Information System 6- Analyzing Information for Business Decision-Making

Learning Objectives

• Discuss the importance of having good decision-making skills
• Explain how decision-making changes depending on organizational level
• Discuss the role of information in decision-making
• Contrast structured, semistructured, and unstructured decisions
• Apply a decision-making methodology
• Choose the appropriate technology tool for a given decision-making task

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Making good decisions requires information, but that is not enough. You must also be able to analyze information.

• A decision is simply a choice among alternatives.
• Regardless of the importance of the decision, making the decision requires retrieving and analyzing information.

The Importance of Good Decision-Making Skills

• One of the skills that sets apart successful business professionals
• Ability to solve complex problems are among the most highly sought after for potential employees
• These skills are directly related to being able to make good decisions

It is increasingly important as one moves up the “organizational ladder”.

• Decisions made by higher-level managers tend to be more complicated.
• Higher-level decisions typically have greater impacts. – e.g. store manager: hiring and scheduling hourly workers vs. district manager: choose suppliers vs. CEO: whether to introduce new product

Using Information for Decision-Making

• Many of our information needs are related to decision-making, and making good decisions requires information.
• You need good information to understand the objectives of a decision, the constraints that limit the number of alternatives, and the alternatives themselves.
• You also need information to forecast the potential outcomes of each alternative.
• Information provides the means for comparing and selecting among the alternatives.

Type of Decisions

Simon’s framework

• Structured decisions – routine and repetitive, often have well-defined procedures for dealing with them.
  • Know what information we need and how to use the information
• Unstructured decisions – novel and do not have agreed-upon procedures for making them.
  • Not sure exactly what information we need, nor do we know how to use the information.
• Semistructured decisions – somewhere in between two extremes.

Anthony’s framework

A complementary view comes from Anthony (1965), who developed a framework of managerial activity that is made up of three categories: strategic planning, managerial control, and operational control.

• operational control
  • it make sure that the tasks of the organization are being conducted efficiently and effectively.
  • usually involved structured decisions
  • it has narrow, well-defined information needs that can be anticipated.
  • information comes sources that are easily accessed
  • do not require any human intervention – e.g. order-processing program
• strategic planning
  • involves choosing the organization’s objectives and deciding how to achieve them; predicting the future of the organization and its environment; using creative, nonroutine thinking
  • usually involved unstructured decisions
  • the information needs often are broad and poorly defined
  • information comes from both internal and external sources
• managerial control
  • enusring the efficient, effective use of resources in achieving the objectives laid out in strategic planning
  • usually involved semistructured decisions
  • we can anticipate some information needs but cannot create a program capable of making the decision without relying on human judgment

A Decision-Making Process

Simon’s classic intelligence/design/choice model

• Intelligence
  • includes those activities that alert decision makers that there is a need to change the current state
• Design
  • involves developing alternative approaches to bringing about the required change or achieving the required goals
• Choice
  • the most effective and efficient alternative is selected in this phase
• implementation
  • in this phase the activities in the chosen alternative are carried out

Identify and Clearly Define the Problem

• It is the most critical phase in the decision-making process
• A good problem definition should produce a clear, concise problem statement that describes both the initial state and desired state
• The “5 Why” technique

Determine Requirements and Goals

• Requirements are the conditions that any acceptable solution must provide. – must haves
• Decision goals go beyond the minimum, essential requirements. – likely to haves.

Identify Alternatives

• An alternative is method for transforming the current condition into the desired state.
• Two stages: generation & refinement

Define the Criteria

• Decision criteria are objective measures of the requirements and goals that help you discriminate among the alternatives.
• It is important that each criterion be independent of other criteria.

Select a Decision-Making Technique/Tool

Some easy but quite useful techinques:

• Pros/Cons Analysis – list the advantages and disadvantages
• Paired Comparisons – evaluate each alternative against all other alternatives
• Decision Matrix – use a grid that lists all the alternatives in the first column and all the criteria in the first row
  • you also can use a weighted version of the decision matrix
• Evaluate the Alternatives Using the Criteria
• Check That the Solution Solve the Problem

Information Retrieval and Analysis Tools

In this section, we discuss how information systems help with decision-making.

Two categories of tools:

• Information retrieval tools – include database management systems, reporting tools, and document management tools

  • reporting tools allow users to create reports visually rather than requiring special commends (e.g. drag data from left to right on a screen)
  • document management systems include functions that help users locate and retrieve in documents (version control, sharing)

• Information analysis tools

  • What-if analysis – involves seeing how changes in one or more outcome variables
    • e.g. If you are purchasing a car, you can see the impact of changing the interest rate on monthly payment.
  • goal-seek analysis – you specify the value of the outcome variable you seek (the goal), and the spreadsheet software determines the value of a particular input that will produce the desired output
    • e.g. Suppose you have a budget of $400 per month, you can determine the down payment based on your budget
  • “When more advanced techniques are needed, you must turn to dedicated statistical software, such as SPSS, Stata, R, and SAS (among others)
  • There are also software tools that help you visualize data