Information Systems: the Foundation of E-Business (CIS 108)

1. Information Systems: the Foundation of E-Business (CIS 108) Decision and Decision Makingand its Implications for the Design of IT/IS Lecture SEVEN (7th March 2005) Amare Michael Desta

2. Objectives • To explain the nature of decision-making • To identify different models of the decision-making process • To examine the implications of theory and research on decision-making for the development of IS/IT systems • To explain the role of DSS in supporting decision-making

3. Decision and Decision making defined • Decision is the ability to decide quickly and without pausing because of uncertainty: • Decision making: the processes involved in making a selection between alternative courses of action

4. Decision-Making Has Become More Difficult • Increasing complexity of problems and bewildering array of alternatives • Decisions often have to be made under tight time constraints • Increased environmental uncertainty has made sophisticated analysis more important • Remote working has increased the difficulties of accessing information and reaching consensual decisions

5. Decision-Making By Level • Strategic Decisions • What products and services to offer, how and where to obtain resources, market strategies and position, pricing policies • Tactical Decisions • Obtaining and using resources, allocating duties, hiring personnel, selecting suppliers • Operational Decisions • Scheduling production, allocating work, training, dealing with employee problems and grievances

6. Key IT Decisions • What new systems do we need to acquire to help the company remain competitive? • Should we outsource any of our IT? • Who should we appoint to manage our IT/IS systems? • If we merge with another company, should we install new systems compatible with our own? • Should we invest in expensive new software to make our systems more secure?

7. Decision-Making Models • Rational Model • Decision-making by individuals is the outcome of logical, rational processes • Bounded Rationality • Various factors conspire to undermine rational decision-making processes; in reality, people satisfy rather than optimise

8. Rational Model • People try to maximise outputs in an orderly, logical way Identify problem Examine alternatives Compare and evaluate alternatives Select best one

9. Bounded Rationality • People do not always behave in rational ways: “ .. . The individual is limited by his unconscious skills, habits and reflexes; he is limited by his values and conceptions of purpose, which may diverge from organizational goals; he is limited by the extent of his knowledge and information” (Simon, 1976, p.76)

10. Bounded Rationality (Contd….) • Factors undermining rationality • Lack of environmental surveillance • People tend to deal with problems that require immediate attention rather than focus on the future; people select the most obvious rather than the best alternatives • Satisfying behaviour • People choose the solution that will do rather than is necessarily the best, I.e. don’t look for optimal solutions

11. Bounded Rationality (Contd….) Identify problem Determine minimum criteria all alternatives must meet Choose the alternative that best deals with the problem If acceptable, implement it Evaluate ease of discovering alternatives and use this to determine acceptable standards for similar problems in future

12. Bounded rationality (Contd…) • Other factors that limit rational behaviour • People are strongly influenced by the outcomes of past decisions • People will discount information that conflicts with their beliefs or values • People tend to construct general decision-making rules and follow them, even if they are inappropriate in a particular situation • People rationalise their choices

13. Organisational Decision-Making • In theory, decision-making at the organisational level is more rational since there are likely to be organisation-wide procedures for identify, evaluating and selecting alternatives • Research indicates, however, that organisational decision-making is strongly influenced by past events, the full range of alternatives is rarely considered and decisions are taken on a piecemeal basis

14. Computers can help • Computer-based IS have the capacity can gather vast amounts of data and present it in easy-to-understand formats, thus increasing the likely hood that more and better quality information will be taken into account in decision-making • Computer-based IS have the capacity to model alternatives and indicate the outcomes of likely courses of action. In this way they are able to simplify what, in reality, is a highly complex process and help people envisage different decision scenarios

15. Defining Decision Support System The concept of a (DSS) is extremely broad and its definitions vary: • It is "a computer-based system that aids the process of decision making, (Finlay, 1994) • It is "an interactive, flexible, and adaptable computer-based IS - especially developed for supporting the solution of a non-structured management problem for improved decision making, (Turban, 1995)

16. Defining DSS ….. (Contd…) • “DSS couple the intellectual resources of individuals with the capabilities of the computer to improve the quality of decisions”, (Keen & Scott, 1978) • DSS are "interactive computer-based systems that help decision makers utilize data and models to solve unstructured problems", (Sprague & Carlson, 1982),

17. Defining DSS ….. (Contd…) • A“ …a computer-based information system that combines models and data in an attempt to solve semi-structured problems with extensive user involvement.” (Turban et al, 2002)

18. Uses of DSS – Some Examples • Forecast passenger demand and schedule aircraft • Evaluate bids from various contractors for major projects • Discern customer buying patterns • Corporate forecasting and planning • Risk evaluation on major projects

19. Characteristics of DSSs Turban et al (2002) identify the following key characteristics of DSSs • Can be used by individual managers and groups of managers at all levels of the organisation to solve semi and unstructured problems • Supports several interdependent and sequential decisions • Supports all stages of the decision-making process and different styles of decision-making • Can be adapted over time to meet changing circumstances • Easy to construct and use • Promotes learning which creates demands for improvements • Uses quantitative models • Allows the easy execution of sensitivity analyses

20. Characteristics of DSSs (Contd…..) Curtis (1998) identifies the following key characteristics of DSSs • Supports rather than usurps the role of the decision-maker • Give flexible and interactive access to data • Fragmented – DSS tend to be developed in an ad hoc way to support the needs of particular individuals or groups

21. Components of a DSS • Data Management Component • Contains data that is extracted from various sources and then entered into DSS database or entered into DSS as required • Model Management Component • Contains standard and customised models used to develop decision support applications • Contains Model Base Management System that can create DSS models easily and quickly, stores and manages different models, allows users to manipulate models thus enabling them to conduct sensitivity analyses

22. Components of a DSS (Contd…) • User Interface and Users • Every aspect of the communications between the system and the user • Most modern user interfaces are Web based. • Users are viewed as part of the system. Typically comprise managers and specialists • Knowledge Management Component • For very complex problem situations requiring expert knowledge, DSS may include special various expert or intelligent decision

23. Group Decision Support Systems (GDSS) “ … an interactive computer-based system to facilitate the solution of unstructured problems by a set of decision-makers working together as a group” (Laudon and Laudon, 2001)

24. Aims of GDSS • Aim is to improve the effectiveness of group meetings • Supports the exchange of ideas, opinions, information etc within the group • Early systems were designed to support face-to-face meetings; more recent systems cater for networked meetings of participants in different locations • How Can GDSS Help?

25. How Can GDSS Help? • Providing group with rapid access to external and internal sources of data • Permit non-sequential discussion of issues • Create instant, anonymous voting results • Structure the planning process • Record proceedings of meetings for future analysis

26. GDSS Components • Hardware • The conference facility, i.e. room which will include electronic display boards, audiovisual and networking equipment or GDSS facility specifically designed for electronic meetings, e.e. group-to-group video or teleconferencing • Software • Usually includes ten or more tools and packages integrated into a comprehensive system. Software includes electronic questionnaires, electronic brainstorming tools, ideas organisers, tools for voting, policy formation tools, stakeholder analysis tools • People • Usually consists of group members and a facilitator • Enterprise Decision Support Systems

27. Enterprise Decision Support Systems • Organisational Decision Support Systems • Used mainly by specialists such as planners, analysts and researchers • Used for an organisational task that involves a sequence of operations and decision-makers, e.g constructing a marketing plan • DSS cut across organisational levels and units because it addresses corporate wide problems • Enterprise Decision Support Systems

28. Enterprise Decision Support Systems (Contd…) • Executive Information System • Serves the information needs of top executives • Provides access to management reports, provides exception reporting and drill down facilities, graphics and is very user-friendly • Executive Support Systems offer enhanced capabilities, including analysis, office automation, business intelligence

29. Common Features of EIS • Drill down • Critical Success Factors (CSFs) • Trend analysis • Ad hoc analysis • Exception reporting

30. Web-Based DSS • Many DSS are now available on the Web, making them available to anyone in the organisation who needs them • Web-based DSS can be accessed remotely, thus making them more flexible and easy to use • Facilitates development and maintenance of DSS

31. Summary • Decision-making is a key part of the role of management • Evidence suggests that people have limited information processing capabilities. IT has an important role to play in providing access to information, helping decision-makers analyse information and evaluate alternatives in problem situations • DSS exist for specialists and managers at every level of the organisation • Development of Web-based DSS is making DSS an enterprise-wide facility

32. Reading • Cooke, S. and Slack, N. (1991) Making Management Decisions, Prentice-Hall. • Laudon, K. C. and Laudon, J. P. (2002) Management Information Systems: Managing the Digital Firm, Prentice Hall. • Simon, H. A. (1967) Administrative Behavior, The Free Press. • Turban, E. and Aronson, J. (2001) Decision Support Systems and Intelligent Systems, Prentice-Hall