Chapter 10 - Information and decision support systems
Decision making as a component of problem solving
Problem solving begins with decision-making.
Three stages of the decision-making phase:
1. Intelligence stage
Identify potential problems / opportunities
Investigate resource & environmental constraints. Do external search for knowledge to solve decision making problem.
2. Design stage
Develop alternative solutions to the problem & evaluate the feasibility of these alternatives.
Use brain storming of people who have done adequate external search and have experience in solving similar problems.
3. Choice stage
Select a course of action.
Several multi objective choice models are there.
Problem solving goes beyond decision-making to include two more stages related to implementation of the decision.
4. Implementation stage
Put the solution into effect.
5. Monitoring stage
Evaluate the implementation to determine whether the anticipated results were achieved and do adjustments. So the problem solver should not stop once the decision is implemented. He has to be there to see that planned results actually come out. Otherwise make necessary adjustments.
Programmed versus non-programmed decisions
Programmed decisions are made using a rule / procedure.
(You can program a computer to order inventory when levels reach a certain minimum). They can be made computer systems through algorithms
Non-programmed (ad hoc) decisions deal with unusual / exceptional situations.
(Decisions contain unique characteristics for which the application of rules is not obvious). In this case information is provided to decision makers by MIS.
Optimisation, satisficing, and heuristic approaches
Optimisation model
= A process to find the best solution, considering constraints, profit goal, conditions.
Satisficing model
= A model that will find a good - but not necessarily the best - problem solution.
Satisficing is usually used because it can be too expensive / difficult to get the best solution. Also because decision maker is satisfied with the solution.
Heuristics
Commonly accepted guidelines / procedures that usually find a good solution. Heuristic methods are published and so the current best method can be chosen. Also internally companies can develop heuristic methods.
An overview of management information systems
Management information systems in perspective
A MIS provides info & support for effective decision-making and feedback on daily operations.
The insight provided helps managers control, organise, and plan more effectively & efficiently.
Each MIS is an integrated collection of sub-systems, organised along functional lines.
You can increase the overall efficiency of the MIS by improving the integration of sub-systems
Decision support, executive support, and expert systems have more components compared Decisio Informatio System to assist in decision-making.
Inputs to a MIS
Internal sources of data: TPS, ERP.
External sources of data: Customers, suppliers, competitors, stockholders, Internet.
The MIS uses the data to process it into information for managers, mainly in report form.
Outputs of a MIS
Scheduled reports
Reports produced periodically (daily / weekly / monthly)
E.g. A summary report of payroll costs helps managers control future payroll costs.
Key-indicator report = a summary of the previous day’s critical activities.
Demand reports
Reports that give info on request.
E.g. Managers can seek a demand report on inventory levels for a particular item.
Exception reports
Automatic reports that are produced when a situation is unusual / requires action.
E.g. An exception report can be produced if inventory levels are too low.
Drill down reports
Reports that provide increasingly detailed data about a situation.
Characteristics of a MIS
* Provide reports with fixed & standard formats
* Produce hard-copy & soft-copy reports
* Use internal data stored in the computer system
* Allow end users to develop their own custom reports
* Require user requests for reports developed by systems personnel
Provides financial information to financial managers.
* Integrates financial & operational information from multiple sources into a single MIS.
* Provides easy access to data for financial & non-financial users.
* Makes financial data available on a timely basis.
* Enables analysis of financial data along multiple dimensions (time, geography, customer…)
* Analyses historical & current financial activity.
* Monitors & controls the use of funds over time.
Important financial subsystems:
Profit / loss and cost systems
Revenue and expense data from the TPS becomes a source of financial info for the MIS.
Profit centres = departments that track total expenses and net profits.
Revenue centres = divisions that track sales / revenues. (Like marketing / sales departments)
Cost centres = divisions that do not directly generate revenue. (Manufacturing / R&D dept…)
Data on profit, revenue, and cost centres is gathered, summarised, and reported by the MIS.
Auditing
Determining the accuracy of financial statements produced by the financial MIS.
Internal audits are conducted to see how well the organisation is doing in terms of goals.
External audits are conducted to provide an unbiased picture of the organisation’s finances.
Uses and management of funds
Outputs from the funds usage & management subsystem can locate cash flow problems.
Internal uses of funds: Additional inventory, labour, investments in new products, research…
External uses of funds: Investments (bank accounts, stocks, bonds…)
The manufacturing MIS monitors the process of converting raw materials to finished goods.
Some common information subsystems & outputs used in manufacturing:
Design and engineering
During early stages of development, engineering depts are involved in many design aspects.
CAD can assist the design process.
Master production scheduling
Objective: To provide detailed plans for scheduling of manufacturing facilities.
Software packages can forecast current and future demand for products & services.
Sensitivity analysis allows you to see how the schedule would change with other assumptions
Inventory control
Inventory control programs allow reordering, forecasting, report generation, budget analysis…
EOQ = Economic Order Quantity = how much inventory should be reordered for minimal cost
ROP = ReOrder Point = a critical inventory quantity level. (‘Danger level’).
MRP = Material Requirements Planning = techniques that help coordinate thousands of
inventory items when the demand for one item is dependent on the demand for another.
MRPII = Manufacturing Resource Planning = a system based on network scheduling that
enables people to run their business with a high level of customer service & productivity.
This helps companies ensure the right product is in the right place at the right time.
(JIT) Just-in-time inventory and manufacturing
Inventory is delivered just before being used in a product, to keep inventory levels low.
Disadvantage: If one plant is shut down, another one might have no inventory to continue.
Process control
CAM = Computer-Assisted Manufacturing = a system that controls manufacturing equipment.
CIM = Computer-Integrated Manufacturing = a system that uses computers to link the
components of the production process into an effective system.
FMS = Flexible Manufacturing System = an approach that allows manufacturing facilities to
rapidly change from making one product to making another.
Quality control and testing
Quality control = a process that ensures that the finished product meets customers’ needs.
Info generated from quality-control programs helps workers locate problems in equipment.
CRMs (Customer Relationship Management) help a company manage customer encounters.
Marketing research
Purpose: To conduct a formal study of the market and customer preferences.
Research data is manipulated to generate reports on things like customer satisfaction.
Reports help managers be better informed to help the organisation meet performance goals.
Product development
Factors like plant capacity, labour skills… are important in product development decisions.
Software analyses these factors and selects appropriate mix of labour, materials, equipment...
Promotion and advertising
NB factors: Size of promotion budget & allocation of it to different promotional campaigns.
Computer programs set up the original budget and monitor expenditures and effectiveness.
Product pricing
Computer programs can help determine price elasticity and pricing policies.
Sales analysis is important to identify products that contribute to profits.
Reports can be generated to help marketing managers make good sales decisions.
Outputs: HR planning reports, job application reviews, skills inventory reports, salary surveys
Human resource planning
Purpose: To put the right number and kinds of people in the right jobs when they are needed.
Personnel selection and recruiting
Computers can schedule recruiting efforts and trips and test potential employees’ skills.
For each applicant, the results of the interviews, tests… can be analysed and printed.
This report (job applicant review profile) can assist corporate recruiting teams in final selection
Training and skills inventory
Many organisations conduct their own training with the assistance of technology.
When the training is over, the employees may be asked to take computer-scored tests.
The results are given to the supervisor in the form of skills inventory reports.
Scheduling and job placement
Employee schedules are developed, showing their job assignments over the next month.
Job placements are determined by skills inventory reports, which show where they’re suited.
Wage and salary administration
Wage data can be manipulated by the HR MIS to give wage info & reports to managers.
These reports (salary surveys) can be used to compare salaries with budget plans.
Wage & salary administration also entails designing retirement programs for employees.
Other management information systems
Geographic information systems (GIS)
= A computer system that stores, manipulates and displays data identified according to area.
Users can pair maps with tabular data to describe aspects of a particular region.
An overview of decision support systems
Used for problem-specific decision-making for semi-structured & unstructured problems
They are used at all levels in an organisation.
Characteristics of a decision support system
* Handle large amounts of data from different sources
* Provide report and presentation flexibility
* Offer both textual and graphical orientation
* Support drill down analysis (Get more levels of detail by drilling down through data)
* Perform complex, sophisticated analysis and comparisons
What-if analysis = making hypothetical changes to problem data and observing the impact.
Simulation = the ability of the DSS to duplicate the features of a real system.
Goal-seeking analysis = determining the problem data required for a given result.
Capabilities of a decision support system
Support for problem-solving phases
Phases of problem-solving: intelligence, design, choice, implementation, monitoring.
Support for different decision frequencies
Ad hoc DSS = concerned with situations that come up only a few times.
Institutional DSS = concerned with decisions that occur many times.
Support for different problem structures
Highly structured problems = straightforward, requiring known facts & relationships.
Semi structured / unstructured problems are more complex.
Support for various decision-making levels
Operational-level managers, tactical-level decision makers, and strategic managers.
A comparison of DSSs and MISs
Factor DSS MIS
Problem type Unstructured problems Structured problems
Users Users have more interaction Users have less interaction
Support People still make the Some MISs make automatic
decisions decisions
decisions
Emphasis Actual decision-making styles Emphasises info only
Approach Direct support system that provides interactive reports
Indirect support system that uses regular reports
System The equipment is on-line and related to real time
Weekly printed reports won’t provide immediate results
Speed Less time to develop and better able to respond
Longer response time
Output Usually screen, with ability to generate printed reports
Oriented towards printed reports
Development Users are more directly involved in its development
Often several years old
Components of a decision support system
The model base
Models that answer what if questions are provided to decision makers.
Purpose: To give decision makers access to models and to assist them in making decisions.
MMS = Model Management Software - co-ordinates the use of models in a DSS.
Financial models
Provide cash flow, internal rate of return and other investment analysis.
Statistical analysis models
Provide summary statistics, trend projections, hypothesis testing… (SPSS & SAS)
Graphical models
Assist decision makers in designing, developing, and using graphic displays of information.
Project management models
Used to handle & co-ordinate large projects and identify critical activities & tasks.
The dialogue manager
It allows users to access & manipulate a DSS using common business terms.
The group decision support system
GDSS consists of most DSS elements, plus software for providing group support.
Characteristics of a GDSS
* Special design
Special procedures, devices, and approaches are needed in group decision-making settings.
* Ease of use
* Flexibility
Supports different approaches and integrates different perspectives into a common view.
* Decision-making support
GDSS supports Delphi approach
Delphi approach = when group decision makers are geographically dispersed.
Brainstorming = when members offer ideas off the top of their heads.
Group consensus approach = when members are forced to reach a unanimous decision.
Nominal group technique = when a final decision is made by voting.
* Anonymous input
It allows decision makers to concentrate on the input, without considering who gave it.
* Reduction of negative group behaviour
Problems: People can take over a discussion, sidetrack the group, not examine alternatives.
GDSS designers are developing systems to reduce these types of problems.
A trained meeting facilitator is often employed to help lead the group decision-making process
* Parallel communication
Group members can make comments at the same time short meetings & better decisions.
* Automated record keeping
Each comment entered into a group member’s PC can be anonymously recorded.
GDSS software
Called groupware / workgroup software.
GDSS alternatives
The decision room
Decision makers are in the same building / area and are occasional GDSS users.
A decision rooms is set up, and there’s both face-to-face and technology interaction.
The Local area decision network
Decision makers are in the same building / area and are frequent GDSS users.
Members have GDSS equipment in their offices and connect via a LAN.
The teleconferencing alternative
Decision makers are far apart, and are infrequent GDSS users.
Decision rooms are electronically connected in teleconferences and videoconferences.
The wide area decision network
Decision makers are far apart, and are frequent GDSS users.
Decision makers located throughout the world are linked electronically through a WAN.
Virtual workgroups = teams of people around the world working on common problems.
The executive support system (ESS)
Executive support systems in perspective
ESS is a special type of DSS, designed to support higher-level decisions (strategic planning).
DSS allows users to answer questions, but ESS allows executives to ask the right questions.
General characteristics:
* Tailored to individual executives
* Easy to use
* Have drill down abilities
* Support the need for external data
* Can help with situations that have a high degree of uncertainty
* Support future-oriented decision making
* Are linked with value-added business processes
Capabilities of an executive support system
* Support for defining an overall vision
* Support for strategic planning
* Support for strategic organising & staffing
* Support for strategic control
* Support for crisis management
Decision making as a component of problem solving
Problem solving begins with decision-making.
Three stages of the decision-making phase:
1. Intelligence stage
Identify potential problems / opportunities
Investigate resource & environmental constraints. Do external search for knowledge to solve decision making problem.
2. Design stage
Develop alternative solutions to the problem & evaluate the feasibility of these alternatives.
Use brain storming of people who have done adequate external search and have experience in solving similar problems.
3. Choice stage
Select a course of action.
Several multi objective choice models are there.
Problem solving goes beyond decision-making to include two more stages related to implementation of the decision.
4. Implementation stage
Put the solution into effect.
5. Monitoring stage
Evaluate the implementation to determine whether the anticipated results were achieved and do adjustments. So the problem solver should not stop once the decision is implemented. He has to be there to see that planned results actually come out. Otherwise make necessary adjustments.
Programmed versus non-programmed decisions
Programmed decisions are made using a rule / procedure.
(You can program a computer to order inventory when levels reach a certain minimum). They can be made computer systems through algorithms
Non-programmed (ad hoc) decisions deal with unusual / exceptional situations.
(Decisions contain unique characteristics for which the application of rules is not obvious). In this case information is provided to decision makers by MIS.
Optimisation, satisficing, and heuristic approaches
Optimisation model
= A process to find the best solution, considering constraints, profit goal, conditions.
Satisficing model
= A model that will find a good - but not necessarily the best - problem solution.
Satisficing is usually used because it can be too expensive / difficult to get the best solution. Also because decision maker is satisfied with the solution.
Heuristics
Commonly accepted guidelines / procedures that usually find a good solution. Heuristic methods are published and so the current best method can be chosen. Also internally companies can develop heuristic methods.
An overview of management information systems
Management information systems in perspective
A MIS provides info & support for effective decision-making and feedback on daily operations.
The insight provided helps managers control, organise, and plan more effectively & efficiently.
Each MIS is an integrated collection of sub-systems, organised along functional lines.
You can increase the overall efficiency of the MIS by improving the integration of sub-systems
Decision support, executive support, and expert systems have more components compared Decisio Informatio System to assist in decision-making.
Inputs to a MIS
Internal sources of data: TPS, ERP.
External sources of data: Customers, suppliers, competitors, stockholders, Internet.
The MIS uses the data to process it into information for managers, mainly in report form.
Outputs of a MIS
Scheduled reports
Reports produced periodically (daily / weekly / monthly)
E.g. A summary report of payroll costs helps managers control future payroll costs.
Key-indicator report = a summary of the previous day’s critical activities.
Demand reports
Reports that give info on request.
E.g. Managers can seek a demand report on inventory levels for a particular item.
Exception reports
Automatic reports that are produced when a situation is unusual / requires action.
E.g. An exception report can be produced if inventory levels are too low.
Drill down reports
Reports that provide increasingly detailed data about a situation.
Characteristics of a MIS
* Provide reports with fixed & standard formats
* Produce hard-copy & soft-copy reports
* Use internal data stored in the computer system
* Allow end users to develop their own custom reports
* Require user requests for reports developed by systems personnel
Functional MIS - Information Systems in Various Departments/Business Functions
Financial MIS
Provides financial information to financial managers.
* Integrates financial & operational information from multiple sources into a single MIS.
* Provides easy access to data for financial & non-financial users.
* Makes financial data available on a timely basis.
* Enables analysis of financial data along multiple dimensions (time, geography, customer…)
* Analyses historical & current financial activity.
* Monitors & controls the use of funds over time.
Important financial subsystems:
Profit / loss and cost systems
Revenue and expense data from the TPS becomes a source of financial info for the MIS.
Profit centres = departments that track total expenses and net profits.
Revenue centres = divisions that track sales / revenues. (Like marketing / sales departments)
Cost centres = divisions that do not directly generate revenue. (Manufacturing / R&D dept…)
Data on profit, revenue, and cost centres is gathered, summarised, and reported by the MIS.
Auditing
Determining the accuracy of financial statements produced by the financial MIS.
Internal audits are conducted to see how well the organisation is doing in terms of goals.
External audits are conducted to provide an unbiased picture of the organisation’s finances.
Uses and management of funds
Outputs from the funds usage & management subsystem can locate cash flow problems.
Internal uses of funds: Additional inventory, labour, investments in new products, research…
External uses of funds: Investments (bank accounts, stocks, bonds…)
Manufacturing MIS
Objective: To produce products that meet customer needs at the lowest possible cost.The manufacturing MIS monitors the process of converting raw materials to finished goods.
Some common information subsystems & outputs used in manufacturing:
Design and engineering
During early stages of development, engineering depts are involved in many design aspects.
CAD can assist the design process.
Master production scheduling
Objective: To provide detailed plans for scheduling of manufacturing facilities.
Software packages can forecast current and future demand for products & services.
Sensitivity analysis allows you to see how the schedule would change with other assumptions
Inventory control
Inventory control programs allow reordering, forecasting, report generation, budget analysis…
EOQ = Economic Order Quantity = how much inventory should be reordered for minimal cost
ROP = ReOrder Point = a critical inventory quantity level. (‘Danger level’).
MRP = Material Requirements Planning = techniques that help coordinate thousands of
inventory items when the demand for one item is dependent on the demand for another.
MRPII = Manufacturing Resource Planning = a system based on network scheduling that
enables people to run their business with a high level of customer service & productivity.
This helps companies ensure the right product is in the right place at the right time.
(JIT) Just-in-time inventory and manufacturing
Inventory is delivered just before being used in a product, to keep inventory levels low.
Disadvantage: If one plant is shut down, another one might have no inventory to continue.
Process control
CAM = Computer-Assisted Manufacturing = a system that controls manufacturing equipment.
CIM = Computer-Integrated Manufacturing = a system that uses computers to link the
components of the production process into an effective system.
FMS = Flexible Manufacturing System = an approach that allows manufacturing facilities to
rapidly change from making one product to making another.
Quality control and testing
Quality control = a process that ensures that the finished product meets customers’ needs.
Info generated from quality-control programs helps workers locate problems in equipment.
Marketing MIS
Supports product development, distribution, pricing decisions, promotions & sales forecasting.CRMs (Customer Relationship Management) help a company manage customer encounters.
Marketing research
Purpose: To conduct a formal study of the market and customer preferences.
Research data is manipulated to generate reports on things like customer satisfaction.
Reports help managers be better informed to help the organisation meet performance goals.
Product development
Factors like plant capacity, labour skills… are important in product development decisions.
Software analyses these factors and selects appropriate mix of labour, materials, equipment...
Promotion and advertising
NB factors: Size of promotion budget & allocation of it to different promotional campaigns.
Computer programs set up the original budget and monitor expenditures and effectiveness.
Product pricing
Computer programs can help determine price elasticity and pricing policies.
Sales analysis is important to identify products that contribute to profits.
Reports can be generated to help marketing managers make good sales decisions.
Human resource MIS
It allows a company to cut personnel costs while serving the required business processes.Outputs: HR planning reports, job application reviews, skills inventory reports, salary surveys
Human resource planning
Purpose: To put the right number and kinds of people in the right jobs when they are needed.
Personnel selection and recruiting
Computers can schedule recruiting efforts and trips and test potential employees’ skills.
For each applicant, the results of the interviews, tests… can be analysed and printed.
This report (job applicant review profile) can assist corporate recruiting teams in final selection
Training and skills inventory
Many organisations conduct their own training with the assistance of technology.
When the training is over, the employees may be asked to take computer-scored tests.
The results are given to the supervisor in the form of skills inventory reports.
Scheduling and job placement
Employee schedules are developed, showing their job assignments over the next month.
Job placements are determined by skills inventory reports, which show where they’re suited.
Wage and salary administration
Wage data can be manipulated by the HR MIS to give wage info & reports to managers.
These reports (salary surveys) can be used to compare salaries with budget plans.
Wage & salary administration also entails designing retirement programs for employees.
Other management information systems
Accounting MIS
Provides info on accounts payable, accounts receivable, payroll, etc.Geographic information systems (GIS)
= A computer system that stores, manipulates and displays data identified according to area.
Users can pair maps with tabular data to describe aspects of a particular region.
An overview of decision support systems
Used for problem-specific decision-making for semi-structured & unstructured problems
They are used at all levels in an organisation.
Characteristics of a decision support system
* Handle large amounts of data from different sources
* Provide report and presentation flexibility
* Offer both textual and graphical orientation
* Support drill down analysis (Get more levels of detail by drilling down through data)
* Perform complex, sophisticated analysis and comparisons
What-if analysis = making hypothetical changes to problem data and observing the impact.
Simulation = the ability of the DSS to duplicate the features of a real system.
Goal-seeking analysis = determining the problem data required for a given result.
Capabilities of a decision support system
Support for problem-solving phases
Phases of problem-solving: intelligence, design, choice, implementation, monitoring.
Support for different decision frequencies
Ad hoc DSS = concerned with situations that come up only a few times.
Institutional DSS = concerned with decisions that occur many times.
Support for different problem structures
Highly structured problems = straightforward, requiring known facts & relationships.
Semi structured / unstructured problems are more complex.
Support for various decision-making levels
Operational-level managers, tactical-level decision makers, and strategic managers.
A comparison of DSSs and MISs
Factor DSS MIS
Problem type Unstructured problems Structured problems
Users Users have more interaction Users have less interaction
Support People still make the Some MISs make automatic
decisions decisions
decisions
Emphasis Actual decision-making styles Emphasises info only
Approach Direct support system that provides interactive reports
Indirect support system that uses regular reports
System The equipment is on-line and related to real time
Weekly printed reports won’t provide immediate results
Speed Less time to develop and better able to respond
Longer response time
Output Usually screen, with ability to generate printed reports
Oriented towards printed reports
Development Users are more directly involved in its development
Often several years old
Components of a decision support system
The model base
Models that answer what if questions are provided to decision makers.
Purpose: To give decision makers access to models and to assist them in making decisions.
MMS = Model Management Software - co-ordinates the use of models in a DSS.
Financial models
Provide cash flow, internal rate of return and other investment analysis.
Statistical analysis models
Provide summary statistics, trend projections, hypothesis testing… (SPSS & SAS)
Graphical models
Assist decision makers in designing, developing, and using graphic displays of information.
Project management models
Used to handle & co-ordinate large projects and identify critical activities & tasks.
The dialogue manager
It allows users to access & manipulate a DSS using common business terms.
The group decision support system
GDSS consists of most DSS elements, plus software for providing group support.
Characteristics of a GDSS
* Special design
Special procedures, devices, and approaches are needed in group decision-making settings.
* Ease of use
* Flexibility
Supports different approaches and integrates different perspectives into a common view.
* Decision-making support
GDSS supports Delphi approach
Delphi approach = when group decision makers are geographically dispersed.
Brainstorming = when members offer ideas off the top of their heads.
Group consensus approach = when members are forced to reach a unanimous decision.
Nominal group technique = when a final decision is made by voting.
* Anonymous input
It allows decision makers to concentrate on the input, without considering who gave it.
* Reduction of negative group behaviour
Problems: People can take over a discussion, sidetrack the group, not examine alternatives.
GDSS designers are developing systems to reduce these types of problems.
A trained meeting facilitator is often employed to help lead the group decision-making process
* Parallel communication
Group members can make comments at the same time short meetings & better decisions.
* Automated record keeping
Each comment entered into a group member’s PC can be anonymously recorded.
GDSS software
Called groupware / workgroup software.
GDSS alternatives
The decision room
Decision makers are in the same building / area and are occasional GDSS users.
A decision rooms is set up, and there’s both face-to-face and technology interaction.
The Local area decision network
Decision makers are in the same building / area and are frequent GDSS users.
Members have GDSS equipment in their offices and connect via a LAN.
The teleconferencing alternative
Decision makers are far apart, and are infrequent GDSS users.
Decision rooms are electronically connected in teleconferences and videoconferences.
The wide area decision network
Decision makers are far apart, and are frequent GDSS users.
Decision makers located throughout the world are linked electronically through a WAN.
Virtual workgroups = teams of people around the world working on common problems.
The executive support system (ESS)
Executive support systems in perspective
ESS is a special type of DSS, designed to support higher-level decisions (strategic planning).
DSS allows users to answer questions, but ESS allows executives to ask the right questions.
General characteristics:
* Tailored to individual executives
* Easy to use
* Have drill down abilities
* Support the need for external data
* Can help with situations that have a high degree of uncertainty
* Support future-oriented decision making
* Are linked with value-added business processes
Capabilities of an executive support system
* Support for defining an overall vision
* Support for strategic planning
* Support for strategic organising & staffing
* Support for strategic control
* Support for crisis management
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