Enhancing Decision making 12 LEC 22,23 Enhancing Decision making © 2002 McGraw-Hill Companies

Chapter Objectives MIS DSS ESS © 2002 McGraw-Hill Companies

Chapter 1 Information Systems in Global Business Today Lecture2 Chapter 1 Information Systems in Global Business Today Roles of IS in Business Support of Strategic Advantage(ESS) Business Decision Making(MIS/DSS) Business Processes and Operations(TPS) 3

Classification of IS Information Systems Operations Support System Management Information Systems Chapter 1 Information System in Global Business Today Classification of IS Information Systems Support of managerial decision making Support of business operations Operations Support System Management Support System Transaction processing systems Officeautomation systems/Enterprise collaboration systems Decision support systems Executive support systems Management information systems Process control systems Management Information Systems Chapter 1 Information Systems in Global Business Today 4 © 2002 McGraw-Hill Companies 4

Information, decisions and management SYSTEMS THAT ARE USED IN DECISION MAKING?

Business and Decision Support (continued) 8 Business and Decision Support (continued) Information, Decisions, & Management The type of information required by decision makers is directly related to the level of management and the amount of structure in the decision situations.

Information Requirements of Key Decision-Making Groups in a Firm Management Information Systems Chapter 12 Enhancing Decision Making Decision Making and Information Systems Information Requirements of Key Decision-Making Groups in a Firm Senior managers, middle managers, operational managers, and employees have different types of decisions and information requirements. Figure 12-1 7

Classic managerial pyramid Amount of structure is typically tied to management level Operational – more structured Tactical – more semi structured Strategic – more unstructured

Classic managerial pyramid Strategic management. Top executives develop overall organizational goals, strategies, policies, and objectives through long-range strategic planning. They also monitor the strategic performance of the organization and its overall direction.. Tactical management Middle managers develop short- and medium-range plans and budgets and specify the policies, procedures, and objectives for subunits of the organization. They also acquire and allocate resources and monitor performance of organizational subunits at the department, division, and other workgroup levels. Operational management Supervisory managers develop short-term planning devices such as production schedules. Supervisors are front-line managers who direct the actions of non-management employees. Their IS needs are often linked to the processing, monitoring, and evaluating of physical products. Thus, their decisions are more structured; that is to say, they can be specified in advance.

Decision Structure Routine decisions with definite procedures Structured decision(operation management) Involve situations where the procedures to be followed when a decision is needed can be specified in advance Routine decisions with definite procedures .e.g. inventory reorder,offer credit to customer Semi structured decisions (Tactical management) Some decision procedures can be specified in advance, but not enough to lead to a definite recommended decision. Only part of decision has clear-cut answers provided by accepted procedures E.g Design a marketing plan Unstructured decision (strategic management) Involve situations where it is not possible to specify most of the decision procedures in advance. Novel, non-routine decisions requiring judgment and insights E.g Starting ecommerce services would come in unstructured.Entering new markets Strategic,require more summarized unscheduled report, forecasts to support unstructured planning. © 2002 McGraw-Hill Companies

Management Information System The Management Information System concept, also called information reporting systems, was the original type of management support system. MIS produce information products that support many of the day-to-day decision-making needs of the organization. EXAMPLE: Daily Sales analysis report evaluating sales made by each personnel. In banks a daily liability sales report. Four major reporting alternatives include: Periodic scheduled reports Exception reports Demand reports and responses Push reports

Management Information System Reports Periodic Scheduled Reports Exception Reports Demand Reports and Responses Push Reports Major Management Information Systems Reports The Management Information System concept, also called information reporting systems, was the original type of management support system. MIS produce information products that support many of the day-to-day decision-making needs of the organization. Three major reporting alternatives include: Periodic Scheduled Reports. This traditional form of providing information to managers uses a prespecified format designed to provide managers with information on a regular basis. Typical examples include weekly sales analysis reports and monthly financial statements. Exception Reports. These are generated when a specific set of conditions occur. The IS can be designed to produce exception reports when some process exceeds given parameters and requires management action. Exception reports reduce information overload. They also promote management by exception -- intervening only when decisions need to be made. Demand Reports and Responses. These provide information whenever a manager demands it. For example, DBMS query languages and report generators allow managers at online workstations to get immediate responses or reports to their requests for information. Push Reporting. Many companies are using webcasting software to selectively broadcast reports and other information to the networked PCs of managers and specialists over their corporate intranets. In this manner, information is pushed to a manager’s networked workstation. Teaching Tips This slide corresponds to the material on pp. 297-298. © 2002 McGraw-Hill Companies

Management reporting Alternatives Periodic Scheduled Reports. This traditional form of providing information to managers uses a pre-specified format designed to provide managers with information on a regular basis. Typical examples include weekly sales analysis reports and monthly financial statements. Exception Reports. Automatically generated when a specific set of conditions occur. The IS can be designed to produce exception reports when some process exceeds given parameters and requires management action. Exception reports reduce information overload. E.g such as sales quotas below anticipated level

Management Information System Reports Demand Reports and Responses. These provide information whenever a manager demands it. For example, DBMS query languages and report generators allow managers at online workstations to get immediate responses or reports to their requests for information. Push Reporting. Many companies are using webcasting software to selectively broadcast reports and other information to the networked PCs of managers and specialists over their corporate intranets. In this manner, information is pushed to a manager’s networked workstation. Not specifically requested by the recipient

Decision-support systems (DSS) Management Information Systems Chapter 12 Enhancing Decision Making Systems for Decision Support Decision-support systems (DSS) Support unstructured and semi structured decisions Model-driven DSS Earliest DSS were heavily model-driven Data-driven DSS Some contemporary DSS are data-driven Use OLAP (On-Line Analytical Processing) and data mining to analyze large pools of data 15

Components of DSS Database used for query and analysis Management Information Systems Chapter 12 Enhancing Decision Making Systems for Decision Support 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- easy interaction between user and the software tools. Often has Web interface Software system with models, data mining, and other analytical tools 16

Overview of a Decision-Support System Management Information Systems Chapter 12 Enhancing Decision Making Systems for Decision Support Overview of a Decision-Support System 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 17

Management Information Systems Chapter 12 Enhancing Decision Making Systems for Decision Support Model: Abstract representation that illustrates components or relationships of phenomenon; may be physical, mathematical, or verbal model Statistical models- helps relating relationships such as relating product sales to difference in age, income or other factors Optimization models- determine optimal resource allocation to maximize or minimize specified variables such as cost or time. Classic mix will be to determine the proper mix of products within a given market to optimize profits 18

Forecasting models-used to forecast sales Forecasting models-used to forecast sales . The user supply the range of historical data to project future conditions and sales that might be the result of these conditions Sensitivity analysis models- Special type of what if analysis- ask “what-if” questions repeatedly to determine the impact on outcomes of changes in one or more factors. What If analysis from known or assumed conditions allow the user to vary values to test results to better predict outcome if changes occur in those values

Decision Support Systems What If-Analysis Sensitivity Analysis Goal-Seeking Analysis Optimization Analysis Important Decision Support Systems Analytical Models Decision support systems (DSS) are computer-based systems that provide managers and business professionals interactive information support for semi-structured and unstructured decisions. Unlike management information systems, DSS rely on model bases. A model base is a software component that consists of models used in computational and analytical routines that mathematically express relationships between variables. There are various types of DSS analytical model bases. These include: What-If Analysis. An end user makes changes to variables, or relationships among variables, and observes the resulting change in the value of other variables. Sensitivity Analysis. A special type of what-if analysis in which the value of only one variable is changed repeatedly, and the resulting changes on other variables are observed. Goal-Seeking Analysis. Instead of observing how changes in a variable affect other variables, goal-seeking analysis sets a target value for a variable, and then repeatedly changes other variables until the target value is achieved. Optimization analysis. A more complex goal-seeking model. Instead of setting a specific target value for a variable, the goal is to find the optimum value for one or more target variables, given certain constraints. Teaching Tips This slide corresponds to Figure 9.13 on pp. 304 and relates to the material on pp. 303-305. © 2002 McGraw-Hill Companies

Example: What if we cut advertising by 10%?what would happen to sales? 8 Using Decision Support Systems (continued) What-If Analysis End user makes changes to variables, or relationships among variables, and observes the resulting changes in the values of other variables Example: What if we cut advertising by 10%?what would happen to sales?

8 Sensitivity Analysis A special case of what-if analysis Using Decision Support Systems (continued) Sensitivity Analysis A special case of what-if analysis The value of only one variable is changed repeatedly, and the resulting changes on other variables are observed Typically used when there is uncertainty about the assumptions made in estimating the value of certain key variables Example: Lets cut advertising by$100 repeatedly so we can see its relationship to sales.

Goal-Seeking Analysis 8 Using Decision Support Systems (continued) Goal-Seeking Analysis Instead of observing how changes in a variable affect other variables, goal-seeking sets a target value (a goal) for a variable, then repeatedly changes other variables until the target value is achieved. Example: Lets try increases in advertising until sales reach $1 million. how can we have the net profit of $2 million

Optimization Analysis 8 Using Decision Support Systems (continued) Optimization Analysis A more complex extension of goal-seeking The goal is to find the optimum value for one or more target variables, given certain constraints Example: What's the best amount of advertising to have given our budget and choice of media.

Data visualization tools: Management Information Systems Chapter 12 Enhancing Decision Making Systems for Decision Support Data visualization tools: Help users see patterns and relationships in large amounts of data using charts, table, maps, digital images 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 analyze and display data in form of digitized maps Used for decisions that require knowledge about geographic distribution of people or other resources, e.g.: Helping local governments calculate emergency response times to natural disasters Help retail chains identify profitable new store locations 25

Executive Support Systems (ESS) Information system at the strategic level of an organization that address unstructured decision making through advanced graphics and communications. TYPE: Strategic level INPUTS: aggregate data; internal and external PROCESSING: interactive OUTPUTS: projections USERS: senior managers DECISION-MAKING: highly unstructured EXAMPLE: 5 year operating plan

Executive Support Systems (ESS) Features Help managers focus on the really important performance information that affect the overall profitability and success of the firm Incorporate external data, e.g. stock market news, competitor information, industry trends, legislative action

Business Value of Executive Support Systems Management Information Systems Chapter 13 Enhancing Decision Making for the Digital Firm EXECUTIVE SUPPORT IN THE ENTERPRISE Business Value of Executive Support Systems Ability to analyze, compare, and highlight trends Graphical interface enables users to review data more quickly and with more insight, speeding decision making. Timeliness and availability of data enables more timely decision making, helping businesses move toward a “sense-and-respond” strategy.

Business Value of Executive Support Systems (Continued) Management Information Systems Chapter 13 Enhancing Decision Making for the Digital Firm EXECUTIVE SUPPORT IN THE ENTERPRISE Business Value of Executive Support Systems (Continued) Increases upper management span of control, better monitoring Useful in environmental scanning ESS based on enterprise-wide data can be used for decentralization of decision making or increase management centralization.