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Management Information Systems

Chapter 12 Chapter 12 Enhancing Decision Making

LEARNING OBJECTIVES

• Describe different types of decisions and the decision-

making process.
• Assess how information systems support the activities
of managers and management decision making.
Enhancing • Demonstrate how decision-support systems (DSS) differ
from MIS and how they provide value to the business.
Decision Making • Demonstrate how executive support systems (ESS) help
senior managers make better decisions.
• Evaluate the role of information systems in helping
people working in a group make decisions more
efficiently.

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Management Information Systems Management Information Systems

Chapter 12 Enhancing Decision Making Chapter 12 Enhancing Decision Making

Eastern Mountain Sports Forges a Trail to Better Decisions Decision Making and Information Systems

• Problem: Outdated, manual management reporting, • Business value of improved decision making
data difficult to access, scattered in disparate • Improving hundreds of thousands of “small” decisions adds up to
sources large annual value for the business
• Solutions: Business intelligence software to extract, • Types of decisions:
consolidate, analyze sales and merchandising data;
wikis and blogs • Unstructured: Decision maker must provide judgment,
evaluation, and insight to solve problem
• Information Builders’ WebFOCUS and iWay
• Structured: Repetitive and routine; involve definite procedure
middleware to create data mart as basis for central
for handling so they do not have to be treated each time as new
series of executive dashboards showing key
performance indicators • Semistructured: Only part of problem has clear-cut answer
provided by accepted procedure
• Demonstrates IT’s role in producing information that
allows managers to make better decisions
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Management Information Systems Management Information Systems

Chapter 12 Enhancing Decision Making Chapter 12 Enhancing Decision Making

Decision Making and Information Systems Decision Making and Information Systems

Information Requirements of Key Decision-Making

• Senior managers: Groups in a Firm
• Make many unstructured decisions
• E.g., Should we enter a new market?
• Middle managers:
• Make more structured decisions but these may include
unstructured components
• E.g., Why is order fulfillment report showing decline in
Minneapolis?
• Operational managers, rank and file employees
• Make more structured decisions
• E.g., Does customer meet criteria for credit? Senior managers, middle managers, operational managers, and employees have different types of
decisions and information requirements.

Figure 12-1
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Chapter 12 Enhancing Decision Making Chapter 12 Enhancing Decision Making

Decision Making and Information Systems Decision Making and Information Systems

Stages in Decision Making

• Four stages of decision making
1. Intelligence
• Discovering, identifying, and understanding the problems
occurring in the organization
2. Design
• Identifying and exploring solutions to the problem
3. Choice
• Choosing among solution alternatives
4. Implementation
• Making chosen alternative work and continuing to monitor how
well solution is working

The decision-making process is broken

down into four stages. Figure 12-2
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Management Information Systems Management Information Systems

Chapter 12 Enhancing Decision Making Chapter 12 Enhancing Decision Making

Decision Making and Information Systems Decision Making and Information Systems

• Information systems can only assist in some of the • Mintzberg’s 10 managerial roles
roles played by managers • Interpersonal roles: Figurehead
• Classical model of management Leader
Liaison
• Five functions of managers
• Informational roles: Nerve center
• Planning, organizing, coordinating, deciding, and controlling Disseminator
• More contemporary behavioral models Spokesperson
• Actual behavior of managers appears to be less systematic, • Decisional roles: Entrepreneur
more informal, less reflective, more reactive, and less well Disturbance handler
organized than in classical model Resource allocator
• Mintzberg’s behavioral model of managers defines 10 Negotiator
managerial roles falling into 3 categories

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Management Information Systems Management Information Systems

Chapter 12 Enhancing Decision Making Chapter 12 Enhancing Decision Making

Decision Making and Information Systems Systems for Decision Support

• Three main reasons why investments in information • Four kinds of systems for decision support
technology do not always produce positive results
1. Information quality • Management information systems (MIS)
• High-quality decisions require high-quality information
• Decision support systems (DSS)
2. Management filters
• Managers have selective attention and have variety of biases • Executive support systems (ESS)
that reject information that does not conform to prior
conceptions • Group decision support systems (GDSS)
3. Organizational culture
• Strong forces within organizations resist making decisions
calling for major change

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Chapter 12 Enhancing Decision Making Chapter 12 Enhancing Decision Making

Systems for Decision Support Systems for Decision Support

• Management information systems (MIS) • Decision-support systems (DSS)

• Help managers monitor and control business by providing
• Support unstructured and semistructured decisions
information on firm’s performance and address structured
problems • Model-driven DSS
• Typically produce fixed, regularly scheduled reports based on • Earliest DSS were heavily model-driven
data from TPS
• E.g., voyage-estimating DSS (Chapter 2)
• E.g., exception reports: Highlighting exceptional conditions, such
as sales quotas below anticipated level • Data-driven DSS
• E.g., California Pizza Kitchen MIS • Some contemporary DSS are data-driven
• For each restaurant, compares amount of ingredients used per • Use OLAP and data mining to analyze large pools of data
ordered menu item to predefined portion measurements and
identifies restaurants with out-of-line portions • E.g., business intelligence applications (Chapter 6)

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Management Information Systems Management Information Systems

Chapter 12 Enhancing Decision Making Chapter 12 Enhancing Decision Making

Systems for Decision Support Systems for Decision Support

Too Many Bumped Fliers: Why? Business Intelligence Turns Dick’s Sporting Goods
Into a Winner
• Read the Interactive Session: Management, and then
discuss the following questions: • Read the Interactive Session: Technology, and then
discuss the following questions:
• Is the decision support system being used by airlines to
overbook flights working well? Answer from the perspective of • What problems did Dick’s face with its data tracking and
the airlines and from the perspective of the customers. reporting? How did they affect decision making and business
performance?
• What is the impact on the airlines if they are bumping too many
passengers? • What did the company do to remedy those problems?
• What are the inputs, processes, and outputs of this DSS? • Was MicroStrategy an appropriate selection for Dick’s? Why
or why not?
• What people, organization, and technology factors are
responsible for excessive bumping problems? • Has improved reporting solved all of this company’s
problems? Explain your answer.
• How much of this is a “people” problem? Explain your answer.

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Management Information Systems Management Information Systems

Chapter 12 Enhancing Decision Making Chapter 12 Enhancing Decision Making

Systems for Decision Support Systems for Decision Support

Overview of a Decision-Support System

• Components of DSS
• Database
• Used for query and analysis
• Current or historical data from number of
applications or groups
• May be small database or large data warehouse
• User interface
• Often a Web interface
• Software system
• With models, data mining, other analytical tools 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
database residing on a PC or a large data warehouse.

Figure 12-3
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Chapter 12 Enhancing Decision Making Chapter 12 Enhancing Decision Making

Systems for Decision Support Systems for Decision Support

Sensitivity Analysis
• Model:
• Abstract representation that illustrates components or
relationships of phenomenon; may be physical,
mathematical, or verbal model
• Statistical models
• Optimization models
• Forecasting models
• Sensitivity analysis models This table displays the results of a sensitivity analysis of the effect of changing the sales price of a
necktie and the cost per unit on the product’s break-even point. It answers the question, “What happens
to the break-even point if the sales price and the cost to make each unit increase or decrease?”

Figure 12-4
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Management Information Systems Management Information Systems

Chapter 12 Enhancing Decision Making Chapter 12 Enhancing Decision Making

Systems for Decision Support Systems for Decision Support

Sample List of Transactions for Online Management Training

• Using spreadsheet pivot tables to support decision
making
• 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 convenient
format This list shows a portion of the order transactions for Online Management Training Inc. (OMT Inc.) on October 28, 2008.

Figure 12-5
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Management Information Systems Management Information Systems

Chapter 12 Enhancing Decision Making Chapter 12 Enhancing Decision Making

Systems for Decision Support Systems for Decision Support

A Pivot Table that Determines Regional Distribution of Customers A Pivot Table that Examines Customer Regional Distribution and
Advertising Source

Figure 12-6
This PivotTable report
was created using Excel
2007 to quickly produce
a table showing the
relationship between
region and number of
customers
Figure 12-7
In this pivot table, we
are able to examine
where customers come
from in terms of region
and advertising source.
It appears nearly 30
percent of the
customers respond to
e-mail campaigns, and
there are some regional
variations

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Chapter 12 Enhancing Decision Making Chapter 12 Enhancing Decision Making

Systems for Decision Support Systems for Decision Support

• Data visualization tools:

• Help users see patterns and relationships in large amounts of
data that would be difficult to discern if data were presented as
traditional lists of text
• Geographic information systems (GIS):
• Category of DSS that use data visualization technology to South Carolina used a
GIS-based program

analyze and display data in form of digitized maps called HAZUS to

estimate and map the
regional damage and

• Used for decisions that require knowledge about geographic losses resulting from an
earthquake of a given
location and intensity.
distribution of people or other resources, e.g.: HAZUS estimates the
degree and geographic
extent of earthquake
• Helping local governments calculate emergency response times to damage across the state
based on inputs of
natural disasters building use, type, and
construction materials.

• Help retail chains identify profitable new store locations The GIS helps the state
plan for natural hazards
mitigation and
response.

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Management Information Systems Management Information Systems

Chapter 12 Enhancing Decision Making Chapter 12 Enhancing Decision Making

Systems for Decision Support Systems for Decision Support

• Web-based customer decision-support systems • Group decision support systems (GDSS)

(CDSS): • Interactive system to facilitate solution of unstructured problems
• Support decision-making process of existing or potential by group of decision makers
customer • Hardware – computer and networking hardware, overhead
• Use Web information resources and capabilities for interactivity projectors, display screens
and personalization to help users select products and services • GDSS software collects, documents, ranks, edits and stores
• E.g., search engines, intelligent agents, online catalogs, Web participant ideas, responses
directories, newsgroup discussions, other tools • May require facilitator and staff
• Automobile companies that use CDSS to allow Web site visitors • Enables increasing meeting size and increasing productivity
to configure desired car
• Promotes collaborative atmosphere, guaranteeing anonymity
• Financial services companies with Web-based asset-
• Follow structured methods for organizing and evaluating ideas
management tools for customers
and preserving meeting results

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Management Information Systems Management Information Systems

Chapter 12 Enhancing Decision Making Chapter 12 Enhancing Decision Making

Executive Support Systems (ESS) Executive Support Systems (ESS)

• Executive support systems (ESS) • Role of ESS in the firm

• Designed to help executives focus on important performance • Used by both executives and subordinates
indications • Drill-down capability: Ability to move from summary information
• Balanced scorecard method: to finer levels of detail
• Measures outcomes on four dimensions: • Integrate data from different functional systems for firmwide
• Financial view
• Business process • Incorporate external data, e.g. stock market news, competitor
• Customer information, industry trends, legislative action
• Learning & growth • Include tools for modeling and analysis
• Key performance indicators (KPIs) measure each dimension • Primarily for status, comparison information about
• In developing an ESS, first concern is for senior executives and performance
consultants to develop scorecard and then to automate flow of
information for each KPI

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Chapter 12 Enhancing Decision Making Chapter 12 Enhancing Decision Making

Executive Support Systems (ESS) Executive Support Systems (ESS)

• Business value of executive support systems • National Life

• Enables executive to review more data in less time with greater • Markets life insurance, health insurance, and
clarity than paper-based systems retirement/investment products executive information system
• Needed actions identified and carried out earlier • Executive information system:
• Improves management performance • Allows senior managers to access corporate databases through
Web interface
• Increases upper management’s span of control
• Shows premium dollars by salesperson
• Also enables decision making to be decentralized and take place at
lower operating levels • Authorized users can drill down into these data to see product,
agent, and client for each sale
• Increases executives’ ability to monitor activities of lower units
• Data can be examined by region, by product, and by broker, and
reporting to them
accessed for monthly, quarterly, and annual time periods

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Management Information Systems Management Information Systems

Chapter 12 Enhancing Decision Making Chapter 12 Enhancing Decision Making

Executive Support Systems (ESS) Executive Support Systems (ESS)

• Rohm & Haas • Pharmacia Corporation: Global pharmaceutical firm

• Chemical and specialty materials firm with 13 business units and • Spends $2 million on research and development
over 300 information systems annually
• Web-based digital dashboards
• Balanced scorecard shows:
• Display on single screen all of the critical measurements for
monitoring company • Performance of U.S. or European clinical operations in
relation to corporate objectives
• Use KPIs (e.g. gross profit) that managers can drill down on for
details (e.g. sales, cost of sales) • Attrition rate of new compounds under study
• Customized for multiple levels of management • Number of patents in clinical trials
• Executive Dashboard – for executives, includes all major KPIs • How funds allocated for research are being spent
• The Pulse – includes three KPIs
• Reporting and Analysis Toolkit – set of analysis tools
• Analysis Accelerator – standard sales, gross-profit analyses

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