Information System and Decision Support System
Course Schedule Course Modules Review and Practice Exam Preparation Resources Module 9: Information systems and decision support systems Overview This module looks at information systems in the context of business management, and explores the key aspects of the various types of decision support systems - Information System and Decision Support System introduction. It begins with an introduction to the three types of management decision support systems — management information systems (MIS) (operational), decision support systems (DSS) (tactical), and executive support systems (ESS) (strategic). The functions of managers are analyzed to determine the type of information they need to perform their duties.
The characteristics and functions of management information systems, decision support systems, and executive support systems are also analyzed. It is useful to know the differences between the various information systems and the different ways information systems can be used by management. The computer illustration provides hands-on experience with a simple application of a spreadsheet program in decision support. Test your knowledge Begin your work on this module with a set of test-your-knowledge questions designed to help you gauge the depth of study required. Topic outline and learning objectives 9. Decision making and problem solving Outline and describe the stages of the problem-solving process. (Level 1) 9. 2 Types and functional aspects Distinguish between operations support systems, management support of management information systems, management information systems, decision support systems, and systems executive support systems. (Level 1) Management information systems Decision support systems Describe management information systems, and explain how they work. (Level 1) Explain the purpose and general functions of decision support systems. (Level 1) Describe the characteristics of group decision support systems. Level 1) 9. 3 9. 4 9. 5 Group decision support systems 9. 6 Computer illustration 9. 6-1: Use a spreadsheet program as a decision-making tool. (Level 2) Using a spreadsheet for decision support Executive support systems Describe executive support systems, and explain how they work. (Level 1) 9. 7 Module summary Print this module Course Schedule Course Modules Review and Practice Exam Preparation Resources Module 9: Test your knowledge 1. You have two bakeries in two locations that serve six food distributors and a fleet of five trucks that serve 50 local restaurants.
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You have 30 production employees, 10 front-office and clerical workers (who handle all accounting on two computers), and two outside sales representatives. Your business grosses close to $1 million per year and nets almost $100,000 before taxes. However, your sales representatives and drivers have reported declining orders in the past few months because of growing competition. You decide that you need an advantage over your competition to hold your market share, or perhaps you need to add some new dessert products. Briefly describe the design required for a DSS that could help improve the business: a. b. c. d.
What kind of information do you need? In what form? From which source would you obtain the necessary information? What hardware and software tools would you consider using? Briefly describe the functions and features of such a DSS. Source: Adapted from Nancy Stern and Robert Stern, Computing in the Information Age (New York: John Wiley & Sons, 1993), pages 470-471. Solution 2. Chapter 10, Review question 3, page 434 Solution 3. Chapter 10, Review question 10, page 434 Solution 4. Chapter 10, Review question 16, page 434 Solution 5. How can management information systems be used to support the objectives of a business?
Solution Course Schedule Course Modules Review and Practice Exam Preparation Resources Solution 1 (Topic 9. 4) a. You will need information about the current sales and production of your own products as well as sales information of your competitors. For your own sales and production statistics, you will need to know all ordering, sales, and all cost and production figures. The sales information should be organized by sales territories and in chronological order so that you can establish trend lines, particularly over the past few months of declining sales. You will need information about sales projections as well.
You will also need information about consumers’ demand of bakery products in general, including demographic information about customers. All of this information should be in machine-readable form so that it can be analyzed using computer programs. b. Information about sales and production can be obtained from the accounting records. Information about budgets and sales projections should be obtained from the sales representatives or the sales manager. Information about competitors’ sales can be obtained from trade journals, Statistics Canada, industry groups, or other relevant sources.
Information about consumer demands and demographics can be obtained by marketing surveys. c. A computer and printer is probably all that is necessary. For software, consider statistical analysis, simulation, modelling, and forecasting software. A business graphics program may also be gainfully used. d. Such a DSS could have three major components: modelling and simulation, statistical analysis, and forecasting. The modelling and simulation component could offer management the ability to construct a model of sales and production to determine if there are bottlenecks that can be removed, or if procedures can be simplified to cut costs.
The statistical analysis component could be used to analyze both sales and production trends so as to pinpoint the problem areas. The forecasting component could provide the means for management to make predictions and to perform what-if analyses to answer questions such as the elasticity of demand, the effect of product packaging on sales and costs, and the possible outcome of introducing new products. Course Schedule Course Modules Review and Practice Exam Preparation Resources Solution 2 (Topic 9. 1) Programmed decisions are made using a rule, procedure, or quantitative method.
An example would be “order 100 units when inventory is less than 800 units. ” A non-programmed decision deals with unusual or exceptional situations such as how long to train a new employee, and developing a new product line. Course Schedule Course Modules Review and Practice Exam Preparation Resources Solution 3 (Topic 9. 1) Decision making is a component of problem solving. In addition to the intelligence, design, and choice steps of decision making, problem solving also includes implementation and monitoring. Course Schedule Course Modules Review and Practice Exam Preparation Resources
Solution 4 (Topic 9. 4) The components of a decision support system include the following: Component Model base Database External database access Access to Internet, networks, and other computers Dialogue manager Definition Software that coordinates the use of models in a DSS Storage of data and information used by a DSS Interface to external data sources Interface to external computing resources An interface allowing decision makers to easily access and manipulate the DSS using familiar terminology Course Schedule Course Modules Review and Practice Exam Preparation Resources Solution 5 Topic 9. 3) Management information systems can be used to support the objectives of a business in many different ways. First, MISs can provide a method of maintaining control and understanding what events are occurring in the day-to-day operations of an organization. Traditionally, an MIS system was not considered intrinsic to the development of a competitive advantage. However, recent successes have demonstrated various ways these systems can be applied and used to support corporate missions. A properly implemented MIS supports functional management and executive decision making.
By providing feedback and monitoring capabilities, an organization is able to compare actual results to corporate goals. Adjustments can be made on this basis. Managers are able to gain valuable insights, identify problem areas, organize and plan more effectively. In these ways, a strong MIS can provide a competitive advantage. Knowing how to apply the capabilities of the MIS is the key to long-term advantage. Course Schedule Course Modules Review and Practice Exam Preparation Resources 9. 1 Decision making and problem solving Learning objective
Outline and describe the stages of the problem-solving process. (Level 1) Required reading Chapter 10, pages 394-401 LEVEL 1 In any organization, managers and staff working at different levels and performing different roles have a variety of information needs, and they use the information in different ways. Information systems can be grouped into two distinct types — operations support systems and management decision support systems. Management decision support systems contribute to the goals of the organization and the value-added processes that support those goals.
Operations support systems handle the routine dayto-day information processing needs of the organization, while management decision support systems assist managers in decision making. Before studying the types and levels of management support systems, it is important to understand the decision-making and problem-solving processes. Decision making as a component of problem solving Problem-solving abilities are often a hallmark of the most valuable managers in terms of their contribution to the organization. The problem-solving model comprises five stages: 1.
Intelligence stage — A problem or opportunity is identified and information gathered to refine the scope, resources, and constraints. 2. Design stage — Possible solutions are developed and the feasibility of each evaluated. 3. Choice stage — The most appropriate solution is selected. The decision is made. 4. Implementation stage — The problem is not solved until the selected solution has been implemented. 5. Monitoring stage — In this final stage, the decision makers assess how well the solution fits the problem and what modifications may be necessary to improve it.
Notice how the systems development life cycle (SDLC) follows the stages of the problem-solving approach. This is because information systems are developed to meet the goals and objectives of the organization, to solve problems, and to take advantage of opportunities, and these objectives are identical to the purpose of management problem solving. Problem-solving approach 1. Intelligence 2. Design 3. Choice Identify problem and gather information Develop solutions and consider feasibility SDLC Systems investigation Systems analysis Select most appropriate solution: make decision Systems design Systems implementation . Implementation Solve problem 5. Monitoring Check fit and consider modification Systems maintenance and review Programmed versus non-programmed decisions Programmed decision making Programmed decision making alleviates the manager’s load by taking over some management tasks. For example, computerized loan analysis systems can evaluate loan applications based on the amount requested and a customer’s income, assets, loan obligations, job, marital status, and previous credit background. Thus, under most circumstances, the loan officer can be relieved of handling routine cases.
Only when an extraordinary case arises, one for which a programmed decision rule does not exist, would the loan officer need to investigate the loan application in detail. Programmed decisions must be clearly defined for each structured problem. Non-programmed decision making When the variables are difficult to quantify and clearly defined rules do not exist, the problem is said to be unstructured and programmed decision making is not possible. Nevertheless, decision support systems have been developed to deal with some problems of this nature.
Optimization, satisficing, and heuristic approaches Some of the management support systems designed to assist managers in their decision-making process are spreadsheet programs, financial modelling software, sales analysis software, and database query languages. Optimization A computerized decision support system using optimization will find the best solution, using problem constraints. Based on specific criteria such as the use of toll roads or not, Google maps uses optimization to determine the fastest route. Spreadsheets such as Excel include optimizing features. Satisficing
Satisficing does not necessarily find the best or optimal solution because to do so might be extremely complex, expensive, and time-consuming. It does find a good solution by considering the alternatives most likely to give good results for reasonable time and cost. For example, travel websites propose multiple possible flights based on user criteria of departure time, cost, and number of stopovers. The user then selects a flight based on prioritization of the criteria. Heuristics Heuristics uses commonly accepted guidelines that will find a good solution but perhaps not the optimal solution.
Some heuristics for software user interface include using the same terminology on similar screens and making error messages easy to understand. Course Schedule Course Modules Review and Practice Exam Preparation Resources 9. 2 Types and functional aspects of management information systems Learning objective Distinguish between operations support systems, management support systems, management information systems, decision support systems, and executive support systems. (Level 1) LEVEL 1 To understand what is required of MIS, DSS, and ESS, you should recognize the functions of management.
These functions consist of planning, organizing, leading, and controlling. Information systems help managers to perform all of these functions by providing appropriate information to the proper person at the right time. Levels of decision making Another way to look at management is in terms of the levels at which decisions are made. Operational decisions Lower-level managers oversee the day-to-day operations, making routine operational decisions — for example, extending credit to customers and restocking inventory items from an alternative supplier.
Many traditional transaction processing systems (TPS) are designed for this level of management. Most accounting systems, inventory control systems, and payroll systems perform this function. For instance, when you run Accpac Sage ERP to keep track of transactions and generate financial statements, the program serves as an operations support system to handle the routine operations of the business. Tactical decisions Middle-level managers, concerned with meeting short-term objectives, make tactical decisions. Most of the information and decision frameworks at this level of management are reasonably well structured.
Examples of such management activities include reviewing back orders for inventory items, examining detailed expense schedules to track expenditures, or comparing actual sales to budget. MIS extends beyond the routine handling of operational information; it also provides a variety of reports to assist managers in making tactical decisions. Strategic decisions Top-level managers or executives are particularly concerned with strategic decisions. Reports from MIS form only part of the total information requirements of senior management.
Many of the issues dealt with at this level are semi-structured or unstructured and cannot be automated. Nevertheless, DSS and ESS are computerbased tools that top-level management can use in their strategic planning and decision making. Types of information systems Information systems in any organization can be grouped into two major types: operations support systems, designed to handle the day-to-day operations of the business, and management decision support systems, designed to help management control the business and make decisions.
There are three kinds of management decision support systems — management information systems (MIS), decision support systems (DSS), and executive support systems (ESS). Management information systems (MIS) There is no commonly accepted definition of a management information system, but the American National Standards Institute’s (ANSI) definition provides a starting point: “A management information system (MIS) is an information system designed to aid in the performance of management functions. ” Keen and Morton 1 provides this explanation for management information systems: a.
The main impact is on structured tasks where standard operating procedures, decision rules, and information flows can be reliably predefined. b. The main payoff is in improving efficiency by reducing costs, turnaround time, and so on, and by replacing clerical personnel. c. The relevance for managers’ decision making is mainly indirect, for example, by providing reports and access to data. Decision support systems (DSS) A decision support system (DSS) is a computer-based information system that supports problem-specific decision making.
Keen and Morton 1 provides this explanation for decision support systems: a. The impact is on decisions in which there is sufficient structure for computer and analytical aids to be of value but where managers’ judgment is essential. b. The payoff is in extending the range and capability of managers’ decision processes to help them improve their effectiveness. c. The relevance for managers is the creation of a supportive tool, under their own control, which does not attempt to automate the decision process, predefine objectives, or impose solutions.
A decision support system concentrates on supporting specific decisions or decision processes that are semistructured, compared to a management information system, which automates routine management functions. Executive support systems (ESS) Executive support systems (ESS) are specialized DSS designed to assist top level management in their decision making process. ESS are less specific in nature and work in longer time frames. They support decisions involving unstructured problems and decisions. ESS are also commonly referred to as executive information systems. ESS are designed to help executives find nformation when they need it, and in the form they need it. Because of this open-ended nature, ESS are typically implemented as systems that provide online query or report generation, without any preset format or operations. To decide which of the previously described systems is appropriate for a particular circumstance, it is necessary to categorize the types of activities typically found in an organization. Categorizing activities in an organization On analyzing the operations of any organization, you can identify a range of activities, including a. routine operational activities, such as placing a purchase order or recording a sale b. outine reporting activities, such as generating an aged accounts receivable report or quarterly financial statements c. monitoring activities, such as reviewing staff absence reports or inventory back-order lists d. planning activities, such as planning inventory levels, preparing a budget for the next fiscal year, or evaluating the returns on a capital investment e. financing activities, such as analyzing the return potential of capital projects f. investing activities, such as determining the best investment vehicle for temporary short-term surplus cash g. inancial forecasting, such as projecting five-year market potential or economic trends h. strategic planning, such as identifying a niche in the market or setting long-term goals for the organization Items (a) and (b) are structured activities and are readily computerized. Many organizations have automated these activities in operations support systems. Items (c) and (d) are examples of less structured activities that cannot be routinely computerized. Some information systems, however, are designed to provide information to support these kinds of activities and are clearly a type of MIS.
Items (e) and (f) are examples of semi-structured activities, usually beyond the capabilities of management information systems. However, computers can be used to support these activities. A computer system used to support this type of decision-making and strategic planning activities could come under the definition of a DSS. Items (g) and (h) are examples of unstructured activities, requiring information from external sources. ESS can be applied in part to assist in such activities. 1 Peter Keen and Michael Morton, Decision Support System (Reading, Massachusetts: Addison-Wesley, 1978
Course Schedule Course Modules Review and Practice Exam Preparation Resources 9. 3 Management information systems Learning objective Describe management information systems and how they work. (Level 1) Required reading Chapter 10, pages 401-418 LEVEL 1 An MIS has the primary purpose of providing managers with insight into the regular operations of the organization so that they can perform their functions more effectively. An MIS uses transaction details of a transaction processing system (TPS) to provide summarized or other information needed by a manager.
Managers do not necessarily rely solely on an MIS, but an MIS often provides output to other decision support systems. While it is important to increase overall MIS efficiency, an organization should never lose sight of the key goal of an MIS, which is to provide the right information to the right person in the right format at the right time. Inputs to an MIS Although the primary input to an MIS is internal transactions via a TPS, an MIS uses internal databases and, where necessary, databases of external data.
The data is summarized, filtered, and manipulated to meet management needs, primarily in the form of predetermined reports. Filtering The purpose of filtering in an information system is to reduce the volume of data at various levels of management, allowing only relevant information to pass through. The threshold or tolerance for detail at each level should not be exceeded if effective decision making is to result. For example, information is often reduced (summarized or aggregated) as it is passed up the traditional organizational hierarchy from operational through tactical to strategic management.
Outputs of an MIS Information systems support managers by providing a number of different reporting and modelling capabilities. Following are examples of the reporting capabilities typically found in an MIS. Scheduled reports In a scheduled report, the computer releases information at specific times or after specific conditions have arisen. For example, in a production environment, the computer can notify the project manager of the status of an ongoing project at predetermined points or when specific activities have been completed, and can provide a list of the tasks to be done.
Scheduled reports relieve the manager of some routine administrative tasks. Key-indicator reports A key-indicator report summarizes the previous day’s critical activities (as defined by the manager), and is available at the beginning of the following day. It could also be available at the end of each shift if a plant is operating round the clock. Demand reports Demand reports, as the name implies, are not generated at specific times such as scheduled reports, or under pre-specified conditions such as exception reports, but at the request of the manager.
Their format or content can be predefined, or defined by the manager at the time the report is requested. The database management systems and the powerful query languages (such as Microsoft Access) now available even on personal computers make it possible to conduct complex searches and to retrieve and manipulate information stored in databases. The user could obtain listings of data elements based on given conditions (such as all salespeople with monthly sales of over $10,000), obtain statistics (such as average sales), or even define the contents and format of a comprehensive management report.
The main difference between demand reports generated by the MIS and ad hoc reports generated by the ESS is that the information provided by the former are based entirely on internally generated data, whereas the information provided by the latter may come from external sources. Also, unlike reports from the ESS that tend to summarize information at the strategic level, demand reports from the MIS tend to be detailed and provide operational information. Exception reports Exception reports are provided only when unusual conditions have arisen that require a manager’s action.
Trigger points are parameters that are set to produce an exception report, and this must be done with care. In situations where many items are under a control system, statistical analyses call for this type of monitoring. Using the statistical concepts of means, variances, and standard deviations, a manager would be informed only if the production cost of an item is out of control by more than two standard deviations from the standard cost, for example. This method attempts to isolate significant problems from simple, random disturbances.
In a bank, a commercial loan-tracking system can notify the loan officer of delinquent loan repayments on a monthly basis for follow-up and investigation. Predictive reports To make informed predictions for either projecting into the future or determining the outcome of different scenarios, some type of modeling capability is necessary. Models that are abstract in structure and detail but represent real-world situations can be valuable tools for the decision maker. Many predictive reports are the results of what-if modeling.
The loan officer of a bank could use this technique to study the risks involved in a specific loan application by trying out several scenarios and determining the risks associated with each outcome. For example, the loan officer could study the impact of rising interest rates on the loan applicant’s ability to service the debt. Drill-down reports Any of the reports above could take the form of a drill-down report, which provides increasingly detailed data. Characteristics of a management information system
MIS characteristics could be described primarily in terms of the reports produced, which enable them to perform the following functions: Provide reports with fixed and standard formats. The standardization makes reports easy to read by more than one user. Produce hard-copy and soft-copy reports. While many managers like hard-copy reports, some reports are best displayed on a screen (for example, an exception report that indicates a situation requiring immediate action could be announced on-screen by a flashing red light and with a sound that the manager would recognize).
Use internal data stored in the computer system . As stated earlier, the prime source of data for an MIS is data from TPS and internal databases, because many decisions relate to internal operations. However, some use external sources such as the Internet. Allow end-users to develop custom reports . While it is important to allow end-users to develop their own reports, it is equally important to exercise some form of control by checking requests to ensure that the reports wanted do not already exist, and/or to offer assistance in developing reports.
Require user requests for reports developed by systems personnel. Most MIS organizations require a formal request for report development to be signed by a manager because reports require systems personnel’s time and effort. The report also offers some form of control. Functional aspects of MIS Management information systems are often divided along functional lines whose structure follows the organizational structure. Financial MIS As a future CGA, you are expected to understand the functions and subsystems in a typical financial MIS.
Here are important features of a financial MIS: Profit/loss and cost systems — These systems organize revenue and cost data by various categories, which may be departmental, profit centres, revenue centres, and cost centres. Auditing — Internal and external auditors can use the financial MIS to assist in performing their functions. Uses and management of funds — As accountants, you are aware of the importance of managing funds and assets to maximize return on investment. A financial MIS can assist in this activity in many ways, both in determining what funds are available or needed and in analyzing investment opportunities.
Accounting MIS The accounting MIS is often part of the financial MIS and certainly the accounting TPS provides data to both. In small firms, the accounting MIS is almost inevitably integrated as part of the financial MIS because it not only provides management reports on accounts payable, accounts receivable, payroll and others, but also utilizes data from these operational systems to produce cash flow projections, investment analyses, and the like. Manufacturing MIS Technology has had a dramatic impact on the manufacturing function, with the computer used at all levels and the Internet streamlining all aspects of manufacturing.
MIS is important throughout the manufacturing cycle, especially in the following functions: Design and engineering — Computer-assisted design (CAD) software is an example of how an information system assists in design and engineering. Although very little of the CAD software is an MIS, it is used to assist engineers and designers to make decisions, and three-dimensional models help to make management decisions. Master production scheduling — MIS uses current demand and estimates of future demand to produce detailed production schedules, and some programs provide a form of sensitivity analysis (what-if scenarios) usually associated with a DSS.
Inventory control — This key aspect of cost effectiveness uses many computer programs: economic order quantity (EOQ) determines how much to order reorder point (ROP) states when to order material requirements planning (MRP) determines what materials are needed and when to have finished products available when needed manufacturing resource planning (MRPII) has a wider scope and uses network scheduling Just-in-time (JIT) inventory and manufacturing — Because of the high costs of carrying inventory, the JIT approach delivers parts and materials to the manufacturing process just before they are needed.
Process control — A number of technologies are available: computer-assisted manufacturing (CAM) system controls machines computer-integrated manufacturing (CIM) system links all components of production systems or even all organizational subsystems flexible manufacturing system (FMS) allows rapid and efficient change from one product to another Quality control and testing — Information generated by these systems can also be used to locate problems in manufacturing equipment or to design better products.
Marketing MIS Marketing MIS contains functions and subsystems that include marketing research, product development, promotion and advertising, and product pricing. Human resource MIS A human resource/personnel MIS and its subsystems include human resource planning, personnel selection and recruiting, training and skills inventory, scheduling and job placement, and wage and salary administration. The wage and salary administration subsystem is integrated with TPS such as the payroll system. Geographic MIS
Typically, a geographic information system (GIS) deals with geographically referenced information (information that has spatial coordinates or location referents) and displays it in a graphic form. There are many important uses for this type of information, including where to locate retail stores or other facilities. Software developers of commonly used tools such as Excel now include mapping tools so you can plot spreadsheet data as a map. Course Schedule Course Modules Review and Practice Exam Preparation Resources 9. 4 Decision support systems Learning objective
Explain the purpose and general functions of decision support systems. (Level 1) Required reading Chapter 10, pages 418-424 LEVEL 1 A decision support system (DSS) is an organized collection of people, procedures, software databases, and devices used to support problem-specific decision making and problem solving. The focus is on unstructured or semi-structured problems. A DSS rather than an MIS is generally used by a higher level of management, but it can be used by different levels of management. DSS software can be used to solve decision-support problems. Many DSS are custom-designed for specific business problems.
However, there are also many general DSS on the market, such as IFPS (Interactive Financial Planning System) from Comshare Inc. , EIS (Executive Information Services) marketed by Boeing, and EXPRESS from Tymshare Corporation. Characteristics of DSS Overall, users should look for the following characteristics in DSS software: Ease of use Ease of use is the key to a successful DSS. If the software is difficult to use, managers will avoid using it. Whether it is presented in a command language, on-screen menus, or in electronic form, the user interface should be familiar to the managers.
DSS software packages that offer spreadsheet (column-and-row) structures to develop applications have been popular because this format (as in spreadsheet programs) is familiar to users on the managerial level. Query-by-example (QBE) is another style that is favoured by managers. Some DSS software such as IFPS use English-like statements or formulas such as REVENUE = PRICE ? QUANTITY SOLD. They do not require statements to be sequenced in a strictly-ordered fashion, thus making the problem formulation easier.
For example, before issuing the REVENUE formula, the user would not be required to define QUANTITY SOLD and PRICE. These variables can be defined at a later point in the model. Most DSS software contains a host of forecasting, statistical analysis, and financial analysis capabilities. For example, financial routines such as net present value and internal rate of return calculations are usually provided in DSS software. Flexibility A successful DSS should be able to handle variations of the problem statement with relative ease.
That is, it should be able to conduct what-if analyses with relative ease by changing a few parameters. A successful DSS should not require extensive problem specification each time one or two parameters are changed for a new scenario. Relevance A successful DSS should provide relevant information for decision making. In other words, it delivers the right information to the right person at the right time. Functions There are many DSS software on the market. Some may not have all of the tools with these functions: Handle large amounts of data from many sources.
Typically, a DSS can access data from different databases or the Internet. The ability to store information for reports and queries is important for decision support. Programs such as Access, FileMaker, and Paradox are designed to meet such needs. The ability to access information from other databases, enter external data, and incorporate the data into a pre-specified model is also integral to decision support. The object-linking and embedding capabilities in Microsoft Windows can be used to facilitate the management of information stored in a variety of formats, using numerous computer programs.
Provide report and presentation flexibility. It is important that managers obtain the information they want in the format and medium that suit their purpose. Generating reports and performing data queries requested by managers are therefore important features of DSS. The report generators in Microsoft Access, Cognos PowerPlay, and Cognos Impromptu are examples of such DSS functions. Consolidate information. Consolidation features allow data from multiple models or spreadsheets to be integrated and summarized.
Consolidation features are particularly useful when an organization has a hierarchical management structure and many decisions are made relating to a large number of product lines. Spreadsheet programs with linking capabilities or three-dimensional capabilities can be used to consolidate information from several spreadsheets. For example, programs such as F9 can be used to consolidate the financial results from multiple general ledgers of many accounting programs into one set of reports. The file-linking (dynamic data exchange) capabilities of Microsoft Windows can be used for consolidating information from multiple files under Windows.
Offer both textual and graphical orientation. A DSS can produce graphics, text, and numbers, and display solutions in a variety of ways, which can help managers to understand the problem and the solution. Microsoft PowerPoint and Apple’s Keynote are examples of computer programs designed to provide managers with easy access to business graphics. Support drill-down analysis. A DSS can drill down to different levels of detail, which is essential for the implementation of the final solution, although the initial solution does not require excessive detail for comprehension.
Perform complex, sophisticated analysis and comparisons using advanced software packages. The DSS may bring together a number of standalone programs to assist the decision maker. Support optimization, satisficing, and heuristic approaches. A DSS gives the manager flexibility to choose the approach best suited to the nature of the problem. Perform sensitivity analysis. Sensitivity (what-if) analysis is a key component of almost all DSS software. Spreadsheet programs are particularly suitable for such purposes. The Scenario Manager in Excel is designed for what-if analysis.
These tools enable the user to specify one or more cells as variables. Changing the values of these variables yields different scenarios without the need to construct multiple copies of the same spreadsheet. Use simulation. Simulation allows a user to duplicate the features of a real-world situation and then manipulate it. Use goal seeking. Goal seeking is the capability to specify a goal (outcome variable), and then ask for the value of variables that would achieve this goal, such as “What should sales price and total sales be to achieve a net profit of $100,000? Many popular spreadsheet programs can perform goal seeking; for example, Excel provides Goal Seek and Solver under the Tools menu to conduct goal-seeking activities. Capabilities of a DSS Different DSS have different capabilities. The potential capabilities of DSS include the following: Support for problem-solving phases — A DSS supports these phases, but a specific DSS might support only one or two of these phases. Support for different decision frequencies — Decisions occur in a continuum ranging from once to many times.
A situation that may never arise again, or that is totally unexpected, would be handled by an ad hoc DSS. A decision that is required frequently, recurring perhaps several times a year, would be handled by an institutional DSS, which is modified over a period of time. Support for different problem structures — A DSS typically handles unstructured or semistructured decisions, where relationships are unclear, the data is in a variety of formats, and data requirements may not be known. Support for various decision-making levels — DSS can help managers at operational, tactical, and strategic levels.
Components of a DSS The database The database management system (DBMS) facilitates qualitative analysis on internal and external databases. The model base The model base offers the decision maker a choice of models to use for a particular problem, often using model management software (MMS). Financial models Financial models are used for cash management and investment, generally utilizing a spreadsheet, although more powerful software is available. Financial DSS help companies in online trading, but there are significant downsides.
There are many ways in which a DSS can generate profits (through better trading decisions), but potential problems (fraud, poorly used DSS) exist, and so legislation is in process to prevent fraud. Canadians are not well protected and the firms for which these traders work tend to protect their own interests. There are also questions as to whether a company that aggressively advertises successful stock trading should be responsible for the activities of its clients. (Probably not legally, and the motto of caveat emptor — let the buyer beware — certainly applies here.
Yet if the buyers are following advice touted as great, it opens the door to possible compensation. ) Statistical analysis models Statistical analysis models provide considerable statistical information such as trend projections and hypothesis testing in addition to the usual computations and correlations. SPSS and SAS have been popular in this field for a long time. Graphical models Software packages such as OmniGraffle and Visio assist a decision maker to design and develop displays. CAD and other sophisticated graphical analysis are also available. Project management models
Project management models are useful for large or complex projects. They can be used to assist the project manager in determining critical paths, critical resources, resource allocation and conflicts, scheduling, and particularly in identifying where corrective action must be taken. Examples include Microsoft Project and FastTrack Scheduler. The dialogue manager To most people, the dialogue manager is the DSS because it is the communications media between the user and the system. Course Schedule Course Modules Review and Practice Exam Preparation Resources 9. Group decision support systems Learning objective Describe the characteristics of group decision support systems. (Level 1) Required reading Chapter 10, pages 424-429 LEVEL 1 The DSS works well for individual managers. However, groups or committees also make many decisions. A group decision support system (GDSS), also called a group support system or a computerized collaborative work system , consists of DSS elements plus GDSS software (sometimes called groupware ), and assists the decision-making process in a group decision-making environment. Characteristics of GDSS
Developers of a GDSS incorporate characteristics that go beyond the DSS, by promoting new approaches for groups, including working with direct face-to-face interaction or meetings. These additional characteristics include Special design — Special procedures are needed to promote creative thinking and group decision making. Ease of use — This is even more important than in a DSS designed to suit an individual, because if a GDSS is not easy to use, some members of the group will not participate. Flexibility — Every manager in the group may have a somewhat different style that must be incorporated into the group process.
Decision-making support — Several different approaches are supported by a GDSS. The Delphi approach encourages diversity and creativity, and group members may be located anywhere. Brainstorming encourages freethinking and freewheeling ideas to be tossed around. In the group consensus approach, a unanimous decision must be reached. In the nominal group technique, each member participates, followed by feedback, and then voting. Anonymous input — The advantage is that the group can concentrate on the ideas without being influenced by knowing who originated an idea.
Reduction of negative group behaviour — A key element in GDSS is the elimination of counterproductive or harmful behaviour, such as allowing a strong individual to dominate, getting sidetracked or losing focus, or omitting to consider alternatives before coming to a conclusion, all of which waste time and prevent effective decision making. Parallel communication — A GDSS allows anyone to comment on or address an issue when a thought occurs by entering it into a workstation, rather than waiting for one or more people to finish addressing an issue and perhaps losing their own thought or idea.
Automated record keeping — Most GDSS keep detailed records of comments automatically and anonymously, as well as automatic voting and ranking features. GDSS software GDSS software is often called groupware or workgroup software. In addition to Lotus Notes, packages such as Microsoft Exchange, SuSE Linux Openexchange Server, Novell GroupWise, and Collabra Share can assist in group decision making. GDSS network alternatives There are four network alternatives that can be used for group decision making, depending on the location of the group members and the frequency of the decision making.
These are the decision room, the local area decision network, teleconferencing, and the wide area decision network. Electronic conferencing software is becoming popular as a computerized meeting tool. Products such as TeamTalk from Trax SoftWorks, Inc. enable groups to hold meetings without the participants leaving their offices. TeamTalk offers a unique way to share ideas and data throughout the organization — TeamTalk members communicate through named conversations, known as topics. Each conversation appears as one continuous document instead of a list of messages.
This provides continuity not possible in bulletin board and e-mail systems. Comments can be typed directly into each individual topic. Thus, members do not need to be online concurrently. Essentially, this technology enables meetings to be held and participants to join in according to their own schedule by participating from their own offices. Desktop videoconferencing is a PC-based low-cost electronic conferencing system that enables knowledge workers to have face-to-face meetings without the expense of travelling. For example, AT&T’s Telemedia Personal Video System allows two parties to work together in real time via modems.
Radvision’s videoconferencing system is popular, particularly with home users. Whiteboard software is a relatively new type of program that allows users from different parts of the country to collaborate on reports, share applications, and broadcast presentations remotely via modems or LAN-to-LAN connections. For example, a group of field auditors might use whiteboard software to consult with the senior partner and support staff in the auditors’ home office. Microsoft’s NetMeeting software, supplied as part of Internet Explorer 4. 0 and later versions, can be used to hold conversations and share applications over the Internet.
One major advantage of this type of technology is that it provides toll-free conferencing over long distances. Course Schedule Course Modules Review and Practice Exam Preparation Resources 9. 6 Computer illustration 9. 6-1: Using a spreadsheet for decision support Learning objective Use a spreadsheet program as a decision-making tool. (Level 2) LEVEL 2 In this computer illustration, you will complete a simple decision support model using a spreadsheet program in order to obtain insight into how managers can use computer software to assist in their decision making. In real life, decision support systems are used for much more complex problems.
Learning objectives Describe how a spreadsheet program can be used for decision support. Explain how to build a DSS using a spreadsheet program to help management make financing decisions. Description Fred Dimsum, the MIS manager of Alice’s Used Cars (AUC), has short-listed the proposals received from three vendors to supply a new computer system to the company. Fred has given his list to Alice Kwong, the president of AUC. Fred has had difficulty deciding which proposal should be awarded the contract because the proposals appeared equal from a technical and financial standpoint.
They all quoted the same cost ($100,000), and the net cash flow from each of the proposals was about the same ($135,000). Exhibit 9. 6-1 shows the proposals from the three vendors. Exhibit 9. 6-1: Vendor proposals Initial investment Cash flows: Year Year Year Year Year Year Net cash flow Vendor A $ (100,000) 15,000 30,000 40,000 40,000 50,000 60,000 $ 135,000 Vendor B $ (100,000) 60,000 50,000 40,000 40,000 30,000 15,000 $ 135,000 Vendor C $ (100,000) 20,000 35,000 60,000 60,000 35,000 25,000 $ 135,000 1 2 3 4 5 6
After reviewing the worksheet model prepared by Fred, Alice decided that she needed to analyze the acquisition of this new computer system for each of the following scenarios: . Borrow: . Lease: . Fund: Borrow money from the bank at 10% per annum interest. Put the acquisition on a lease plan at 12% per annum interest. Fund the acquisition from internal funds at a cost of 8% per annum. Your task is to evaluate the three proposals under each of the three scenarios and determine which of the proposals is economically sound.
Your assessment of the situation must include both net-present-value and internal-rate-of return analyses. Procedure 1. Start Microsoft Excel and open the workbook MS1M9P1. This file contains two worksheets: M9P1 (partially completed for you to work on) and M9P1S (solution worksheet). If you have difficulty obtaining the results described in the following steps, click the sheet tab M9P1S to review the solution. Ensure that the value in cell B7 on the M9P1S tab is the same rate as you are working with on the M9P1 tab. If the rates are different, you will get different answers. . Review the layout of the worksheet and confirm that Fred entered the information correctly. 3. In row 19, add the appropriate labels and formulas for net present value analysis, using the NPV function, and using the value in cell B7 for the discount rate. Ensure you use absolute referencing for cell B7 (that is, $B$7). 4. In row 20, add the appropriate labels and formulas for internal rate of return analysis, using the IRR function, and using the value in cell B7 for the initial guess. Ensure you use absolute referencing for cell B7 (that is, $B$7). 5.
If you correctly designed your formulas, you will see that the proposal from vendor B has the highest NPV and IRR. 6. Change the value in cell B7 to 12%. The NPV value in cell C19 now shows $64,237 instead. Again, the proposal from vendor B is superior to the other two in terms of both net-present-value analysis and internal-rate of-return analyses. 7. Change the value in cell B7 to 8%. Again, by examining the net-present-value results, the proposal from vendor B is superior. This illustration demonstrates, in very simple terms, how computer software can be used to assist managers in their decision making.
By analyzing the three proposals using a spreadsheet, you would conclude that vendor B’s proposal provides the best return. It is important for users to understand the underlying logic in their analysis and not to place blind faith in the computer output. For example, the NPV can be misleading when there is alternating cash inflow and outflow over the project’s life. Course Schedule Course Modules Review and Practice Exam Preparation Resources 9. 7 Executive support systems Learning objective Describe executive support systems, and explain how they work. (Level 1) Required reading
Chapter 10, pages 429-432 LEVEL 1 Executive support systems (ESS), also known as executive information systems (EIS), are used to solve unstructured problems at the senior management level, such as the board of directors, president, and others. An ESS is an information system custom-built for individual senior executives. Because of the strategic nature of their decisions, senior executives need information from within the organization as well as from external sources for their ESS. Management at lower levels also use ESS, but these module notes will consider ESS as support for top-level management.
There is an important distinction between a DSS and an ESS. A DSS provides many tools that analyze problems — that is, they allow users to answer questions. An ESS presents key information that senior executives consider to be important in a structured fashion — that is, they allow users to ask questions. An ESS must provide information specific to the decision-making problem. For example, instead of requiring the executive to select from a large amount of information, the ESS must be designed to summarize or condense the information required for the specific executive decision.
Characteristics of ESS ESS are usually designed with the following characteristics: Tailored to individual executives — An ESS must be custom-designed to support the activities of an individual or a small group of executives and tailored to the executive’s mode of operation. In general, the more customized the system, the faster the user can access the information needed to make specific management decisions. The best way to design an ESS is to work closely with the user, so that it provides only the information needed for making decisions in an accessible form, suited to the executive’s preferences.
This characteristic epitomizes the goal of an information system — that is, to get the right information at the right time to the right person in the right format. Easy to use — The key to a successful ESS is its ease of use. Many ESS are in fact technically very complicated, but the technical complexity must be shielded from the users. For example, if the ESS requires information from CompuServe or Dow Jones News/ Retrieval, it must be designed so that the user need not log onto these services.
That is, access to external information should be completely transparent to the user — the user should not need to dial up an external information service to access, search, and extract the information. Drill-down capabilities — An ESS allows an executive to get as much detail as desired. Support the need for external data — The ESS must be able to extract data from external sources, which is often imprecise or fuzzy and is unstructured. This can be done using bots. It typically supports unstructured decision making.
Help where there is a high degree of uncertainty — The nature of many strategic decisions is such that there is no definite answer; therefore, the models and other tools in an ESS must help assess the risk. Future orientation — Most high-level decisions are strategic and will have an impact for years or decades to come. Linked with value-added business processes — This underscores that ESS are required for essential information that affects key decisions. Capabilities of ESS ESS are designed to assist with problem solving or decision making directed toward the organization’s overall profitability and direction.
Key ESScapabilities include Support for defining an overall vision — Senior executives create the organization’s mission statement and direction. Support for strategic planning — An ESS helps determine long-term objectives. Support for strategic organization and staffing — Top-level executives are involved in decisions about organizational structure, strategic staffing, downsizing, objectives of labour negotiations, and management organization. Support for strategic control — This entails monitoring and managing the overall operations.
Support for crisis management — Disasters, emergencies, and other crises can and do occur, and the ESS can help create and implement contingency plans. Some computer programs are used as ESS although they are not designed originally for this purpose. Example 9. 7-1 illustrates such a case. Example 9. 7-1: CAAT software used as ESS BC Housing Management Commission, a provincial government agency, is responsible for managing low-income housing in British Columbia. Some analysts and managers at BC Housing use ACL (Audit Command Language) to extract information from the databases for analysis.
ACL is designed as a computer-assisted audit technique (CAAT) software for auditors. This software can extract data from a variety of file formats. The designers of ACL did not anticipate that their software could be used as an ESS tool by non-auditors and for non-audit purposes. Exhibit 9. 7-2 summarizes the key characteristics of the five main types of information systems. (For this purpose, GDSS is considered a subset of DSS). Exhibit 9. 7-2: Comparing information systems TPS a. Process oriented, operational in nature b. Worker level, front-line supervisors c. Routine reports focus on operational results d.
Preprogrammed decisions in accordance with established policies and procedures MIS a. b. c. d. DSS a. b. c. d. ESS/EIS a. b. c. d. Non-specific, high-level summaries, often graphical in nature Senior management Output designed for strategic decisions Unstructured, ad hoc Unstructured, analytical in nature Middle- to senior-management level Output designed to assist in making specific decisions Unstructured or semi-structured Reports oriented, management in nature Middle-management level Management reports focus on management functions Provides information for routine management decisions
Expert systems a. b. c. d. Capable of making decisions on their own, problem is domain specific Any level of worker or management Simple output in the form of an answer or a decision Built-in intelligence; some capable of “learning” Course Schedule Course Modules Review and Practice Exam Preparation Resources Module 9: Self-test 1. Chapter 10, Review question 1, page 434 Solution 2. Chapter 10, Discussion question 6, page 434 Solution 3. Chapter 10, Review question 17, page 434 Solution 4. Chapter 10, Review question 19, page 434 Solution 5. Chapter 10, Review question 20, page 434 Solution
Course Schedule Course Modules Review and Practice Exam Preparation Resources Solution 1 (Topic 9. 1) Satisficing is a model that will find a good, but not necessarily the best, problem solution. A satisficing model could be used when a decision is needed to find a location for a new manufacturing plant. To find the best location, you may want to consider all cities in Canada or the world. A satisficing approach is to consider only five or 10 cities that might satisfy the company’s requirements. Course Schedule Course Modules Review and Practice Exam Preparation Resources Solution 2 (Topic 9. ) A financial MIS provides finance information to appropriate managers within a firm. A financial MIS is composed of a number of subsystems including financial forecasting, profit/loss and cost systems, use and management of funds, and auditing. Each of these subsystems performs a function related to its purpose (for example, forecasting, fund management, and so on). Auditing can reveal potential fraud, such as credit card fraud. It can also reveal false or misleading information. An example of audit failure is the Enron scandal. The result was the fall of both Enron and its auditor Arthur Andersen.
Course Schedule Course Modules Review and Practice Exam Preparation Resources Solution 3 (Topic 9. 5) A group support system, or GSS, has an objective of supporting the decision-making process in a group or collaborative setting. A GSS is different from a DSS in several ways. Among these are: 1) a group orientation, DSS only focuses on a single decision maker; 2) the ability to manage multiple lines of reasoning and organize responses; and 3) its communication facilities, which offer users anonymity and the ability to be geographically dispersed. Course Schedule
Course Modules Review and Practice Exam Preparation Resources Solution 4 (Topics 9. 4 and 9. 7) An ESS is a special type of DSS, and, like a DSS, is designed to support higher-level decision making in the organization. The two systems are, however, different in important ways. DSSs provide a variety of modeling and analysis tools to enable users to thoroughly analyze problems — that is, they allow users to answer questions. ESSs present structured information about aspects of the organization that executives consider important. Course Schedule Course Modules
Review and Practice Exam Preparation Resources Solution 5 (Topic 9. 7 and text page 429) An executive support system (ESS) is a specialized DSS that includes all hardware, software, data, procedures, and people used to assist senior-level executives within an organization. An ESS is sometimes called an EIS. An ESS is often used to support the development of an overall strategic vision; for strategic planning, organizing, staffing and control; and for crisis management. Course Schedule Course Modules Review and Practice Exam Preparation Resources Module 9 summary
Information systems and management This module looks at information systems from a management context, and explores the key aspects of management support systems. It begins with an introduction to the three types of management support systems: management information systems, decision support systems, and executive support systems. The characteristics and functions of management information systems, decision support systems, and executive support systems are also analyzed. The computer illustration provides hands-on experience with a simple application of Excel in decision support.
Outline and describe the stages of the problem-solving process The first three stages of problem solving comprise the decision-making phase: Intelligence stage — A problem or opportunity is identified and information gathered to refine the scope, resources, and constraints. Design stage — Possible solutions are developed and the feasibility of each evaluated. Choice stage — The most appropriate solution is selected. The decision is made. The final two stages transform the decision-making phase into the problem-solving model: Implementation stage — The solution is built, tested, and put into operation.
Monitoring stage — In this final stage, the decision makers assess how well the solution fits the problem and what modifications may be necessary to improve upon it. Distinguish between operations support systems, management support systems, management information systems, decision support systems, and executive support systems IS can be grouped into operations support systems management support systems Operations support systems are also called transaction processing systems. Their main function is to process day-to-day transactions. Management support systems are designed to assist management in decision making.
Various types of management support systems serve different groups and interests in the firm: Executive support systems (ESS) deal with unstructured problems. Management information systems (MIS) and decision support systems (DSS) deal with structured or semi-structured problems. Describe management information systems, and explain how they work A management information system (MIS) has the primary purpose of providing managers with insight into the regular operations of the organization so that they can perform their functions more effectively.
MIS characteristics could be described primarily in terms of the reports produced. Management information systems are used for routine reporting to monitor and control business. Examples of reports are scheduled listing, exception report, demand reports, and predictive reports. Management information systems are often divided along functional lines and they include financial MIS accounting MIS manufacturing MIS marketing MIS human resource MIS
Explain the purpose and general functions of decision support systems Decision support systems (DSS) are interactive systems under user control that are used in solving unstructured or semi-structured problems. Targeted at managers who are non-technical users, DSS should be easy to use, flexible, and provide relevant information for decision making. Examples of DSS activities are data modelling, sensitivity analysis, goal seeking, consolidation, information management, reporting, and graphics.
Describe the characteristics of group decision support systems Group decision support systems (GDSS) enable a set of decision makers working together as a group to solve unstructured problems. They also enhance group decision making by minimizing problems posed by group meetings. Characteristics of GDSS: special design ease of use flexibility decision-making support brain storming anonymous input reduction of negative group behaviour parallel conversion automated recordkeeping Describe executive support systems, and explain how they work Executive support systems (ESS) are used to solve unstructured problems.
Characteristics of ESS: designed explicitly for the purposes of senior management used by senior management without technical intermediaries require a greater proportion of information outside the business contain both structured and unstructured data use integrated advance graphics, text, and communication technology ESS are designed to assist with problem solving or decision making directed toward the organization’s overall profitability and direction. Key capabilities include support for defining an overall vision strategic planning strategic organization and staffing strategic control crisis management