1. Introduction to MIS1 Copyright © 1998 by Jerry Post INFSY540.1 Information Resources in Management Lesson #4 Chapter 9 Decisions in Business Areas

2. 2 Decisions in Functional Areas Finance Models Accounting Models Production Models Marketing Models Human Resource Models Strategy Tactical Decisions Operations Company

3. Decision Making and Problem Solving Herb Simon’s Model of Decision Making and Problem Solving

4. Decision Making and Problem Solving Intelligence Design Choice Implementation Monitoring Herb Simon’s Model of Decision Making and Problem Solving

5. 5 Programmed versus Nonprogrammed Decisions  Programmed decisions  Structured situations with well defined relationships  Quantifiable  Management information system  Nonprogrammed decisions  Ill-structured situations with vague or changing relationships between variables  Not easily quantifiable in advance  Decision support systems

6. 6 Problem Solving Approaches

7. 7  Optimization: find the best solution  Satisficing: find a good solution  Heuristics: use rules of thumb

8. An Overview of Management Information Systems

9. 9 Figure 10.3

10. 10 Figure 10.4

11. 11 Characteristics of an MIS  Fixed format, standard reports  Hard-copy or soft-copy reports  Uses internal data  User-developed reports  Users must request formal reports from IS department

12. 12

13. 13 Figure 10.7

14. 14 Manufacturing MIS  Inventory management (MRP, JIT)  Process control  Computer-assisted manufacturing (CAM)  Computer integrated manufacturing  Flexible manufacturing system  Quality control

15. 15 Figure 10.8

16. 16 Figure 10.9

17. 17 Computers are used to track inventory levels, receipts, and shipments. Sophisticated warehouse information systems automatically route boxes to storage and switch conveyor systems to send packages to trucks waiting at the loading docks. Production Models  Process Control  Inventories, MRP  Computer Integrated Manufacturing  Product Design

18. 18 Integrated Manufacturing shipping packing production raw materials time Q forecast sales by product production schedule workers & materials optimize schedule Send EDI notices to suppliers. schedule changes Information & Control Suppliers Customers

19. 19 File: C09E05a.xlsC09E05a.xls Production

20. 20 Production Example  Parameters  Number of backup machines  Number of repair workers  Mean time to failure  Mean repair time  Cost additional workers  Cost of lost production  Output:  Total costs  Objective:  Hire the number of workers that leads to the least cost

21. 21 Geographic Models File: C09GISa.xlsC09GISa.xls

22. 22 Tampa Miami Fort Myers Jacksonville Tallahassee Gainesville Ocala Orlando Clewiston Perry 7000+ 6700 6400 6100 5800- 19801990 17,000 15,000 13,000 11,000 9,000 per capita income 1990 Hard Goods 1990 Soft Goods 1980 Hard Goods 1980 Soft Goods

23. 23 Accounting Because of the volume of data, accountants are primary users of information systems. Spreadsheets are used to evaluate the financial condition of the firm and help make decisions.

24. 24 Accounting Models  Transaction Processing & Tactics  Accounting systems are models  Standards for reports  Decisions & Data  Control Systems  Accuracy  Fraud  Strategic Support  Information  Customization

25. 25 Traditional Cost Accounting File: C09E01a.xlsC09E01a.xls Activity Based Costing

26. 26 Activity Based Costing Process Sales Orders Source Parts Expedite Supplier Orders Expedite Internal Processing Resolve Supplier Quality Reissue Purchase Orders Expedite Customer Orders Schedule Intracompany Sales Request Engineering Change Schedule Parts Resolve Problems Process Diagram Identify Subsystems Assign costs to each subprocess by category (salaries, fixed costs...)

27. 27 Financial Markets Information is the essence of a financial market. Its purpose is to bring buyers and sellers together. With thousands of investments and millions of buyers and sellers, brokers are surrounded by data. The problem lies in analyzing and evaluating this data.

28. 28 Finance Balance Sheet for 1999 Cash33,562 Accounts Payable32,872 Receivables87,341 Notes Payable54,327 Inventories15,983 Accruals11,764 Total Current Assets136,886 Total Current Liabilities98,963 Bonds14,982 Common Stock57,864 Net Fixed Assets45,673 Ret. Earnings10,750 Total Assets182,559 Liabs. + Equity182,559 File: C09E02a.xlsC09E02a.xls

29. 29 Finance Income Statement for 1999 Sales$97,655 tax rate 199340% Operating Costs76,530 dividends 199360% Earnings before interest & tax21,125 shares out. 19939763 Interest4,053 Earnings before tax17,072 taxes6,829 Net Income10,243 Dividends6,146 Add. to Retained Earnings4,097 Earnings per share$0.42

30. 30 Corporate Finance Results in a CIRCular calculation. Cash$36,918 Acts Receivable96,075 Inventories17,581 Net Fixed Assets45,673 Total Assets$196,248 Accts Payable$36,159 Notes Payabale54,327 Accruals12,940 Total Cur. Liabs.103,427 Bonds14,982 Common Stock57,864 Ret. Earnings14,915 Liabs + Equity191,188 Add. Funds Need5,060 Bond int. rate5% Added interest253 Balance Sheet projected 2000 Income Statement projected 2000 Sales$ 107,421 Operating Costs84,183 Earn. before int. & tax23,238 Interest4,306 Earn. before tax18,931 taxes 8,519 Net Income 10,412 Dividends 6,274 Add. to Ret. Earnings $ 4,165 Earnings per share$0.43 Tax rate45% Dividend rate60% Shares outstanding9763 Sales increase10% Operations cost increase10% Forecast sales and costs. Forecast cash, accts receivable, accts payable, accruals. Add gain in retained earnings. Compute funds needed and interest cost. Add new interest to income statement. 1 2 3 4 5 1 2 4 2 3 5 Total Cur. Assets150,576

31. 31 Marketing decisions often entail determining customer preferences. Interviews and data collection are an important first step. Analyzing conflicting data is a challenge that often requires sophisticated decision support tools. Marketing

32. 32 u Government l Census u Income u Demographics u Regional data u Government l Legal registration u Drivers license u Marriage u Housing/construction u Business/legal notices Marketing Data Sources  Internal  Sales  Warranty cards  Customer service  Coupons  Surveys  Focus groups  Purchase  Scanner data  Competitve market analysis  Mailing & phone lists  Subscriber lists  Rating services  Shipping records

33. 33 Marketing  Research and Forecasting  Customer Service File: C09E03a.xlsC09E03a.xls

34. 34 Promotion Analysis Regression Results With no promotions: sales = 20,865 + 342 * consumer + 339 * week consumer survey average = 45 Promotion 1: sales = 42,370 - 62 * consumer - 211 * week consumer survey average = 47 Promotion 2: sales = 13,448 + 501 * consumer + 545 * week consumer survey average = 53 Promotion 3: sales = 44,808 + 98 * consumer - 2067 * week consumer survey average = 38

35. 35 -10000 0 10000 20000 30000 40000 50000 60000 $ sales 1357911131517192123 week No promopromo1promo2promo3 Inchiki Promotion Options Promotion Results Graph

36. 36 Figure 10.11

37. 37 Figure 10.12

38. 38 Human Resources File: C09E04a.xlsC09E04a.xls

39. 39 Human Resources

40. 40 Appendix: Financial Ratios  Goals  Highlight relationships among financial accounts  Compare firms within industries  Categories  Profitability  Liquidity  Activity  Leverage (debt)  DuPont Analysis  Margin versus Quantity

41. 41 Profitability Ratios Higher is better. Except a high P/E ratio might indicate that a stock is overpriced in the market.

42. 42 Liquidity Ratios Higher is better. Except too high implies excess cash on hand--which should be invested.

43. 43 Activity Ratios Low implies excess capacity or poor sales. Low implies poor inventory management or weak sales. Low implies poor management of collections.

44. 44 Leverage Ratios Low implies problems with covering debt payments. Highly variable, depending on management and industry.

45. 45 DuPont Analysis Choice: sell at high profit margin, or high volume.