, and the effects on the other variables observed and
evaluated.

This process helps a manager understand the impact of various revenue


levels on other factors involved in decision being considered.

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Management Information Systems


Chapter 12 Enhancing Decision Making for the Digital Firm
SYSTEMS FOR DECISION SUPPORT

Goal Seeking analysis/how-can analysis


Goal-seeking analysis reverses the direction of the
analysis done in what-if and sensitivity analyses. Instead
of observing how changes in a variable affect other
variables, goal-seeking analysis sets a target value (goal)
for a variable and then repeatedly changes other
variables until the target value is achieved.

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For example, you could specify a target value of $2 million in net


profit after taxes. Then you could repeatedly change the value of
revenue or expenses in a spreadsheet model until you achieve the
result: how can we achieve $2 million in net profit

2006 by Prentice Hall

Management Information Systems


Chapter 13 Enhancing Decision Making for the Digital Firm
SYSTEMS FOR DECISION SUPPORT

Optimization Analysis

Optimization analysis is a more complex extension of goal-seeking


analysis. Instead of setting a specific target value, the goal is to find
the optimum value for one or more target variables, given certain
constraints.

Then one or more other variables are changed repeatedly, subject to


the specific constraints, until discovering the best values for the
target variables.

For example, we could try to determine the highest possible level of profits
that could be achieved by varying the values for selected revenue sources
and expenses categories. E.g., Solver Tool in MS Excel

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2006 by Prentice Hall

Management Information Systems


Chapter 13 Enhancing Decision Making for the Digital Firm
SYSTEMS FOR DECISION SUPPORT

Business Value of DSS


Providing fine-grained information for decisions that
enable the firm to coordinate both internal and external
business processes much more precisely
Helping with decisions in

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Supply chain management


Customer relationship management
Pricing Decisions
Asset Utilization
Data Visualization
Geographic Information Systems (GIS)
2006 by Prentice Hall

Management Information Systems


Chapter 13 Enhancing Decision Making for the Digital Firm
SYSTEMS FOR DECISION SUPPORT

Business Value of DSS (Continued)


Data Visualization:
Presentation of data in
graphical forms, to help users
see patterns and relationships
Geographic Information
Systems (GIS): Special
category of DSS that display
geographically referenced
data in digitized maps

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Management Information Systems


Chapter 12 Enhancing Decision Making for the Digital Firm
GROUP DECISION-SUPPORT SYSTEMS

What Is a GDSS?
Group Decision-Support System (GDSS) is an interactive computerbased system used to facilitate the solution of unstructured problems
by a set of decision-makers working together as a group.
Groupware and Web-based tools for videoconferencing also support
some group decision processes but their focus is primarily on
communication.
GDSS provide tools and technologies geared explicitly toward group
decision making.
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Management Information Systems


Chapter 12 Enhancing Decision Making for the Digital Firm
GROUP DECISION-SUPPORT SYSTEMS

Three Main Components of GDSS:


Hardware (conference facility, audiovisual
equipment, etc.)
Software tools (Electronic questionnaires,
brainstorming tools, voting tools, etc.)
People (Participants, trained facilitator, support
staff)

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Chapter 12 Enhancing Decision Making for the Digital Firm
GROUP DECISION-SUPPORT SYSTEMS

Overview of a GDSS Meeting


In a GDSS electronic meeting, each attendee has a
workstation.
The workstations are networked and are connected to the
facilitators console, which serves as the facilitators
workstation and control panel, and to the meetings file
server.
All data that the attendees forward from their
workstations to the group are collected and saved on the
file server.
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Management Information Systems


Chapter 12 Enhancing Decision Making for the Digital Firm
GROUP DECISION-SUPPORT SYSTEMS

Overview of a GDSS Meeting (Continued)


The facilitator is able to project computer images onto the
projection screen at the front of the room.
Many electronic meeting rooms have seating
arrangements in semicircles and are tiered in legislative
style to accommodate a large number of attendees.
The facilitator controls the use of tools during the
meeting.
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Chapter 12 Enhancing Decision Making for the Digital Firm
GROUP DECISION-SUPPORT SYSTEMS

Group System Tools

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Source: From Nunamaker et al.,


Electronic Meeting Systems to
Support Group Work,
Communication of the ACM, July
1991. Reprinted with permission.

2006 by Prentice Hall

Management Information Systems


Chapter 12 Enhancing Decision Making for the Digital Firm
GROUP DECISION-SUPPORT SYSTEMS

Business Value of GDSS


Traditional decision-making meetings support an optimal size of
three to five attendees. GDSS allows a greater number of
attendees.
Enable collaborative atmosphere by guaranteeing contributors
anonymity.
Enable non-attendees to locate organized information after the
meeting.
Can increase the number of ideas generated and the quality of
decisions while producing the desired results in fewer meetings
Can lead to more participative and democratic decision making
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Chapter 12 Enhancing Decision Making for the Digital Firm
EXECUTIVE SUPPORT IN THE ENTERPRISE

Executive Support Systems (ESS)

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ESS combine many of the features of MIS, and DSS.


Purpose: to help managers focus on really important information that
affect the overall profitability and success of the firm
Initial objective was on meeting strategic information-needs of top
management.
Hence, the first goal is to provide top executive with immediate and
easy access to information about a firms critical success factors
(CSFs) the factors that are critical to accomplishing an organizations
strategic objectives.
For example, compare e-commerce vs traditional sales; or product mix;
to measure firm performance against changes in external environment.

2006 by Prentice Hall

Management Information Systems


Chapter 12 Enhancing Decision Making for the Digital Firm
EXECUTIVE SUPPORT IN THE ENTERPRISE

Executive Support Systems (ESS)

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There are two parts of developing ESS.


First, need a methodology for understanding exactly what is the really
important performance information for a specific firm
Leading methodology: balanced scorecard method: focus on
measurable outcomes on four dimensions (financial, business
process, customers, learning and growth)
Performance of each dimension is measured using KPIs.
Second, once a scorecard is developed, now needs to automate the
flow of information for each of they key performance indicators.

2006 by Prentice Hall

Management Information Systems


Chapter 12 Enhancing Decision Making for the Digital Firm
EXECUTIVE SUPPORT IN THE ENTERPRISE

Executive Support Systems (ESS)

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ESS have the ability to drill down


Much values of ESS is found on their flexibility and ability to analyze,
compare, and highlight trends
The ease use of graphics enables the user to look at more data in less
time with greater clarity than paper-based systems
Executives use ESS to monitor KPIs and measure performance against
changes in the external environment.
Alternative names: Enterprise Information System (EIS), everyones
information system
Hence, more features (Web browsing, email, groupware tools, DSS) are
added

2006 by Prentice Hall

Management Information Systems


Chapter 12 Enhancing Decision Making for the Digital Firm
EXECUTIVE SUPPORT IN THE ENTERPRISE

Business Value of Executive Support Systems

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Ability to analyze, compare, and highlight trends


Graphical interface enables users to review data more quickly and
with more insight, speeding decision making.
Also generate Exception Report, and trend analysis
Timeliness and availability of data enables more timely decision
making, helping businesses move toward a sense-and-respond
strategy.
Increases upper management span of control, better monitoring.
ESS based on enterprise-wide data can be used for
decentralization of decision making or increase management
centralization.

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Management Information Systems


Chapter 12 Enhancing Decision Making for the Digital Firm
Enterprise Portals and Decision Support

Enterprise Information Portals (EIP)

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An enterprise information portal (EIP) is a Web-based interface


and integration of MIS, DSS, EIS, and other technologies that
gives all intranet users and selected extranet users access to
a variety of internal and external business applications and
services.

EIPs are typically tailored or personalized to the needs of


individual business users or groups of users, giving them
personalized digital dashboard of information sources and
applications.

2006 by Prentice Hall

Management Information Systems


Chapter 12 Enhancing Decision Making for the Digital Firm
Enterprise Portals and Decision Support

The business benefits of EIP

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providing more specific and selective information to business


users
providing easy access to key corporate intranet Web sites
resources
delivering industry and business news
providing better access to company data for selected
customers, suppliers, and business partners
EIP can also help avoid excessive surfing by employees across
company and Internet Web sites by making it easier for them to
receive or find the information and services they need thus
improving productivity of the workforce.

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Executive Information Portal

an enterprise information portal can provide a business professional with a personalized


workplace of information sources, administrative analytical tools, and relevant business
applications

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Enterprise Information Portal

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2006 by Prentice Hall

Management Information Systems


Chapter 12 Enhancing Decision Making for the Digital Firm

Knowledge Management Systems


In many organizations, database at corporate intranet Web sites
have become the knowledge bases for storages and
dissemination of business knowledge
The knowledge is used for best practices, policies, and business
solutions at projects, teams, and so on
For many companies enterprise information portals are the entry
to corporate intranets that serve as their knowledge
management systems. Thats why such portals are called
enterprise knowledge portals.
Enterprise knowledge portals play an essential role in helping
companies use their intranets as knowledge management
systems to share and disseminate knowledge in support of
business decision making

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Web-based KM

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Management Information Systems


Chapter 12 Enhancing Decision Making for the Digital Firm
MANAGEMENT OPPORTUNITIES, CHALLENGES AND DECISIONS

Management Opportunities:
Decision-support systems provide opportunities
for increasing precision, accuracy, and rapidity
of decisions and thereby contributing directly to
profitability

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2006 by Prentice Hall

Management Information Systems


Chapter 12 Enhancing Decision Making for the Digital Firm
MANAGEMENT OPPORTUNITIES, CHALLENGES AND DECISIONS

Management Challenges:
Building systems that can actually fulfill
Executive Information Requirements
Changing management thinking to make better
use of systems for decision support
Organizational resistance

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2006 by Prentice Hall

Management Information Systems


Chapter 12 Enhancing Decision Making for the Digital Firm
MANAGEMENT OPPORTUNITIES, CHALLENGES AND DECISIONS

Solution Guidelines:
Flexible Design and Development:
Users must work with IS specialists to identify a
problem and a specific set of capabilities that will
help them arrive at decisions about the problem.
The system must be flexible, easy to use, and
capable of supporting alternative decision options.

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2006 by Prentice Hall

Management Information Systems


Chapter 12 Enhancing Decision Making for the Digital Firm
MANAGEMENT OPPORTUNITIES, CHALLENGES AND DECISIONS

Solution Guidelines (Continued)


Training and Management Support:
User training, involvement, and experience; top
management support; and length of use are the
most important factors in the success of
management support systems.

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2006 by Prentice Hall