Lecture Eight

Chapter 12
Enhancing Decision Making
13.1
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
13.2

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
13.3

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.
13.4

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.
13.5

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
13.6

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.
13.7

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?
13.8

Information Requirements of Key Decision-Making Groups

in a Firm
13.9

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)
13.10

Stages in Decision Making
13.11

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
13.12

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.
13.13

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
13.14

Overview of a Decision-Support System
13.15

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
13.16

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.
13.17

Chapter 12 Enhancing Decision Making
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
13.18

Chapter 12 Enhancing Decision Making
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
13.19

Using DSS
What-If Analysis
Sensitivity Analysis
Goal-seeking Analysis
Optimization Analysis
13.20
Activities and examples of the major types of analytical modeling

13.21

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.
13.22
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
13.23

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.
13.24

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.
13.25

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.
13.26
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

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
13.27
13.28

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
13.29
Supply chain management

Customer relationship management
Pricing Decisions
Asset Utilization
Data Visualization
Geographic Information Systems (GIS)

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
13.30

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.
13.31

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)
13.32

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.
13.33

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.
13.34

Group System Tools
13.35
Source: From Nunamaker et al.,

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

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
13.36

EXECUTIVE SUPPORT IN THE ENTERPRISE
13.37
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.

13.38
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.

13.39
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

Business Value of Executive Support Systems
13.40
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.

Enterprise Portals and Decision Support
Enterprise Information Portals (EIP)
13.41
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.

Enterprise Portals and Decision Support
The business benefits of EIP
13.42
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.
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
13.43
Enterprise Information Portal
13.44

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
13.45
Web-based KM
13.46

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
13.47

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
13.48

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.
13.49

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.
13.50

Lecture Eight

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Chapter 12

Enhancing Decision Making

2006 by Prentice Hall

Management Information Systems

Level of Management Decision Making

2006 by Prentice Hall

Management Information Systems

Senior management (Strategic Management)

2006 by Prentice Hall

Management Information Systems

Middle Management (Tactical Management)

2006 by Prentice Hall

Management Information Systems

Operational Management/ Individual employees

2006 by Prentice Hall

Management Information Systems

2006 by Prentice Hall

Management Information Systems

Types of Decisions (Continued)

2006 by Prentice Hall

Management Information Systems

Types of Decisions (Continued)

2006 by Prentice Hall

Management Information Systems

Information Requirements of Key Decision-Making Groups

2006 by Prentice Hall

Management Information Systems

Systems for Decision Support

2006 by Prentice Hall

Management Information Systems

Stages in Decision Making

2006 by Prentice Hall

Management Information Systems

Decision Making in the Real World

2006 by Prentice Hall

Management Information Systems

Management Information Systems: help managers

2006 by Prentice Hall

Management Information Systems

Decision Support Systems: are computer-based information

2006 by Prentice Hall

Management Information Systems

Overview of a Decision-Support System

2006 by Prentice Hall

Management Information Systems

2006 by Prentice Hall

Management Information Systems

Example: Sales Manager typically rely on MIS to produce

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

2006 by Prentice Hall

Management Information Systems

Types of Decision-Support Systems

2006 by Prentice Hall

Management Information Systems

2006 by Prentice Hall

Management Information Systems

2006 by Prentice Hall

Activities and examples of the major types of analytical modeling

2006 by Prentice Hall

Management Information Systems

2006 by Prentice Hall

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

2006 by Prentice Hall

Management Information Systems