bis week 02 lecture notes

8/3/2019 BIS Week 02 Lecture Notes

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CM10161Business Information

Systems

Week 2Managerial decision making


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Topics

1. The business environment2. Managerial decision making

3. Decision making theory


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The business environment

All businesses operate within an environmentthat influences the way in which theorganization operates.

For example, legislation will act to control

some of the organizations activities. The actions of an organization may also

influence parts of the environment.

Figure 2.1 illustrates some of the elements

that may influence the way in which anorganization operates.

OrganizationEnvironment

Two-way Interaction


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2.1


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The business environment

For managers, making use of informationabout the external environment is vital todecision making.

BIS need to provide information from boththe:

micro-environment (specificenvironment)

macro-environment (generalenvironment)


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Internal business resources

To operate within the business environment,organizations use a business resource basewhich supports their activities.

The resource base consists of:

tangible (or physical) resources

intangible (or conceptual) resources


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Tangible assets (physical resource base)

Physical resourcesare often known astangible assets and are normally directedtowards the production of a product or service.

Examples of physical resources includemoney, land, plant and labour power.

The hardware and software making up BISare also physical resources.


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Intangible assets (conceptual resource base)

Conceptual resourcesare often known asintangible assets and are normally used tosupport an organizations activities, e.g. by

helping managers to make better

decisions. Examples of intangible resources include

experience, motivation, knowledge, ideasand judgement.

The data and information that are part ofBIS can be considered a valuableintangible resource which must be

protected.


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Topics

1. The business environment

2. Managerial decision

making3. Decision making theory


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How does information support managers?

Henri Fayol (18411925) devised a classicdefinition of management that is still widelyused in both industry and academia.

To manage is to forecast and plan, toorganise, to command, to coordinateand to control.

The success of all of the activitiesdescribed in Fayols definition depend uponaccess to high quality information.


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Decision behaviour

The way in which managers make decisions,and the factors that influence those decisions,are often described as decision behaviour.

Decisions can be classified as

Structured, or Unstructured

In reality, however, many decisions fallsomewhere in between the two extremes and

are known as semi-structured decisions.

Structured

Decisions

Unstructured

Decisions

Semi-structured

Decisions


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Decision behaviour (Continued)

Structured decisions tend to involve situations

where the rulesand constraintsgoverning thedecision are known.

They tend to involve routineor repetitivesituationswhere the number of possible

courses of actions is relatively small. An example is stock control decision:

The decision to reorder a given item will begoverned by a fairly simple set of rules and

constraints: When the amount of stock held falls below a

certain point, a fixed quantity of new stockwill be ordered.


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Unstructured decisions tend to involve morecomplex situations, where the rules andconstraints governing the decision arecomplicated and unknown.

They tend to be made infrequentlyand relyheavily on the experience, judgementandknowledgeof the decision maker.

An example is whether or not anorganization should open a new branchin mainland China.
http://images.google.com.hk/imgres?imgurl=http://www.istockphoto.com/file_thumbview_approve/5071582/2/istockphoto_5071582-question-mark.jpg&imgrefurl=http://www.istockphoto.com/file_closeup/business/business-concepts/5071582-question-mark.php%3Fid%3D5071582&usg=__9otamGpNpGV7Jc1w5NURqpJSUXc=&h=380&w=380&sz=45&hl=zh-TW&start=18&tbnid=_WqpFnDVwg7ntM:&tbnh=123&tbnw=123&prev=/images%3Fq%3Dquestion%2Bmark%2Bcartoon%26hl%3Dzh-TW%26newwindow%3D1


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Semi-structured decisions strike the balancebetween everyday routine structured decisions,which require quite a limited thought process,and unstructured decisions, which are more

thought provoking and less frequent.

An example is setting the promotion budget(structured) for a new product (unstructured).


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Decision level and problem structure

examples


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Structured decisions can be made by lower levelmanagers or by a computer system.

Semi-structured decisions can be handled by the

cooperation and interaction between the decisionmaker and a computerized system.

Unstructured problems are not able to beformalized in a technical sense andhence are difficult to feed into a computer.


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Cognitive style

This describes the way in which a managerabsorbs information and reaches decisions.A manager's cognitive style will fall

between analyticaland intuitive styles.


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Cognitive style (Continued)

The analytical manager displays a highlevel of analytical thought and is able toprovide detailed justifications for anydecisions made. He or she tends to prefer

quantitative data(hard data) as the basisfor a decision.

The intuitive manager relies heavily on prior

experience, judgement and intuition. Thiskind of manager will be more willing toaccept qualitativeinformation(soft data)when making a decision.


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Hard data and soft data

Hard data, also known as quantitative data,tend to make use of figures, such asstatistics.

Hard data are often collected in order to

measure or quantify an object or situation.

Soft data, often known as qualitative data,tend to focus on describing the qualities orcharacteristics of an object or situation.

Interviews, for example, are often used tocollect qualitative data related to apersons opinions or beliefs.


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Levels of managerial decision making

The characteristics of the decisions taken inan organization vary according to the level atwhich they are taken.

Figure 2.2 shows the distribution ofmanagerial responsibility within a typicalorganization.


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Unstructured decisions

Semi-structureddecisions

Structured

decisions

Top management

Middlemanagement

Operational

managementFigure 2.2 Levels of managerial decision making

Management Level Main Decision Types


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Strategic level Managers are largely concerned with

long-termorganizational planning.

Decisions tend to be unstructuredandare made infrequently.

These decisions are likely to have a large

impacton the organization as a wholeand cannot be reversed easily.

Example: a choice of new markets tomove into.


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Tactical level Managers are largely concerned with

medium-termorganizational planning.

Managers monitor the performance of theorganization, control budgets, allocateresources and set policies.

Decisions taken at this level are used to set

medium-term goalsthat form stages leadingto the accomplishment of the organizationsstrategic objectives.

Example: setting a departmental budget.


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Operational level Managers deal with short-termplanning and

the day-to-day controlof the organizationsactivities.

The decisions taken at this level direct the

organizations efforts towards meeting themedium-term goals, abiding by the budgets,policies and procedures set at the tacticallevel.

Operational decisions tend to be highlystructuredand have little impacton theorganization as a whole.

Example: setting a daily or weekly productionschedule.


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A direct relationship exists between themanagement level at which a decision is takenand the characteristics of the information

required to support decision making. Tables 2.1 and 2.2 illustrate how the

characteristics of the information needed bymanagers change according to the type of

decision being made.


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Decision characteristics

Table 2.1 Decision characteristics and management level

Decision

Management

Level

Type of

Decision

Time

Scale

Impact on

Organisation

Frequency

of Decisions

Strategic Unstructured Long Large Infrequent

Tactical Medium Medium Operational Structured Short Small Frequent


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Decision characteristics

Table 2.2 Information characteristics for decisions by management levels

Information

Management

Level

Time

Period

Frequency Source Certainty Scope Detail

Strategic Wide Infrequent ExternalLess

CertainWide Summarised

Tactical

Operational Narrow Frequent InternalMore

CertainNarrow Detailed


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A model of decision making

OR


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Topics

1. The business environment

2. Managerial decision making

3. Decision making theory


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Decision-making theory

Decision-making theory is important in defining

how structured decisions or business rules basedon quantitative data are incorporated into BIS.

A business rule defines the actions that need tooccur in a business when a particular situation

arises. e.g. A bank might have a rule specifying that

customers applying for a loan will only beconsidered if they have held an account for three

years or more. A business rule is broken down into an event that

triggers a rule and test conditions that result indefined actions.


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An example

Name of event Loan enquiry

Condition (Rule) Held account for 3+ years?

Possible results Yes or No

Possible actions If Yes: Allow application

If No: Refuse application


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Decision making involves selecting the correctaction from a series of choices.

The business rules governing the correct

action may be complex, so we use diagramsand tables to help take the decision in astructured way and to ensure the rules are

defined correctly The rules are implemented as program code

in software.


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Most business rules will involve severalquestions and these can be misinterpreted ifthey are not clearly defined.

In more complex cases we use a combinationof decision trees and decision tables.

Decision trees are usually drawn first and then

the corresponding decision table is based onthe decision tree.


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A decision tree is a diagram showing thesequence of events, decisions andconsequent actions that occur in a decision-

making process. It shows the differentbusiness rules using flow chart notation.

A decision table is a matrix showing all the

alternative outcomes of different decisionswhich occur when certain input conditionsoccur.


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Figure 2.3 Decision tree notation for checking loan application


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Figure 2.4 Framework for a decision table


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Decision Table for Loan Application

Rules

1 2

Conditions Account 3+ years N Y

Actions Refuse application X

Allow applicationX


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Bank loan enquiry example

A bank has a rule specifying thatcustomers applying for a loan will only beconsidered if they have held an account forthree years or more.

If so, the next question is whether or notthe customer is in full-time employment.

If they are, they can be offered credit. If they are not in full-time employment, they

can still be offered credit if they are able tooffer other form of security. Otherwise, theirapplications will be rejected.


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Figure 2.5 Decision tree for the loan application example


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Decision Table for Loan Application

Rules

1 2 3 4

Conditions Account 3+ years N Y Y Y

Employed - N N Y

Security - N Y -

Actions Offer credit X X

Refuse credit X X


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Structured English program code

IF held Account 3+ years THEN

IF Employed THENAccept Application (Rule 4)

ELSE

IF Can Offer Security THEN

Accept Application (Rule 3)

ELSE

Decline Application (Rule 2)

ENDIFENDIF

ELSE

Decline Application (Rule 1)

ENDIF

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