Chapter 16 Information Systems for Managerial Decision
1.Objectives
1.1Understand the information needs of managers at different levels.
1.2Acquire knowledge of managerial decisions at different levels.
1.3Aware of the qualities of information required for making managerial decisions.
1.4Acquire an understanding of different types of information systems that provide supports to managerial decisions.
2.Information Needs and Decisions at Different Organizational Level
(A)Information needs of managers at different levels
2.1To ensure that managers can fulfill their responsibilities properly, managers of different levels must have sufficient relevant information for them.
2.2Managers of all three levels involve both planning and control activities. However, at the strategic end, the emphasis is on planning, whereas at the operational end it is on control. This can be illustrated in the following diagram:
Figure 1 The management pyramid
2.3Planning levels
Strategic planning level / Company level / OfficialsStrategic / Upper management / Vice president
Tactical / Middle management / Manager
Operations / Lower management / Foreman, supervisors
2.4A manager will need information to help decide what course of action is most likely to bring a situation under control. Information needs will vary according to the nature of decisions to be made. The decision making process can be broken down into four stages:
(a)The trigger– is an event, or a piece of information that precipitates (促使) the need for a decision. The better the information flow, the sooner the need for a decision is indicated and the more timely the decision.
(b)Information gathering– information is collected to help in making the right decision. If the nature of the decisions that a manger is likely to face can be predicted, then information can be collected in advance. This will speed up the decision making process and enable the manager to bring the situation under control faster.
(c)Design– the decision maker will consider a range of different courses of action and predict their likely results.
(d)Evaluation– the manager will choose the courses of action defined during the previous stage of the decision making process.
(B)Managerial decisions at different levels
(a)Strategic management
2.5Manager of strategic level is responsible for monitoring and controlling organization as a whole, making decisions on areas such as opening of new shops and factories or investment in new product lines.
2.6Managers’ concerns are the long-term objectives and position of the company. Strategic management will be involved in making decisions about:
(a)the formulation of the new objectives and the refinement of the existing objectives;
(b)the manner in which these new objectives will be achieved; for example, expansion by acquisition of companies which are already established in the industry, or by starting new businesses itself;
(c)the resources used to attain the objectives; and
(d)the policies governing: acquisition, use and disposition (部署) of these resources.
(b)Tactical management
2.7Manager at tactical level is responsible for implementing the decisions of strategic managers and ensuring that the different divisions or departments within the organization are operating correctly.
2.8Decisions at this level are usually based on financial analysis, money being the common unit of measurement of resources. The control systems are performance reports relating to profit, cost or revenue centres.
2.9Decisions taken by tactical managers include:
(a)pricing decisions and other elements of the ‘marketing mix’, such as advertising; promotion and distribution decisions relating to purchases and suppliers;
(b)stock levels and other aspects of working capital management; and
(c)fixed asset replacement decisions.
(c)Operational management
2.10Manager at operational level is responsible for controlling the day-to-day operations of the organization, reporting queries or problems back to tactical management for decisions as necessary.
2.11Operational management is involved with day-to-day decision making concerning the detailed transactions and processes within the organization.
(C)Information qualities and decision making
2.12To be useful, information must possess certain qualities such as being timely and relating to the area of business the manager is responsible for. Within each management level the quality expected of information will vary, because the decision making of managers at different level have a different focus.
(a)Strategic information
2.13Time period– historical information enables management to learn from what has happened in the past while forecast enables management to predict the future.
2.14Timeliness– it is not essential, only if there is information which shows a significant departure from what has happened in the past (e.g. competitive price levels), and then this must be made available to the strategic decision makers immediately.
2.15Objectivity– strategic decision making needs both qualitative and quantitative information, although attempts will often be made to quantify apparently qualitative data. This enables such data to be incorporated into the kind of mathematical models often used in the building strategic plan.
2.16Accuracy– there is no demand for information to be completely accurate, it will often be rounded to the nearest thousand or ten thousand.
2.17Certainty– by its very nature, future information is subject to uncertainty. Strategic planners must be capable of adjusting to the limitations of the data. Techniques such as the use of decision trees, where probabilities are assigned to different eventualities, are used to try to quantify the level of uncertainty.
2.18Completeness– strategic planners will often need to work with only partial information, using assumptions and extrapolations (推斷) to try to build as complete a picture as possible.
2.19Breadth– a wide variety of data is needed for strategic planning. It must cover the whole organization’s operations and can come in various forms.
2.20Detail– it is unnecessary to have a great deal of detail when building a strategic plan, and detail is likely to be distracting and confusing. Senior management most commonly uses aggregated and summarized data.
(b)Tactical information
2.21Just as tactical decision making forms a link between strategic and operational management, the information it requires has some of the characteristics of each.
2.22Time period and timeliness– forecast and historical data are both required, although historical data is not needed as immediately as it is for operational decisions.
2.23Objectivity and quantifiability– information is largely objective and quantitative but the greater experience of middle managers making tactical decisions makes this less important than for operational information.
2.24Accuracy, certainty, completeness, breadth and detail– for each of these information qualities tactical information occupies a point between strategic and operational information.
(c)Operational information
2.25Time period– operational information must be actual historical information.
2.26Timeliness– information must be immediately available.
2.27Objectivity and quantifiability– the highly structured and programmable decisions made at the operational level need information that is both objective and quantifiable. The comparatively junior level at which decisions are made requires strict guidelines to be set and disqualifies subjective data as a basis for this level of decision.
2.28Completeness– the sorts of decisions to be made at this level are highly predictable, which enables the information needed to be specified and an appropriate information system built. This will ensure that a complete set of information is available when it is needed.
2.29Breadth and detail– very precise and detailed information is needed for operational decisions.
2.30 /KEY POINT
Managerial decisions at managerial, tactical and operational information require information of different qualities. Information for strategic decision needs information that has sufficient breadth and be a mixture of historical and forecast, objective and subjective, and qualitative and quantitative. For operational decisions, information must be historical, timeliness, objective, quantifiable, accurate, complete and with sufficient details.3.Information Systems to Support Managerial Decision
3.1The information systems providing that information must therefore vary so that appropriate information is provided to each level of management. In general terms, there are three basic types of information system required to support the three levels of management already discussed.
Types of Information System / DescriptionsOperational level information systems / programmable and require specific and detailed information
Most of the information used for operational decisions comes from the simplest form of information system, transaction processing systems.
The outputs from these systems are simple reports and sorted lists of transactions.
These reports are used by operational managers for comparing their performance with target, and with other operational managers.
Tactical level information systems / Largely fed from transaction processing systems
Produces exception reporting as well as summaries of performance within the manager’s sphere of influence
If an exception report triggers action by the manager, there is likely to be the ability to develop into the detailed operational data.
Strategic level information systems / More difficult to predict than at the other levels of management
Leads to a greater reliance on informal and ad hoc information systems
3.2The different information needs of the organizations have led to different types of system being developed; for example decision support systems, executive information systems and expert systems.
Figure 2 Types of information systems typically used at different levels of an organization’s hierarchy
(A)Transaction processing system (TPS)
3.3Until the 1960s, the role of most information system was simple. They were mainly used for electronic data processing (EDP), purposes such as transactions processing, record-keeping and accounting.
3.4 /DEFINITION
A TPS is a computerized package designed to record the basic transaction data within an organization. TPSs collect, store, modify, and retrieve the daily routine transactions of an organization. A transaction is an event that generates or modifies data that is eventually stored in an information system.3.5TPSs can be found in almost all sections of an organization. Specific examples are given below:
(a)Sales/marketing systems – the sales and marketing systems within an organization will cover not only the recording of individual sales transactions, but also more detailed information about the whole sales system including: market research, promotion, pricing and details of new products.
(b)Manufacturing/production systems – manufacturing and production systems will record details of the goods being manufactured from the initial order through to the completion of the final products. Specifically, the systems will record details of: purchasing, shipping/receiving, and operations of the production systems.
(c)Finance/accounting system – the finance and accounting systems will record data on the income and expenditure generated in the different areas of the organization, with a specific focus on summarizing that data for inclusion in financial reports and the organization’s financial statements. The systems will record different types of transactions including purchases and payments, sales and receipts, production, payroll, etc.
(d)Human resources systems – human resources systems will capture data concerning the employees of the organization, with specific emphasis on areas such as: personnel records, training, benefits payable, and labour relations. Changes in rates of pay may only take place once or twice per annum whereas sales are made every day. The other major difference in these systems is the need for security.
3.6Benefits and advantages
(a)Fast performance with a rapid response time– the turnaround (轉向) time from the input of the transaction to the production for the output must be a few seconds or less, then customers need not wait too long.
(b)The failure rate of a TPS must be very low–reliability of TPS is critical because many organizations rely on the support of TPS on their daily operations. If a TPS does fail, then quick and accurate recovery must be possible. This makes well-designed backup and recovery procedures essential.
(c)The processing in a TPS must support an organization’s operations– for example if an organization allocates payroll processing to particular employees, then the TPS should enforce the requirements of payroll maintenance.
(B)Management information systems (MIS)
3.7In the 1960s, another role was added to the use of computers: the processing of data into useful informative reports. The concept of management information systems was born. This new role focused on developing business applications that provided managerial end users with predefined management reports that would give managers the information they needed for decision-making purposes.
3.8 /DEFINITION
A MIS is an integrated, computer-based, user-machine system that provides information in the form of pre-specified reports and displays for supporting operations and decision making functions.3.9Within most MIS there are four system types:
(a)database systems – process and store information, which becomes the organization’s memory.
(b)direct control systems – to monitor and report on activities such as output levels, sales ledger and credit accounts in arrears.
(c)enquiry systems that provide specific information such as the performance of a department or an employee based on database.
(d)support systems – that provide computer-based methods and procedures for conducting analyses, forecasts and simulations.
3.10MIS can be found in almost any organization. A few examples are given below:
(a)Problem solving – MIS continuously supply information flowing to the manager. The manager uses the MIS primarily to signal or to identify problems, and then to understand them by pinpointing locations and causes.
(b)Training company – provision of details of students booked onto different courses to indicate the size of lecture rooms required and number of lecturers for each subject.
(c)Accounting – provision of stock aging analysis to determine the amount of stock provision in the financial statements.
3.11Benefits and advantages
(a)support for structured decision making at all management levels.
(b)on-line access to the TPS of the organization, to give summary information on the performance of the organization.
(c)detail on the organization and its operations rather than competitors or the overall economic environment.
3.12Limitations and disadvantages
(a)MIS is not aimed at the specific needs of the individual problem solvers.
(b)MIS does not provide the exact information needed to solve problems once they have been identified and understood.
(c)People may not get use to the computerized system and not want to share information.
(C)Decision support systems (DSS)
3.13By the 1970s, these pre-defined management reports were not sufficient to meet many of the decision-making needs of management. In order to satisfy such needs, the concept of DSS was born.
3.14 /DEFINITION
DSS are computer-based systems that help decision makers confront ill-structured problems through direct interaction with data and analysis models. DSS give the decision maker access to these types of models but the intelligence, intuition and judgement of the decision maker are an integral part of the system.3.15Typical information that a decision support application might gather and present would be:
(a)an inventory of all of your current information assets (including legacy and relational data sources, cubes, data warehouses, and data marts),
(b)comparative sales figures between one week and the next,
(c)projected revenue figures based on new product sales assumptions;
(d)the consequences of different decision alternatives, given past experience in a context that is described.
3.16Benefits and advantages
(a)Produce output in a variety of forms– the users can often specify output and design reports on the screen for a specific purpose, as individual decisions are often specialized and infrequent.
(b)Broad-based approach to supporting decision making – they help to identify important future trends, adapting the organization to changing conditions.
(c)Decision maker retains control over the decision making process –visual display unit (VDU) (Computer terminal consisting of a keyboard for input data and a screen for displaying output. The screen and its housing are now more usually termed a monitor.) allows the capability to retrieve, manipulate, present, and store data.
(d)Utilisation of appropriate mathematical and statistical models– DSS assist the decision maker in evaluating alternative solutions.
(e)Query capabilities to obtain information by request – this interactive mode of the system extends the individual’s reasoning process.
(f)Output directed to organization personnel at all levels – it can also provide lower management and their operating personnel with the necessary output for supporting decisions or controlling current operations.
(g)Integrated sub-systems– this allows managers and personnel to retrieve and manipulate information to support decisions.
(h)User-friendly– the individual feels comfortable with the system rather than intimidated (脅迫) by it.
(i)Adaptive system– system changes may be effected within weeks or months.
3.17Limitations and disadvantages
(a)DSS is not concerned with the routine processing of data; as a result, the outputs from it may not support the decision for daily operations.
(D)Executive information systems (EIS)
3.18In the 1980s, the introduction of microcomputers into the workplace ushered in a new era, which led to a profound effect on organizations. The rapid development of microcomputer processing power, application software (e.g. Microsoft Office), and telecommunication networks give birth to the phenomenon of end user computing.
3.19 /DEFINITION
An EIS or executive support system (ESS) is a type of decision support system which gives the executive easy access to key internal and external data.(EIS算是 DSS的一個特殊例子，因為他所支援的物件為高階主管。EIS是一種電腦化資訊系統，目的是為了協助高階主管作規劃、分析及人際溝通，此外，更提供內部及外部環境資訊，支援高階主管進行決策。)
(EIS 興起於1980年代後期，它讓主管可以得到銷售資訊及其它資料，不必為一個特別的報告苦等數月。較完整的EIS架構則會整合企業後端的系統，如ERP、財務、配銷、人事、SCM、CRM及B2B等系統，並加上企業門戶的功能和控管許可權安全。
主管支援系統強調圖形化的展示及友善的使用者介面，並具備強大的報告及向下探究（drill-down）能力。某方面來說，主管支援系統是一種全企業環境的決策支援系統，幫助高階主管分析、比較及聚焦於某些重要變數所呈現出來的趨勢，以方便他們監視企業之營運狀況、發現機會或問題。在業界裡，主管支援系統與資料倉儲的應用皆趨同達到同樣目的。主管支援系統一詞在近年來已經逐漸為「商業智慧」取代。)
3.20Major features of an EIS are:
(a)It requires data to be on-line, real-time in order to ensure the integrity of the data available for the decision making process.
(b)It incorporates a workstation programmed to minimize the procedures for obtaining management information.
(c)It may have access to external databases such as news and stock exchange database, in order to gain up-to-date information that may have an impact on the organization.