1California State University, Fullerton

Chapter 11

Management Decision Making

2California State University, Fullerton

Improving Management Decision-making Effectiveness A decision is a selection among

several courses of action. Information helps reduce the

uncertainty. With better information, a decision maker is more certain about the outcome of a decision.

3California State University, Fullerton

Levels of Management Decisions Management decisions are made

at several levels in an organization. Starting at the top: Strategic decisions Tactical decisions Operational decisions

4California State University, Fullerton

Strategic Decisions Made by top level managers. Involve setting organization

policies, goals, and long-term plans.

They affect the organization for many years.

5California State University, Fullerton

Tactical Decisions Made by middle-level managers. Involve implementing policies of

the organization. They affect the organization for

several months or a few years.

6California State University, Fullerton

Operational Decisions Made by lower-level manager. Involve the day-to-day decisions

needed in the operation of the organization.

They affect the organization for a short period of time, such as several days or weeks.

7California State University, Fullerton

Characteristics of Management Decisions The three characteristics of

management decision making1. Time horizon affected by the

decision2. Frequency of repeating the same

decision3. Degree of structure in the decision

process

8California State University, Fullerton

Characteristics of Management Decisions (cont’d.) Strategic decisions tend to be

unstructured. Tactical decisions tend to be

semi-structured. Operational decisions tend to be

very structured.

9California State University, Fullerton

Information Needs for Management Decisions Two characteristics of information

needed for management decision making: Source of the information

Internal External

Degree of detail of information Detailed Summarized

10California State University, Fullerton

Information Needs for Management Decisions (cont’d.) Strategic decision information tends

to be external and summarized. Tactical decision information tends to

be both internal and external and both detailed and summarized.

Operational decision information tends to be internal and detailed.

11California State University, Fullerton

Information Systems for Management Support Information systems support

management in all the functions of a business at all levels. Accounting information systems

provide accounting information at all levels.

Financial information systems help in financial decision making at all levels.

12California State University, Fullerton

Information Systems for Management Support (cont’d.)

Marketing information systems provide information to marketing managers at all levels.

Manufacturing information systems assist in making manufacturing and production decisions at all levels.

Human resource information systems support personnel decisions making at all levels.

13California State University, Fullerton

Management Information System Structure A Management Information System

(MIS) supports management decision making by providing information in the form of reports and responses to queries to managers at different levels of an organization.

14California State University, Fullerton

Management Information System Functions MIS perform the four main

functions of an information system: Input function Storage function Processing function Output function

15California State University, Fullerton

Decision Support Systems MIS support managers make

decisions by providing information from a database with little or no analysis.

A Decision Support System (DSS) helps managers make decisions by analyzing data from a database and providing the results of the analysis to the manager.

16California State University, Fullerton

Management Decision Support

DSS includes several ways of analyzing data. They include: Statistical calculations – data is

manipulated to determine characteristics of the data (descriptive) or to draw conclusions from the data(inferential) .

Mathematical modeling – a representation of reality.

17California State University, Fullerton

Decision Support System Structure The users of a DSS are managers,

usually at the tactical and strategic levels in the organization.

The DSS model base (analogous to a database) contains the mathematical models and statistical calculation routines that are used to analyze data from the database.

18California State University, Fullerton

Decision Support System Functions The capabilities of a decision

support system are provided by the four information system functions performed by the system. They are: Input function Storage function Processing function Output function

19California State University, Fullerton

Decision Support System Software DSS are usually developed using

general software that is adapted for a specific decision.

An example of DSS software is spreadsheet software.

20California State University, Fullerton

Group Decision Support Systems A Group Decision Support Systems

(GDSS) is a system designed to support group decision making.

GDSS are typically used in a network.

21California State University, Fullerton

Geographic Information System A Geographic Information System

(GIS) is an information system that provides information for decision making based on geographic location.

A GIS includes a database in which all data is organized by geographic location.

22California State University, Fullerton

Executive Support Systems An Executive Support System

(ESS) is designed specifically for the information needs of strategic managers.

Also called an Executive Information System (EIS).

23California State University, Fullerton

Executive Information Needs

While strategic level managers generally need summarized information, occasionally they need detailed information.

The detailed information is available through a process called drilling down.

24California State University, Fullerton

Executive Support System Structure

ESS may include any of the following: On-line access to reports. The ability to query the MIS database for

information not usually received in reports.

The ability to access external databases. The ability to analyze and summarize data

from reports and queries, and to view the results of the analysis graphically.

25California State University, Fullerton

Executive Support System Functions

An executive support system provides its capabilities through the four information system functions: Input function Storage function Processing function Output function

26California State University, Fullerton

Expert Systems An Expert System (ES) is a type of

information system that gives expert advice to the decision maker.

The system accomplishes this task by incorporating human expert knowledge and using this knowledge to analyze specific problems.

27California State University, Fullerton

Expert Advice Expert advice is used at all levels of a

business, but is most commonly required for structured problems at the operational and tactical levels.

Problems in research and development, engineering, production, finance, computer systems, accounting, and other areas use expert advice.

28California State University, Fullerton

Expert System Structure The knowledge base is a database

of expert knowledge. Different types of expert systems

use different techniques for storing knowledge.

One technique is to use rules. A rule is an if-then structure.

29California State University, Fullerton

Expert System Structure (cont’d.) The expert system software

consists of a user interface and an inference engine.

The inference engine analyzes rules in the knowledge base to draw conclusions.

30California State University, Fullerton

Expert System Functions Expert system capabilities are

provided by the four information system functions: Input function Storage function Processing Function Output Function

31California State University, Fullerton

Organization Knowledge Explicit knowledge can be stated

or written in a form someone else can understand.

Implicit (tacit) knowledge cannot be expressed easily but is understood by the individual.

32California State University, Fullerton

Knowledge Management Knowledge management is the

process of managing organizational knowledge.

An organization must determine what knowledge it has and acquire the knowledge that it is lacking.

33California State University, Fullerton

Knowledge Management Organizational knowledge may

include: Formally documented internal knowledge such

as product manuals & research reports. External Knowledge such as

competitive intelligence. Tacit Knowledge such as expertise of

organizational members that has not been formally documented yet.

34California State University, Fullerton

Knowledge Management (cont’d.) Explicit knowledge needs to be

organized and recorded in a way that makes it usable by others in the organization who do not have that knowledge.

Implicit (tacit) knowledge needs to be codified in order to be preserved and shared.

35California State University, Fullerton

Knowledge Management (cont’d.) Knowledge needs to be

created/captured, codified/ stored/organized/ maintained, and communicated to those who need it and share among the employees in an organization.

Chief Knowledge Officer (CKO)