Managing Information Systems

Seventh Canadian Edition

Laudon, Laudon and Brabston

CHAPTER 12
Enhancing Decision Making

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 Learning Objectives

After reading this chapter, you will be able to answer the

following questions:

1. What are the different types of decisions, and how

does the decision-making process work?
2. How do information systems support the activities of
managers and management decision making?
3. How do business intelligence and business analytics
support decision making?
Continued

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 Learning Objectives (cont.)

4. How do different decision-making constituencies

in an organization use business intelligence?
5. What is the role of information systems in
helping people working in a group make
decisions more efficiently?

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 Decision Making and Information Systems

Types of decisions
The decision-making process
Managers and decision making in the real world
Managerial roles
Real-world decision making

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 Types of Decisions

Unstructured Decisions
Novel, non-routine decisions requiring judgment and
insights
Examples: Approve capital budget; decide corporate
objectives
Structured Decisions
Routine decisions with definite procedures
Transitional process systems (TPS)
Examples: Restock inventory; determine special offers to
customers
Continued

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 Types of Decisions (cont.)

Semistructured Decisions
Only part of decision has clear-cut answers
provided by accepted procedures
Examples: Allocate resources to managers;
develop a marketing plan

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 The Decision-Making Process

1. Intelligence
Discovering, identifying, and understanding
the problems occurring in the organization
2. Design
Identifying and exploring solutions to the
problem
3. Choice
Choosing among solution alternatives
4. Implementation
Making chosen alternative work and
monitoring how well solution is working
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 Managers and Decision Making in the
Real World

Managerial Roles
Classical Model of Management
Describes what managers do, was largely unquestioned for the more than 70 years since the 1920s
Henri Fayol
Behavioural Models of Management
Actual behavior of managers appears to be less systematic, more informal, less reflective, more reactive, and
less well organized than the classical model would have us believe
Three Categories of Managerial Roles
Interpersonal Roles
Managers act as leaders, attempting to motivate, counsel, and support subordinates
Managers also act as liaisons between various organizational levels
Informational Roles
Act as the nerve centers of their organizations
Spokesperson
Decisional Roles
act as entrepreneurs by initiating new kinds of activities; they handle disturbances arising in the organization;
they allocate resources to staff members who need them; and they negotiate conflicts and mediate between
conflicting groups

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 High-Velocity Automated Decision
Making
Made possible through computer algorithms precisely defining steps for a
highly structured decision
Humans are taken out of decision chain because they are too slow
For example: High-speed computer trading programs
Trades executed in 30 milliseconds
Responsible for Flash Crash of 2010
Require safeguards to ensure proper operation and regulation

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 What is Business Intelligence

Infrastructure for collecting, storing, analyzing data

produced by business
Databases, data warehouses, data marts
Business analytics
Tools and techniques for analyzing data
OLAP (online analytical processing), statistics,
models, data mining
Business intelligence vendors
Create business intelligence and analytics
purchased by firms
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 Six Elements in the Business Intelligence
Environment
1. Data from the business environment
Deal with both structured and unstructured data
2. Business intelligence infrastructure
3. Business analytics toolset
Used to analyze data and produce reports, respond to questions
posed by managers
4. Managerial users and methods
5. Delivery platform MIS, DSS, ESS
6. User interface
Learn more quickly from visual representation of data than from
dry reports

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 Business Intelligence and Analytics Capabilities

Production Reports
Predefined reports based on industry-specific requirements
Formalized Reports
Filter data and isolate impacts of parameters
Dashboards/scorecards
Visual tools for presenting performance data
Ad hoc/query/search/report creation
Create their own reports based on queries and searches
Drill Down
Ability to move from a high-level summary to a more detailed view
Forecasts, scenarios, models

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 Business Intelligence Users

Predictive analytics
Use patterns in data to predict future behavior
E.g. Credit card companies use predictive analytics to
determine customers at risk for leaving (credit scoring-
most well known)
Predict response to direct marketing campaigns
Data visualization
Help users see patterns and relationships that would be
difficult to see in text lists
Geographic information systems (GIS)
Ties location-related data to maps

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 Management Strategies for Developing
BI and BA Capabilities
One-stop integrated solution
Hardware firms sell software that run optimally on their hardware
Makes firm dependent on single vendor switching costs
The first solution carries the risk that a single vendor provides your firms total
hardware and software solution, making your firm dependent on its pricing power. It
also offers the advantage of dealing with a single vendor who can deliver on a global
scale. The second solution offers greater flexibility and independence, but with the
risk of potential difficulties integrating the software to the hardware platform, as well
as to other software
All BI and BA systems lock the firm into a set of vendors, and switching is very costly
Multiple best-of-breed solution
Greater flexibility and independence
Potential difficulties in integration
Must deal with multiple vendors

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 Decision Support for Operational and
Middle Management
Support for Structured Decisions
Management Information Systems (MIS)
Typically used by middle managers and primary output is a set of routine production reports based on data
extracted and summarized from the firms underlying transaction processing systems (TPS)
Exception Reports
Interactive Queries through a Portal
Semistructured Decisions
Decision Support Systems (DSS)
BI delivery platform for this category of users
Rely more heavily than MIS
Allows the user to vary certain values to test results to predict outcomes if changes occur in those values
Sensitivity Analysis
Models ask what-if questions repeatedly to predict a range of outcomes when one or more variables
are changed multiple times
Backwards sensitivity: helps decision makers with goal seeking
Pivot table: super users and analysts employ to identify and understand patterns in business
information that may be useful for semistructured decision making

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 Decision Support for Senior Management

Will need a methodology for understanding exactly what is the really important performance
information for a specific firm that executives need, and second, you will need to develop systems
capable of delivering this information to the right people in a timely fashion
Balanced Scorecard
Key Performance Indicators: measures proposed by senior management for understanding how
well the firm is performing along any given dimension
Framework for operationalizing a firms strategic plan by focusing on measurable outcomes on 4
dimensions of a firms performance: financial, business process, customer, and learning and growth
Thought to be balanced because it causes managers to focus on more than just financial
performance
Business performance management (BPM): attempts to systematically translate a firms strategies
into operational targets
Contemporary ESS are supplied by the firms existing enterprise applications (enterprise resource
planning, supply chain management, and customer relationship management)
ESS also provide access to news services, financial market databases, economic information, and whatever
other external data senior executives require
ESS also have significant drill-down capabilities if managers need more detailed views of data
Enterprise Performance Management Models

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 Group Decision-Support Systems (GDSS)

Interactive system to facilitate solution of unstructured problems by group of

decision makers
Hardware computer and networking hardware, overhead projectors, display
screens
GDSS software collects, documents, ranks, edits and stores participant ideas,
responses
GDSS-guided meetings take place in conference rooms with special hardware and
software tools to facilitate group decision making
May require facilitator and staff
Enables increasing meeting size and increasing productivity
Promotes collaborative atmosphere, guaranteeing anonymity
Follow structured methods for organizing and evaluating ideas and preserving
meeting results
Sophisticated GDSS, no one will be able to see what individuals does on their
computers until those participants are ready to share information

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