Enhancing Decision-Making with MIS: Systems and Models

1. Chapter 09 Enabling the Organization – Decision Making 9-1

2. LEARNING OUTCOMES • Explain the importance of decision making for managers at each of the three primary organization levels along with the associated decision characteristics • Classify the different operational support systems, managerial support systems, and strategic support systems, and explain how managers can use these systems to make decisions and gain competitive advantages 9-2

3. Managerial Decision-Making Challenges

4. The Decision-Making Process • The six-step decision-making process • Problem identification • Data collection • Solution generation • Solution test • Solution selection • Solution implementation 9-4

5. Decision-Making Essentials Decision-making and problem-solving occur at each level in an organization 9-5

6. Decision-Making Essentials • Operational decision making - Employees develop, control, and maintain core business activities required to run the day-to-day operations • Structured decisions - Situations where established processes offer potential solutions OPERATIONAL 9-6

7. Decision-Making Essentials • Managerial decision making – Managers evaluate company operations to identify, adapt to, and leverage change • Semistructured decisions – Occur in situations in which a few established processes help to evaluate potential solutions, but not enough to lead to a definite recommended decision MANAGERIAL 9-7

8. Decision-Making Essentials • Strategic decision making – Executives develop overall strategies, goals, and objectives • Unstructured decisions – Occurs in situations in which no procedures or rules exist to guide decision makers toward the correct choice STRATEGIC 9-8

9. Three main categories of information systems • Operational-level systems:support analysts, keeping track of the elementary activities and transactions • Management-level systems:supportsmanagers to serve the monitoring, controlling, decision-making, and administrative activities - Support middle-level management decision-making • Strategic or Executive-level systems:help executives or senior management tackle and address strategic issues- Support long-range planning of senior management

10. Three main information systems at each level of organization • Transaction Processing Systems (TPS) [operational support systems] • Decision Support System (DSS) [managerial support systems] • Executive Information Systems (EIS) [strategic support systems]

11. SUPPORT: ENHANCING DECISION MAKING WITH MIS Types of Decision Making MIS Systems 9-11

12. SUPPORT: ENHANCING DECISION MAKING WITH MIS • Model – A simplified representation or abstraction of reality • Models help managers to • Calculate risks • Understand uncertainty • Change variables • Manipulate time to make decisions 9-12

13. Operational Support Systems • Transaction processing system (TPS) –Basic business system that serves the operational level and assists in making structured decisions • Online transaction processing (OLTP) - Capturing of transaction and event information using technology to process, store, and update • Source document – The original transaction record as an input 9-13

14. Operational Support Systems Systems Thinking View of a TPS Feedback CRUD = Create, read, update and delete 9-14

15. Transaction Processing Systems • Supports analystsby keeping track of the elementary activities on daily basis and transactions of the organization such as sales, cash deposits, payroll, credit decisions and the flow of materials in a factory. • To be able answer questions like: • How many parts are in inventory? • What happened to Mr. X’s payment? • Examples: a system to record bank deposits from an ATM or a system that tracks the number of hours worked each day by employees, sales order entry, hotel reservation, payroll, shipping systems

16. Basic business systems that serve operational level A computerized system that performs and records daily routine activities Inputs: Raw Transactions Processing: Sorting, listing, merging, updating Outputs: Detail reports, lists, summaries Users: Operations personnel, supervisors Transaction Processing Systems (TPS)

17. Example - A Payroll TPS

18. Typical Applications of TPS

19. Managerial Support Systems • Decision support system (DSS) – Models information to support managers and business professionals during the decision-making process • Online analytical processing (OLAP) Manipulation of information to create business intelligence in support of strategic decision making 9-19

20. Decision Support System (DSS) Supports the monitoring, controlling, decision making, and administrative activities of managers. Provide periodic reportsrather than instantones Example: answers “what if” questions such as What would be the impact on production schedules if we double sales in the month of May? Whatwould happen to our return of investment if our factory schedule were delayed for six months?

21. Decision Support Systems (DSS) DSS Combine data and analytical models INPUTS: Transaction level data (TPS) PROCESSING: INTERACTIVE, SIMULATION, GRAPHICS OUTPUTS: DECISION ANALYSIS USERS: PROFESSIONALS, STAFF, MANAGERS

22. Decision Support Systems Four quantitative models used by DSS include: Sensitivity analysis– the study of the impact that changes in one (or more) parts of the model have on other parts of the model What-if analysis– checks the impact of a change in an assumption on the proposed solution- What-if analysis is a special case of sensitivity analysis Excel is capable of performing what-if analysis (Scenario Manager) Goal-seeking analysis– finds the inputs necessary to achieve a goal such as a desired level of output Excel is capable of performing goal-seeking analysis Optimization analysis - extension of goal-seeking analysis, finds optimum value for a target variable by repeating changing other variables – Example: By changing revenue and cost, managers can calculate the highest potential profits.

23. DECISION SUPPORT SYSTEMS What-if analysis in Excel

24. DECISION SUPPORT SYSTEMS Goal-seeking analysis

25. Managerial Support Systems Systems Thinking View of a DSS 9-25

26. Managerial Support Systems Interaction Between a TPS and DSS 9-26

27. Strategic Support Systems An strategic ( or Executive) Information Systems (EIS) is an specialized DSS that supports senior –level executive and unstructured, long-term, non-routine decisions requiring judgment, evaluation and insight. 9-27

28. Executive Information Systems (EIS) Use advanced graphics software to create output for executives Use data from external & internal sources Eg. Stock market Inputs: Aggregate data from TPS level Processing: Graphics, simulations, interactive Outputs: Projections, response to queries Users: Senior managers

29. Executive Information systems Supports the long-term planning activities of executives Example: answers questions like: What will employment level be in ten years? What products should we be making in five years?

30. Executive Information Systems Most EISs offering the following capabilities: Consolidation – involves the aggregation of information and features simple roll-ups to complex groupings of interrelated information- Averaging is simple example of this. Drill-down– enables users to get details, and details of details, of information, e.g. viewing monthly, daily, or even hourly information- This is the reverse of consolidation. Slice-and-dice – looks at information from different perspectives e.g. All product sales during a given promotion vs. single product sales for all promotions ( e.g. Pivot Table)

31. Executive Information Systems Interaction Between a TPS and EIS 9-31

32. Executive Information Systems • Executive information system (EIS) – A specialized DSS that supports senior level executives within the organization • Granularity • Visualization • Digital dashboard 9-32

33. Executive Information Systems Information Levels Throughout An Organization 9-33

34. Granularity • The structure of a typical organization is similar to a pyramid • At the lower levels of the pyramid, people perform daily tasks such as processing transactions • Moving up through the organizational pyramid, people (typically managers) deal less with the details (“finer” information) and more with meaningful aggregations of information (“coarser” information) that help them make broader decisions for the organization • Granularity refers to the extent of detail in the information (means fine and detailed or “coarse” and abstract information)

35. EXECUTIVE INFORMATION SYSTEMS • Digital dashboard – integrates information from multiple components and presents it in a unified display

36. Digital Dashboard Demo • Demos: • http://visudemos.ilog.com/webdemos/sales/sales.html • http://www.youtube.com/watch?v=PZORzheWv-8&feature=related • (5 min)

37. Examples of Information Systems at each organizational level for each functional areas