UNIT – 2

Information System: Information system is an integrated set of components for collecting,

storing and processing data and for delivering information, cards, and digital products. Business
firms and Other Organizations rely on information systems to carry out and manage their
operations, Interact with their customers and suppliers, and compete in the marketplace.

The main function of information is to avoid uncertainty and the unknown circumstances
creating a solid basis for qualitative decision making in the management and leadership.

The purpose of the system is processing information, the saving and transmitting appropriate
information in place, and better information system is the one who performs this function with
much less expense.

Attributes of Information
Timeliness
Timeliness means that information must reach the recipients within the prescribed time frame.
Timely information can ensure correct executive action at an early stage.

Accuracy
Accuracy is another key-attribute of management information. It means that information is free
from mistakes and errors, is clear and accurately reflects the meaning of data on which it is
based.

Relevance
Relevance is yet another key attribute of management information. Information is said to be
relevant if it answers specifically for the recipient what, why, where, who and why? In other
words, the MIS should serve reports to managers, which are useful, and the information helps
them make decisions.

Adequacy
Adequacy means information must be sufficient in quantity. MIS must provide reports
containing information, which is required in deciding processes of decision-making.

5) Completeness
The information, which is provided to a manager, must be complete and should meet all his
needs. Incomplete information may result in wrong decisions and thus may prove costly to the
organization.
Explicitness
A report is said to be of good quality if it does not require further analysis by the recipient for
decision-making. Thus the reports should be such that a manager does not waste any time on the
processing of the report, rather he should be able to extract the required information directly.

Exception based.
Top managers need only exception reports regarding the performance of the organization.
Exception reporting principle states that only those items of information, which will be of
particular interest to a manager, are reported.

Importance of information/ Relevance of information in Decision Making

Information is a basic requirement for decision-making. It significantly determines the
effectiveness of not only the final decision but also the process of decision-making itself.
Therefore, decision- making is sometimes regarded as the processing and conversion of
information into action. Hence timely collection and processing of information is of such great
importance

Stages of Decision- Role of Information

making

Identification and One needs information to identify a problem and put it in a

structuring of structured manner. Without information about a problem or
opportunity, the decision-making process does not even start.
problem/opportunity

Putting the problem/ Without information about the context in which the problem has
occurred, one cannot take any decision on it. In a way,
opportunity in context
the .information about the context defines the problem.

Generation of Information is a key ingredient in the generation of alternatives for

alternatives decision-making. One has to have information about possible
solutions to generate alternatives.

Choice of best Based on the information about the suitability of the alternatives, a
alternative choice is made to select the best alternative.
Types of information:
Conceptual information

Conceptual information comes from ideas, theories, concepts, hypothesizes and more. One can
form or share conceptual information through comparison and reflection, creating philosophies.

Here are some examples of conceptual information:

 Charles Darwin's theory of evolution

 Copernican concept of astronomy

Procedural information
Procedural information, or imperative knowledge, is the method of how someone knows to do
something and used by performing a task.

Here are two examples of procedural information: Riding a bicycle, driving a car etc.

Policy information

Policy information focuses on decision making and the design, formation and selection of
policies. It comprises laws, guidelines, regulations, rules and oversight for an organization, group
of people or place.

Here are some examples of policy information: Food pyramid diagram, periodic table of
elements. Food pyramid diagram, Periodic table of elements

Stimulatory information

Stimulatory information is information that creates a response or stimulation amongst a person or

group of people. Stimulation encourages the cause of activity and you can gain stimulatory
information a variety of ways, like in person through observation, through word-of-mouth
communication or through outlets like the news.

Empirical information

Empirical information means information gained through human senses, observation,

experimentation and the testing of a hypothesis by establishing documentation of patterns or
behavior.

Here are several examples of empirical information, rooted in science:

 Electricity, Atomic theory, Theory of gravity, Kinetic theory of matter, Genetics and
DNA
Directive information

 Directive and descriptive information is about providing directions to a person or group

of people to achieve a particular result and outcome. Here are some examples of directive
and descriptive information: Employment performance reviews, Military commands

Decision Making Models:

Rational/ / Classical Decision Model:

The rational decision-making model focuses on using logical steps to come to the best solution
possible. This often involves analyzing multiple solutions at once to choose the one that offers
the best quality outcome. Teams typically use the rational decision model when they have time
for meetings and research, which allows them to create a list of potential solutions and discuss
the pros and cons of each. Here are the steps you may follow when using a rational decision-
making model:

1. Define your goal or obstacle: First, you must define the goal or obstacle you wish to
achieve or overcome.
2. Determine the relevant information: For this step, consider delegating research tasks to
your team or brainstorming during a team meeting. Determine what information about
your goal or obstacle is relevant to finding a solution.
3. Create a list of options: Using the relevant information, your team can create a list of
potential options for solutions. Try to support your options with evidence for why they
would solve achieve your goal or overcome your obstacle.
4. Arrange options by their value: After creating a list of options, arrange them by their
likelihood of success. Options that have a higher chance of success also have a higher
value, while options with little evidence may have a lower value.
5. Choose the best option: Consider the value of each option and how it can help your
company succeed.
6. Finalize your decision and take action: Once your team decides on the best solution,
clearly state your commitment to the solution and ask if any team members have
concerns.

Normative Model:
Normative decision theory models the most ideal decision for a given situation. In normative
theory, an actor is assumed to be fully rational. Normative decisions always try to find the
highest expected value outcome. A fully rational actor is capable of arriving at the highest
expected value with perfect accuracy.
The normative model of decision making is a leadership model that helps managers to decide
to which degree their team members should participate in the decision-making process.

According to this model, decision-making is characterized by −

 Limited information processing - A person can manage only a limited amount of
information.
 Judgmental heuristics - A person may use shortcuts to simplify the decision making
process.
 Satisfying - A person may choose a solution that is just "good enough".

Dynamic decision-making :

Dynamic decision-making (DDM) is interdependent decision-making that takes place in an

environment that changes over time either due to the previous actions of the decision maker or due to
events that are outside of the control of the decision maker.

These decision-makings are more complex and real-time.

Dynamic decision-making involves observing how people used their experience to control the
system's dynamics and noting down the best decisions taken thereon.

Sensitivity Analysis:

Sensitivity analysis is a technique used for distributing the uncertainty in the output of a
mathematical model or a system to different sources of uncertainty in its inputs.
From business decision perspective, the sensitivity analysis helps an analyst to identify cost
drivers as well as other quantities to make an informed decision. If a particular quantity has no
bearing on a decision or prediction, then the conditions relating to quantity could be eliminated,
thus simplifying the decision making process.
Sensitivity analysis also helps in some other situations, like −
Resource optimization
Future data collections
Identifying critical assumptions
To optimize the tolerance of manufactured parts

Static and Dynamic Models

Static models:
 Show the value of various attributes in a balanced system.
 Work best in static systems.
 Do not take into consideration the time-based variances.
  Do not work well in real-time systems however, it may work in a dynamic system being
in equilibrium
 Involve less data.
 Are easy to analyze.
 Produce faster results.
Dynamic models −

 Consider the change in data values over time.

 Consider effect of system behavior over time.
 Re-calculate equations as time changes.
 Can be applied only in dynamic systems.

Simulation Techniques

Simulation is a technique that imitates the operation of a real-world process or system over time.
Simulation techniques can be used to assist management decision making, where analytical
methods are either not available or cannot be applied.
Some of the typical business problem areas where simulation techniques are used are −

 Inventory control
 Queuing problem
 Production planning

Administrative Model of Decision-Making

The decision-making process is vital, especially in an organizational, administrative or business
context. Many factors, such as training, technology, competition and employee motivation
influence decision-makers.
Decision-makers must consider these factors when making organizational, administrative or
business decisions. One of the approaches they use is the administrative model of decision-
making. According to this model, decision-making is characterized by ambiguity and
uncertainty.
The administrative model of decision-making is founded on the belief that decision-makers are
constrained by limited motivation and lack of time. As a result, they end up settling on less ideal
solutions.
Herbert Simon’s Model:
Herbert A. Simon was of the first few scholars to recognize that decisions are not always made
with rationality and logic. Simon, a winner of the Nobel Prize in Economics, instead of
prescribing how decisions should be made, describes how decisions actually are made.
The Administrative model holds that managers:
(i) Have incomplete and imperfect information,
(ii) Are constrained by bounded rationality, and
(iii) Tend to satisfies when making decisions.
Herbert Simon made key contributions to enhance our understanding of the decision-making
process. In fact, he pioneered the field of decision support systems. According to (Simon 1960)
and his later work with (Newell 1972), decision-making is a process with distinct stages. He
suggested for the first time the decision-making model of human beings. His model of decision-
making has three stages:
• Intelligence which deals with the problem identification and the data collection on the problem.
• Design which deals with the generation of alternative solutions to the problem at hand.
• Choice which is selecting the ‘best’ solution from amongst the alternative solutions using some
criterion.

Management Support Systems:

Decision support systems :
Decision support systems (DSS) are interactive software-based systems intended to help
managers in decision-making by accessing large volumes of information generated from various
related information systems involved in organizational business processes, such as office
automation system, transaction processing system, etc.
DSS uses the summary information, exceptions, patterns, and trends using the analytical models.
A decision support system helps in decision-making but does not necessarily give a decision
itself. The decision makers compile useful information from raw data, documents, personal
knowledge, and/or business models to identify and solve problems and make decisions.

Attributes of a DSS

 Adaptability and flexibility

 High level of Interactivity
 Ease of use
 Efficiency and effectiveness
 Complete control by decision-makers
 Ease of development
 Extendibility
 Support for modeling and analysis
 Support for data access
 Standalone, integrated, and Web-based

Characteristics of a DSS
  Support for decision-makers in semi-structured and unstructured problems.
 Support for managers at various managerial levels, ranging from top executive to line
managers.
 Support for individuals and groups. Less structured problems often requires the
involvement of several individuals from different departments and organization level.
 Support for interdependent or sequential decisions.
 Support for intelligence, design, choice, and implementation.
 Support for variety of decision processes and styles.
 DSSs are adaptive over time.

Benefits of DSS

 Improves efficiency and speed of decision-making activities.

 Increases the control, competitiveness and capability of futuristic decision-making of the
organization.
 Facilitates interpersonal communication.
 Encourages learning or training.
 Since it is mostly used in non-programmed decisions, it reveals new approaches and sets
up new evidences for an unusual decision.
 Helps automate managerial processes.

Types of DSS

Following are some typical DSSs −

 Status Inquiry System − It helps in taking operational, management level, or middle
level management decisions, for example daily schedules of jobs to machines or
machines to operators.
 Data Analysis System − It needs comparative analysis and makes use of formula or an
algorithm, for example cash flow analysis, inventory analysis etc.
 Information Analysis System − In this system data is analyzed and the information
report is generated. For example, sales analysis, accounts receivable systems, market
analysis etc.
 Accounting System − It keeps track of accounting and finance related information, for
example, final account, accounts receivables, accounts payables, etc. that keep track of
the major aspects of the business.
 Model Based System − Simulation models or optimization models used for decision-
making are used infrequently and creates general guidelines for operation or
management.

Group Decision Support System (GDSS):

It is a system that supports decision-making and has been designed and structured in such a way
so that the members constituting a group can interact with each other to arrive at a particular
decision. It provides support for various group decision-making activities such as file sharing,
integration of the individual opinions with that of the group, communication, modelling of group
actions and any other action which requires interaction of the group members.
The main characteristic of the Group Decision Support Systems or GDSS is to support exchange
and flow of information and ideas seamlessly between various members of the decision-making
group. It also maintains the privacy of the members

Advantages of GDSS :

1) More Information in Less Time :

It is possible to gather huge amount of information in a very short time period as GDSS
facilitates the members of the team to work parallel.

2) Greater Participation:

When the members of the group work in a GDSS because the members are able to express their
thoughts freely.

3) More Structure :

In a GDSS environment the discussions are much more concentrated and focused. Irrelevant
degradations are greatly reduced.

4) Automated Documentation :

Comments are preserved forever and the system provides the result without any delay. Excellent
graphics makes viewing more attractive.

Executive Information System

An executive information system (EIS) is a decision support system (DSS) used to assist senior
executives in the decision-making process. It does this by providing easy access to important
data needed to achieve strategic goals in an organization. An EIS normally features graphical
displays on an easy-to-use interface.

Executive information systems can be used in many different types of organizations to monitor
enterprise performance as well as to identify opportunities and problems.

Advantages of ESS
  Easy for upper level executive to use
 Ability to analyze trends
 Enhance personal thinking and decision-making
 Enhance organizational competitiveness in the market place
 Instruments of change
 Better reporting system
 Improved mental model of business executive
 Help improve consensus building and communication
 Reduce time for finding information
 Early identification of company performance
 Detail examination of critical success factor
 Better understanding
 Time management
 Increased communication capacity and quality

Disadvantage of ESS

 Functions are limited

 Executive may encounter information overload
 System may become slow
 Difficult to keep current data
 May lead to less reliable and insecure data
 Excessive cost for small company