enhancing decision makingexecutive support systems (ess) • • • • • • • national life...

12.1 © 2010 by Pearson

12Chapter

EnhancingDecision Making


LEARNING OBJECTIVES

Management Information SystemsChapter 12 Enhancing Decision Making

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Describe different types of decisions and the decision-makingprocess.

Assess how information systems support the activities ofmanagers and management decision making.

Demonstrate how decision-support systems (DSS) differ fromMIS and how they provide value to the business.

Demonstrate how executive support systems (ESS) helpsenior managers make better decisions.

Evaluate the role of information systems in helping peopleworking in a group make decisions more efficiently.


Decision Making and Information Systems

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Business value of improved decision makingImproving hundreds of thousands of “small” decisions adds up tolarge annual value for the business

Types of decisions:Unstructured: Decision maker must provide judgment,evaluation, and insight to solve problem

Structured: Repetitive and routine; involve definite procedure forhandling so they do not have to be treated each time as new

Semistructured: Only part of problem has clear-cut answerprovided by accepted procedure




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Senior managers:Make many unstructured decisionsE.g., Should we enter a new market?

Middle managers:Make more structured decisions but these may includeunstructured componentsE.g., Why is order fulfillment report showing decline inMinneapolis?

Operational managers, rank and file employeesMake more structured decisionsE.g., Does customer meet criteria for credit?



Information Requirements of Key Decision-Making Groupsin a Firm

Figure 12-1

Senior managers, middle managers, operational managers, and employees have different types ofdecisions and information requirements.




DECISION MAKING

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Model – a simplified representation orabstraction of reality IT systems in

an enterprise


TRANSACTION PROCESSINGSYSTEMS

• Moving up through the organizational pyramid users movefrom requiring transactional information to analyticalinformation



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Four stages of decision makingIntelligence

Discovering, identifying, and understanding the problems occurringin the organization

DesignIdentifying and exploring solutions to the problem

ChoiceChoosing among solution alternatives

ImplementationMaking chosen alternative work and continuing to monitor howwell solution is working



Stages in Decision Making

Figure 12-2The decision-making process is brokendown into four stages.



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Information systems can only assist in some of the rolesplayed by managersClassical model of management

Five functions of managers

Planning, organizing, coordinating, deciding, and controlling

More contemporary behavioral modelsActual behavior of managers appears to be less systematic,more informal, less reflective, more reactive, and less wellorganized than in classical model

Mintzberg’s behavioral model of managers defines 10managerial roles falling into 3 categories


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Mintzberg’s 10 managerial rolesInterpersonal roles: FigureheadLeader

LiaisonInformational roles: Nerve center

DisseminatorSpokesperson

Decisional roles: EntrepreneurDisturbance handlerResource allocatorNegotiator


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Three main reasons why investments in informationtechnology do not always produce positive results

Information qualityHigh-quality decisions require high-quality information

Management filtersManagers have selective attention and have variety of biasesthat reject information that does not conform to priorconceptions

Organizational cultureStrong forces within organizations resist making decisionscalling for major change


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TRANSACTION PROCESSING SYSTEMS

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Transactional informationall of the information contained within a singlebusiness process or unit of work; purpose is tosupport daily operational work

Transaction processing system (TPS) - the basic business system that serves theoperational level (analysts) in an organization;designed to process business events andtransactions

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TRANSACTION PROCESSING SYSTEMS

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Processing – the capturing of transaction & eventinformation using technology to

Process the information according to defined business rules,Store the information,Update existing information to reflect the new information

Processing can be either:

Batch – grouped and processed together at a later timeOnline (real-time) – processed individually in real-time

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Systems for Decision Support

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Four kinds of systems for decision support

Management information systems (MIS)

Decision support systems (DSS)

Executive support systems (ESS)

Group decision support systems (GDSS)


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Management information systems (MIS)Help managers monitor and control business by providinginformation on firm’s performance and address structuredproblems

Typically produce fixed, regularly scheduled reports based ondata from TPS

E.g., exception reports: Highlighting exceptional conditions, such assales quotas below anticipated level

E.g., California Pizza Kitchen MISFor each restaurant, compares amount of ingredients used perordered menu item to predefined portion measurements andidentifies restaurants with out-of-line portions


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Decision-support systems (DSS)Support unstructured and semistructured decisionsModel-driven DSS

Earliest DSS were heavily model-driven

E.g., voyage-estimating DSS (Chapter 2)

Data-driven DSSSome contemporary DSS are data-driven

Use OLAP and data mining to analyze large pools of data

E.g., business intelligence applications (Chapter 6)


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Components of DSSDatabase

Used for query and analysisCurrent or historical data from number ofapplications or groupsMay be small database or large data warehouse

User interfaceOften a Web interface

Software systemWith models, data mining, other analytical tools


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DECISION SUPPORT SYSTEMS

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Three quantitative models used by DSSs include:What-if analysis – checks the impact of a change inan assumption on the proposed solution; making ahypothetical change to problem data and observingthe impact on the results; “what will happen?”Sensitivity analysis – the study of the impact thatchanges in one (or more) parts of the model have onother parts of the model (repeated changes)Goal-seeking analysis – finds the inputs necessary toachieve a goal such as a desired level of output;determining the data required for a given result;setting a target value or goal to achieve, thendetermining “how to get it”

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Overview of a Decision-Support System

Figure 12-3

The main components of the DSS are the DSS database, the user interface, and the DSS software system. The DSS database may be a small databaseresiding on a PC or a large data warehouse.



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DECISION SUPPORT SYSTEMS

• Interaction between a TPS and a DSS

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Model:Abstract representation that illustrates componentsor relationships of phenomenon; may be physical,mathematical, or verbal model

Statistical models

Optimization models

Forecasting models

Sensitivity analysis models


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Using spreadsheet pivot tables to support decisionmaking

Records of online transactions can be analyzed using Excel

Where do most customers come from?

Where are average purchases higher?

What time of day do people buy?

What kinds of ads work best?

Pivot table:

Categorizes and summarizes data very quickly

Displays two or more dimensions of data in a convenientformat


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Sample List of Transactions for Online Management Training

Figure 12-5This list shows a portion of the order transactions for Online Management Training Inc. (OMT Inc.) on October 28, 2008.



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Data visualization tools:Help users see patterns and relationships in large amounts ofdata that would be difficult to discern if data were presented astraditional lists of text

Geographic information systems (GIS):Category of DSS that use data visualization technology toanalyze and display data in form of digitized maps

Used for decisions that require knowledge about geographicdistribution of people or other resources, e.g.:

Helping local governments calculate emergency response times tonatural disastersHelp retail chains identify profitable new store locations


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Web-based customer decision-support systems (CDSS):Support decision-making process of existing or potentialcustomerUse Web information resources and capabilities for interactivityand personalization to help users select products and services

E.g., search engines, intelligent agents, online catalogs, Webdirectories, newsgroup discussions, other tools

Automobile companies that use CDSS to allow Web site visitorsto configure desired carFinancial services companies with Web-based asset-management tools for customers


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Group decision support systems (GDSS)Interactive system to facilitate solution of unstructuredproblems by group of decision makersHardware – computer and networking hardware, overheadprojectors, display screensGDSS software collects, documents, ranks, edits and storesparticipant ideas, responsesMay require facilitator and staffEnables increasing meeting size and increasing productivityPromotes collaborative atmosphere, guaranteeing anonymityFollow structured methods for organizing and evaluating ideasand preserving meeting results



12.28 © 2010 by Pearson

Executive Support Systems (ESS)

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Executive support systems (ESS)Designed to help executives focus on important performanceindicationsBalanced scorecard method:

Measures outcomes on four dimensions:FinancialBusiness processCustomerLearning & growth

Key performance indicators (KPIs) measure eachdimension

In developing an ESS, first concern is for senior executives andconsultants to develop scorecard and then to automate flow ofinformation for each KPI


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Role of ESS in the firmUsed by both executives and subordinatesDrill-down capability: Ability to move from summary informationto finer levels of detailIntegrate data from different functional systems for firmwideviewIncorporate external data, e.g. stock market news, competitorinformation, industry trends, legislative actionInclude tools for modeling and analysis

Primarily for status, comparison information aboutperformance


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Digital Dashboards

• Digitaldashboard –

integratesinformationfrom multiplecomponentsand presentsit in a unifieddisplay

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Business value of executive support systemsEnables executive to review more data in less time with greaterclarity than paper-based systems

Needed actions identified and carried out earlier

Improves management performance

Increases upper management’s span of control

Also enables decision making to be decentralized and take place atlower operating levels

Increases executives’ ability to monitor activities of lower unitsreporting to them


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National LifeMarkets life insurance, health insurance, and retirement/investment products executive information system

Executive information system:

Allows senior managers to access corporate databases throughWeb interface

Shows premium dollars by salesperson

Authorized users can drill down into these data to see product,agent, and client for each sale

Data can be examined by region, by product, and by broker, andaccessed for monthly, quarterly, and annual time periods


12.35 © 2010 by Pearson

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