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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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Decision behaviour (Continued)
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%3D18/3/2019 BIS Week 02 Lecture Notes
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Decision behaviour (Continued)
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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Decision behaviour (Continued)
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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Levels of managerial decision making
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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Levels of managerial decision making
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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Levels of managerial decision making
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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Levels of managerial decision making
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 theory
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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Decision-making theory
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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Decision-making theory
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