Sarala Birla University

BBA Sem III

Course Title: Management Information System
Course Code: BBA 303

Module IV: Enterprise Networks, Internet

Decision and Models: Models and Decision support, Biases in decisions, Introduction to
Models, Decision Support Systems, Limitations of Models. Decision in Business Areas:
Finance, Accounting, Marketing, Human Resource Management, Production & Design

Decision Making

A decision is a choice made between two or more available alternatives decision making is a
process of choosing the best alternative for reaching objectives decision making is covered in
the planning section of this text managers must also make decision when performing the other
three managerial function-organizing, influencing, and controlling- the subject requires a
separate chapters.

Managers make decision affecting the organization daily and communicate that decision to
other organizational members. Not at all managerial decision is equal significance to the
organization, some affect the large number of organization members, cost a great deal of money
to carry out, or have a long-term effect on the organization.

Biases in Decisions

1. Self-serving bias

A self-serving bias is one that promotes your self-esteem and helps you feel better about
the position you're in to make a decision. When you engage in a self-serving bias, you
may unintentionally make decisions that benefit yourself over other employees,
customers, clients, vendors or the organization and its goals.

2. Authority bias

There is often a certain level of confidence that comes with hearing an authority figure
present information or ideas. Authority bias happens if you favor your authority figures'
input over others, despite there being information and opinions that are more sound and
relevant to the problem you're attempting to solve.

3. Confirmation bias

Confirmation bias is when you have existing beliefs and place more emphasis and value
on information that supports those beliefs. For example, you may only review data that
supports your hypothesis and seek materials that match your viewpoints, as well as
reject any other information that defies your assumptions and beliefs. Without viewing
all the information, you have or questioning the beliefs you hold, you could be at risk
of making a decision that's not best for the organization.

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4. Framing bias

Anyone who's offering you the information you need to make an informed decision
likely has their own way of presenting it. They make discuss it with you formally in a
scheduled meeting, email you a report or simply mention a relevant piece of
information in passing. Framing bias is when you make a decision based on how the
presenter has shared the information because you, for example, may unintentionally
assume that a well-designed presentation is more trustworthy than a simple email.

5. Overconfidence bias

The overconfidence bias may occur if you're too confident in your intelligence,
assumptions or ideas, frequently without the knowledge or experience to prove why
your confidence is so high. Overconfidence bias can cause you to ignore the other
options, take risks with your decisions and assume that your expectations are correct
without using other means to verify them.

6. Anchoring bias

You may already know first impressions are important for several reasons, but they can
also affect how you make decisions. Anchoring biases are based on a person's natural
tendency to gravitate toward the first piece of information they receive and allowing
themselves to become influenced by it. This is the most common type of bias if you
feel stressed or are short on time to make a decision.

7. Availability bias

Availability bias is based on the first information that's readily available in your
memory. For example, you may remember something from many years ago, assume it's
of significant importance and based your decisions on that memory. Availability bias
also considers the most recent information you may have received from a trustworthy
individual. Those who have availability bias may convince themselves that the first idea
they've had toward the decision is the best one and therefore miss out on evaluating
other options.

8. Conformity bias

One of the largest hindrances to creativity is conformity bias, which is when you make
a decision based on what the majority decides. This can hinder your ability to form a
difference of opinion or have an open discussion about the decision with your
colleagues. While many employees may have problem-solving abilities, conformity
bias can strip them of this skill as they all conform to the same way of thinking.

9. Feature positive effect

The feature positive effect can be detrimental to your decision-making because this bias
occurs when you focus only on the positive benefits of your decisions versus weighing
the negative effects alongside them. This can result in missing pertinent information
you need to make a decision that'll help the organization meet its goals. You may elicit

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 the feature positive effect when you have limited time or a small amount of information
available to you.

How to recognize bias in decision making

1. Analyze your past performance

You should be able to reflect on your previous decisions and outcomes to see if there
are trends in any relationship between the two. For example, you may notice that you
overestimate the projected sales for every quarter and that you're almost always off
base. This can indicate that you historically carry an optimistic bias where you remain
confident, despite a lack of evidence, that the results will be more favorable than they
really end up.

2. Ask for feedback

Even if you have certain biases that affect your decision-making, it doesn't mean a
coworker or manager will have the same biases. Gathering new perspectives on your
decision-making abilities can help you recognize biases and prevent them in future
decisions.

3. Evaluate others

It's almost inevitable that an individual's biases will have an impact on their decisions,
so if you are able to evaluate each other, you may find that recognizing biases as an
outsider is easier than when you're examining yourself. The more you do this, the better
able you'll be to recognize your own biases before you allow them to affect your
decision process.

4. Take the time to decide

If you're rushing to make a decision, the chances are higher that you'll be unable to
recognize your biases. Instead, take a reasonable amount of time and however long
you're allowed to come to a decision and make sure you're deciding when you are free
from stress and have few impending deadlines.

Introduction to Models

A model is an abstraction of something it represents (some phenomenon), called an entity. For

example, if a model represents a firm, then the firm is an entity.

Types of Models:

1. Physical Models: It is a model that exists in three-dimensional form. For example, clay
model of a new automobile developed by designers.

2. Narrative Models: It is created by verbal or written description. Also, these can be

created anywhere without much resources hence they are most popular.
3. Graphs: It is usually a two-dimensional diagram. For example, graphs and charts.

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 4. Mathematical Models: It uses symbolic notations and mathematical equations to
represent a system. It can be represented by 3-D also. Following are the types of
mathematical models:

a) Influence of Time: Static Model does not include time as a variable whereas,
Dynamic Model allows the changes of system attributes to be derived as a
function of time.

b) Degree of Certainty: A probability is a chance of occurring something will

happen. Probabilities ranges from 0 to 1. A model that includes probabilities is
called Probabilistic model, otherwise it is called a Deterministic model.

c) Ability to Achieve Optimization: Optimizing Model selects the best solution

among the alternatives. A SUB-OPTIMIZING MODEL permits the manager to
enter a set of decisions, once this step is completed the model will project an
outcome. It leaves the decision task on the manager.

Steps of Model Construction:

1. Define the problem and the factor that influence it.

2. Select criteria to guide the decision and establish objectives.
3. Formulate a model that helps management to understand the relationships between the
influence factors and the objectives the firm is trying to achieve.
4. Collect the relevant data while trying to avoid the incorporation of superfluous
information into the model.
5. Identify and evaluate the alternatives.
6. Select the best alternative.
7. Implement the alternative.

The below shown figure is a model of Management Information System (MIS).

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Components of MIS Model

1. Organizational Problem Solvers: Outputs are used by persons who are responsible
for solving the firm’s problems(say managers).

2. Database: Its contents are used by software that produces report as well as
mathematical model.

3. Mathematical Model: It produces information as a simulation of firm’s operation.

4. Report Writing Software: It produces both periodic and special report.

5. Environment: The environment is of great importance to the firm. It is the very reason
of the firm’s existence.

Advantages

1. Can be a learning experience.

2. Provides predictive power.

3. Less expensive than trial and error method.

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 4. Speed allows consideration of more options.

Limitations of MIS

1. Difficult to model a business system.

2. High degree of mathematical skills required.

Decision Support System

A decision support system (DSS) is an information system that aids a business in decision-
making activities that require judgment, determination, and a sequence of actions. The
information system assists the mid- and high-level management of an organization by
analyzing huge volumes of unstructured data and accumulating information that can help to
solve problems and help in decision-making. A DSS is either human-powered, automated, or
a combination of both.

A decision support system produces detailed information reports by gathering and analysing
data. Hence, a DSS is different from a normal operations application, whose goal is to collect
data and not analyse it.

In an organization, a DSS is used by the planning departments – such as the operations

department – which collects data and creates a report that can be used by managers for decision-
making. Mainly, a DSS is used in sales projection, for inventory and operations-related data,
and to present information to customers in an easy-to-understand manner.

Theoretically, a DSS can be employed in various knowledge domains from an organization to

forest management and the medical field. One of the main applications of a DSS in an
organization is real-time reporting. It can be very helpful for organizations that take part in just-
in-time (JIT) inventory management.

In a JIT inventory system, the organization requires real-time data of their inventory levels to
place orders “just in time” to prevent delays in production and cause a negative domino effect.
Therefore, a DSS is more tailored to the individual or organization making the decision than a
traditional system.

Components of a Decision Support System

The three main components of a DSS framework are:

1. Model Management System - The model management system S=stores models that
managers can use in their decision-making. The models are used in decision-making
regarding the financial health of the organization and forecasting demand for a good or
service.

2. User Interface - The user interface includes tools that help the end-user of a DSS to
navigate through the system.

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 3. Knowledge Base - The knowledge base includes information from internal sources
(information collected in a transaction process system) and external sources
(newspapers and online databases).

Types of Decision Support Systems

1. Communication-driven: Allows companies to support tasks that require more than

one person to work on the task. It includes integrated tools such as Microsoft SharePoint
Workspace and Google Docs.

2. Model-driven: Allows access to and the management of financial, organizational, and

statistical models. Data is collected, and parameters are determined using the
information provided by users. The information is created into a decision-making
model to analyse situations. An example of a model-driven DSS is Dicodess – an open-
source model-driven DSS.

3. Knowledge-driven: Provides factual and specialized solutions to situations using

stored facts, procedures, rules, or interactive decision-making structures
like flowcharts.

4. Document-driven: Manages unstructured information in different electronic formats.

5. Data-driven: Helps companies to store and analyze internal and external data.

Advantages of a Decision Support System

1. A decision support system increases the speed and efficiency of decision-making
activities. It is possible, as a DSS can collect and analyze real-time data.
2. It promotes training within the organization, as specific skills must be developed to
implement and run a DSS within an organization.
3. It automates monotonous managerial processes, which means more of the manager’s
time can be spent on decision-making.
4. It improves interpersonal communication within the organization.

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Disadvantages of a Decision Support System

1. The cost to develop and implement a DSS is a huge capital investment, which makes it
less accessible to smaller organizations.
2. A company can develop a dependence on a DSS, as it is integrated into daily decision-
making processes to improve efficiency and speed. However, managers tend to rely on
the system too much, which takes away the subjectivity aspect of decision-making.
3. A DSS may lead to information overload because an information system tends to
consider all aspects of a problem. It creates a dilemma for end-users, as they are left
with multiple choices.
4. Implementation of a DSS can cause fear and backlash from lower-level employees.
Many of them are not comfortable with new technology and are afraid of losing their
jobs to technology.

Decision in Business Areas: Finance, Accounting, Marketing, Human Resource

Management, Production & Design

Functional information systems rarely stand alone. This reflects the fact that the functions they
support should, as much as possible, connect with each other seamlessly in order to serve the
firms customers. Customers expect timely order delivery, often on a just-in-time schedule;
quality inspection to their own standards; flexible credit terms; post-delivery service; and often,
participation in the product design process.

Information technology provides vital support for integrating internal business processes,
cutting across functional lines, and for integrating operations with the firm's business partners,
its customers and suppliers.

Financial and Accounting Information Systems

The financial function of the enterprise consists in taking stock of the flows of money and other
assets into and out of an organization, ensuring that its available resources are properly used
and that the organization is financially fit. The components of the accounting system include:
1. Accounts receivable records
2. Accounts payable records
3. Payroll records
4. Inventory control records
5. General ledgers

Financial information systems rely on external sources, such as on-line databases and custom
produced reports, particularly in the areas of financial forecasting and funds management. The
essential functions that financial information systems perform include:

1. Financial Forecasting - Financial forecasting is the process of predicting the inflows

of funds into the company and the outflows of funds from it for a long term into the
future. Outflows of funds must be balanced over the long term with the inflows. With
the globalization of business, the function of financial forecasting has become more
complex, since the activities in multiple national markets have to be consolidated,
taking into consideration the vagaries of multiple national currencies. Scenario analysis
is frequently employed in order to prepare the firm for various contingencies.

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 Financial forecasts are based on computerized models known as cash-flow models.
They range from rather simple spreadsheet templates to sophisticated models developed
for the given industry and customized for the firm or, in the case of large corporations
to specify modeling of their financial operations. Financial forecasting serves to
identify the need for funds and their sources.

2. Financial Control - The primary tools of financial control are budgets.

A budget specifies the resources committed to a plan for a given project or time period.
Fixed budgets are independent of the level of activity of the unit for which the budget
is drawn up. Flexible budgets commit resources depending on the level of activity.

Spreadsheet programs are the main budgeting tools. Spreadsheets are the personal
productivity tools in use today in budget preparation.

In the systems-theoretic view, budgets serve as the standard against which managers
can compare the actual results by using information systems. Performance reports are
used to monitor budgets of various managerial levels. A performance report states the
actual financial results achieved by the unit and compares them with the planned results.

Along with budgets and performance reports, financial control employs a number of
financial ratios indicating the performance of the business unit. A widely employed
financial ratio is return on investment (ROI). ROS shows how well a business unit uses
its resources. Its value is obtained by dividing the earnings of the business unit by its
total assets.

3. Funds Management - Financial information systems help to manage the organization's

liquid assets, such as cash or securities, for high yields with the lowest degree of loss
risk. Some firms deploy computerized systems to manage their securities portfolios and
automatically generate buy or sell orders.

4. Internal Auditing - The audit function provides an independent appraisal of an

organization's accounting, financial, and operational procedures and information. All
large firms have internal auditors, answerable only to the audit committee of the board
of directors. The staff of the chief financial officer of the company performs financial
and operational audits. During a financial audit, an appraisal is made of the reliability
and integrity of the company's financial information and of the means used to process
it. An operational audit is an appraisal of how well management utilizes company
resources and how well corporate plans are being carried out.

Marketing Information Systems

Marketing activities are directed toward planning, promoting, and selling goods and services
to satisfy the needs of customers and the objectives of the organization.

Marketing information systems support decision making regarding the marketing mix. These
include:
1. Product
2. Price
3. Place

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4. Promotion

In order to support decision making on the marketing mix, a marketing information system
draws on several sources of data and information.

A marketing information system relies on external information to a far greater degree than
other organizational information systems. It includes two subsystems designed for boundary
spanning - bringing into the firm data and information about the marketplace.

The objective of marketing research is to collect data on the actual customers and the potential
customers, known as prospects. The identification of the needs of the customer is a fundamental
starting point for total quality management (TQM). Electronic commerce on the WEB makes
it easy to compile statistics on actual buyer behaviour.

Marketing research software supports statistical analysis of data. It enables the firm to correlate
buyer behaviour with very detailed geographic variables, demographic variables, and
psychographic variables.

Marketing (competitive) intelligence is responsible for the gathering and interpretation of data
regarding the firm's competitors, and for the dissemination of the competitive information to
the appropriate users. Most of the competitor information comes from corporate annual reports,
media-tracking services, and from reports purchased from external providers, including on-line
database services. The Internet has become a major source of competitive intelligence.

Marketing Mix Subsystems

The marketing mix subsystems support decision making regarding product introduction,
pricing, promotion (advertising and personal selling), and distribution. These decisions are
integrated into the sales forecast and marketing plans against which the ongoing sales results
are compared.

Marketing mix subsystems include:

1. Product Subsystem

The product subsystem helps to plan the introduction of new products. Continually
bringing new products to market is vital in today's competitive environment of rapid
change. The product subsystem should support balancing the degree of risk in the
overall new-product portfolio, with more aggressive competitors assuming higher
degrees of risk for a potentially higher payoff.

Although decisions regarding the introduction of new products are unstructured,

information systems support this process in several ways:

a) Professional support systems assist designers in their knowledge work

b) DSSs are used to evaluate proposed new products
c) With a DSS, a marketing manager can score the desirability of a new product.
d) Electronic meeting systems help bring the expertise of people dispersed in space
and time to bear on the problem

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 e) Information derived from marketing intelligence and research is vital in
evaluating new product ideas.

2. Place Subsystem
The place subsystem assists the decision makers in making the product available to the
customer at the right place at the right time. The place subsystem helps plan the
distribution channels for the product and track their performance.

The use of information technology has dramatically increased the availability of

information on product movement in the distribution channel. Examples include:

a) Bar-coded Universal Product Code (UPC)

b) Point-of-sale (POS) scanning
c) Electronic data interchange (EDI)
d) Supports just-in-time product delivery and customized delivery

3. Promotion Subsystem

The promotion subsystem is often the most elaborate in the marketing information
system, since it supports both personal selling and advertising. Media selection
packages assist in selecting a mix of avenues to persuade the potential purchaser,
including direct mail, television, print media, and the electronic media such as the
Internet and the WEB in particular. The effectiveness of the selected media mix is
monitored and its composition is continually adjusted.

Database marketing relies on the accumulation and use of extensive databases to

segment potential customers and reach them with personalized promotional
information.

The role of telemarketing, marketing over the telephone, has increased. Telemarketing
calls are well supported by information technology.

Sales management is thoroughly supported with information technology. Customer

profitability analysis help identify high-profit and high-growth customers and target
marketing efforts in order to retain and develop these accounts.

Sales force automation, involves equipping salespeople with portable computers tied
into the corporate information systems. This gives the salespeople instantaneous access
to information and frees them from the reporting paperwork. These increases selling
time and the level of performance. Access to corporate databases is sometimes
accompanied by access to corporate expertise, either by being able to contact the
experts or by using expert systems that help specify the product meeting customer
requirements.

4. Price Subsystem

Pricing decisions find a degree of support from DSSs and access to databases that
contain industry prices. These highly unstructured decisions are made in pursuit of the
company’s pricing objectives. General strategies range from profit maximization to
forgoing a part of the profit in order to increase a market share.

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 Information systems provide an opportunity to finely segment customer groups, and
charge different prices depending on the combination of products and services
provided, as well as the circumstances of the sale transaction.

5. Sales Forecasting
Based on the planned marketing mix and outstanding orders, sales are forecast and a
full marketing plan is developed. Sale forecasting is an area where any quantitative
methods employed must be tempered with human insight and experience. The actual
sales will depend to a large degree on the dynamics of the environment.

Qualitative techniques are generally used for environmental forecasting - an attempt to

predict the social, economic, legal, and technological environment in which the
company will try to realize its plans. Sales forecasting uses numerous techniques, which
include:

 Group decision making techniques are used to elicit broad expert opinion
 Scenario analysis in which each scenario in this process is a plausible future
environment
 Extrapolation of trends and cycles through a time-series analysis.

Human Resource Information Systems

A human resource information system (HRIS) supports the human resources function of an
organization with information. The name of this function reflects the recognition that people
who work in a firm are frequently its most valuable resources. The complexity of human
resource management has grown immensely over recent years, primary due to the need to
conform with new laws and regulations.

A HRIS has to ensure the appropriate degree of access to a great variety of internal
stakeholders, including:

1. The employees of the Human Resources department in performance of their duties

2. All the employees of the firm wishing to inspect their own records
3. All the employees of the firm seeking information regarding open positions or available
benefit plans
4. Employees availing themselves of the computer-assisted training and evaluation
opportunities
5. Managers throughout the firm in the process of evaluating their subordinates and
making personnel decisions
6. Corporate executives involved in tactical and strategic planning and control

Transaction Processing Subsystems and Databases of Human Resource Information Systems

At the heart of HRIS are its databases, which are in some cases integrated into a single human
resource database. The record of each employee in a sophisticated employee database may
contain 150 to 200 data items, including the personal data, educational history and skills,
occupational background, and the history of occupied positions, salary, and performance in the
firm. Richer multimedia databases are not assembled by some firms in order to facilitate fast
formation of compatible teams of people with complementary skills.

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Other HRIS databases include:

1. Applicant databases
2. Position inventory
3. Skills inventory
4. Benefit databases
5. External databases

The information subsystems of HRIS reflect the flow of human resources through the firm,
from planning and recruitment to termination. A sophisticated HRIS includes the following
subsystems:

1. Human Resource Planning - To identify the human resources necessary to accomplish

the long-term objectives of a firm, we need to project the skills, knowledge, and
experience of the future employees.

2. Recruiting and Workforce Management - Based on the long-term resource plan, a

recruitment plan is developed. The plan lists the currently unfilled positions and those
expected to become vacant due to turnover.

3. Compensation and Benefits – The life-cycle transitions of the firm's workforce -

hiring, promotion and transfer, and termination - have to be supported with the
appropriate information system components.

4. Government reporting and labour relations support

Two principal external stakeholders have an abiding interest in the human resource
policies of organizations. These are:
 Various levels of government
 Labor unions

Production & Design Information Systems

Global competitive pressures of the information society have been highly pronounced in
manufacturing and have radically changed it. The new marketplace calls for manufacturing
that are:
1. Lean - highly efficient, using fewer input resources in production through better
engineering and through production processes that rely on low inventories and result in
less waste.

2. Agile - fit for time-based competition. Both the new product design and order fulfilment
are drastically shortened.

3. Flexible - able to adjust the product to a customer's preferences rapidly and cost
effectively.

4. Managed for quality - by measuring quality throughout the production process and
following world standards, manufacturers treat quality as a necessity and not a high-
price option.

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Information technology must play a vital role in the design and manufacturing processes.
Manufacturing information systems are among the most difficult both to develop and to
implement.

TPSs are embedded in the production process or in other company processes. The data provided
by the transaction processing systems are used by management support subsystems, which are
tightly integrated and interdependent.

Manufacturing information subsystems include:

1. Product Design and Engineering

Product design and engineering are widely supported today by computer-aided

design (CAD) and computer-aided engineering (CAE) systems. CAD systems assist
the designer with automatic calculations and display of surfaces while storing the
design information in databases. The produced designs are subject to processing with
CAE systems to ensure their quality, safety, manufacturability, and cost-effectiveness.
CAD/CAE systems increasingly eliminate paperwork from the design process, while
speeding up the process itself. As well, the combined techniques of CAD/CAE and
rapid prototyping cut time to market.

2. Product Scheduling

Production scheduling is the heart of the manufacturing information system. This

complex subsystem has to ensure that an appropriate combination of human,
machinery, and material resources will be provided at an appropriate time in order to
manufacture the goods.

Production scheduling and the ancillary processes are today frequently controlled with
a manufacturing resource planning system as the main informational tool. This
elaborate software converts the sales forecast for the plant’s products into a detailed
production plan and further into a master schedule of production.

Computer integrated manufacturing (CIM) is a strategy through which a manufacturer

takes control of the entire manufacturing process. The process starts with CAD and
CAE and continues on the factory floor where robots and numerically controlled
machinery are installed - and thus computer-aided manufacturing (CAM) is
implemented. A manufacturing system based on this concept can turn out very small
batches of a particular product as cost-effectively as a traditional production line can
turn out millions of identical products. A full-fledged CIM is extremely difficult to
implement; indeed, many firms have failed in their attempts to do so.

3. Quality Control

The quality control subsystem of a manufacturing information system relies on the data
collected on the shop floor by the sensors embedded in the process control systems.

Total quality management (TQM) is a management technique for continuously

improving the performance of all members and units of a firm to ensure customer
satisfaction. In particular, the principles of TQM state that quality comes from

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 improving the design and manufacturing process, rather than inspecting out defective
products. The foundation of quality is also understanding and reducing variation in the
overall manufacturing process.

4. Facilities Planning, Production Costing, Logistics and Inventory Subsystems

Among the higher-level decision making supported by manufacturing information

systems are facilities planning - locating the sites for manufacturing plants, deciding on
their production capacities, and laying out the plant floors.

Manufacturing management requires a cost control program, relying on the information

systems. Among the informational outputs of the production costing subsystem are
labor and equipment productivity reports, performance of plants as cost centers, and
schedules for equipment maintenance and replacement.

Managing the raw-materials, packaging, and the work in progress inventory is a

responsibility of the manufacturing function. In some cases, inventory management is
combined with the general logistics systems, which plan and control the arrival of
purchased goods into the firm as well as shipments to the customers.

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