Chapter 11

Management Decision Making

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Our Agenda
• Improving Management Decision-Making Effectiveness
• Management Decisions
• Management Information Systems
• Decision Support Systems
• Executive Support Systems

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Our Agenda (cont’d.)
• Expert Systems
• Knowledge Management Systems

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Learning Objectives
• Explain how information systems can improve
management decision-making effectiveness.
• Describe the characteristics of information needed by
managers for decision making at different levels of an
organization.

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Learning Objectives (cont’d.)
• Describe the structure of management information
systems.
• Describe the structure of decision support systems.
• Explain the purpose of executive support systems.

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Learning Objectives (cont’d.)
• Explain how an expert system can provide expert
advice.
• Describe what organizational knowledge is an what
knowledge management systems do.

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Improving Management
Decision-Making
Effectiveness
Management Decision Making

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Improving Management Decision-
making Effectiveness
• A decision is a selection among several courses of
action.
• Information helps reduce the uncertainty. With better
information, a decision maker is more certain about the
outcome of a decision.

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Management Decisions
Management Decision Making

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Levels of Management Decisions
• Management decisions are made at several levels in an
organization. Starting at the top:
• Strategic decisions
• Tactical decisions
• Operational decisions

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Strategic Decisions
• Made by top level managers.
• Involve setting organization policies, goals, and long-
term plans.
• They affect the organization for many years.

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Tactical Decisions
• Made by middle-level managers.
• Involve implementing policies of the organization.
• They affect the organization for several months or a few
years.

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Operational Decisions
• Made by by lower-level manager.
• Involve the day-to-day decisions needed in the
operation of the organization.
• They affect the organization for a short period of time,
such as several days or weeks.

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Characteristics of Management
Decisions
• The three characteristics of management decision
making
1. Time horizon affected by the decision
2. Frequency of repeating the same decision
3. Degree of structure in the decision process

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Characteristics of Management
Decisions (cont’d.)
• Strategic decisions tend to be unstructured.
• Tactical decisions tend to be semi-structured.
• Operational decisions tend to be very structured.

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Information Needs for Management
Decisions
• Two characteristics of information needed for
management decision making:
• Source of the information
• Internal
• External
• Degree of detail of information
• Detailed
• Summarized

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Information Needs for Management
Decisions (cont’d.)
• Strategic decision information tends to be external and
summarized.
• Tactical decision information tends to be both internal
and external and both detailed and summarized.
• Operational decision information tends to be internal
and detailed.

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Information Systems for
Management Support
• Information systems support management in all the
functions of a business at all levels.
• Accounting information systems provide accounting
information at operational, tactical, and strategic levels.
• Financial information systems help in financial decision
making at all levels.

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Information Systems for Management
Support (cont’d.)
• Marketing information systems provide
information to marketing managers at different
levels.
• Manufacturing information systems assist in
making manufacturing and production decisions at
all levels.
• Human resource information systems support
personnel decisions making at all levels.

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Management Information
Systems
Management Decision Making

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Management Information System
Structure
• A Management Information System (MIS) supports
management decision making by providing information
in the form of reports and responses to queries to
managers at different levels of an organization.

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Management Information System
Functions
• Management information systems perform the four
main functions of an information system:
• Input function
• Storage function
• Processing function
• Output function

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Decision Support Systems
Management Decision Making

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Decision Support Systems
• A management information system helps managers
make decisions by providing information from a
database with little or no analysis.
• A Decision Support System (DSS) helps managers make
decisions by analyzing data from a database and
providing the results of the analysis to the manager.

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Management Decision Support

• A decision support system includes several ways of

analyzing data. They include:
• Statistical calculations – data is manipulated to determine
characteristics of the data or to draw conclusions from the
data.
• Mathematical modeling – a representation of reality.

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Decision Support System Structure
• The users of a DSS are managers, usually at the tactical
and strategic levels in the organization.
• The DSS model base (analogous to a database) contains
the mathematical models and statistical calculation
routines that are used to analyze data from the
database.

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Decision Support System Functions
• The capabilities of a decision support system are
provided by the four information system functions
performed by the system. They are:
• Input function
• Storage function
• Processing function
• Output function

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Decision Support System Software
• A decision support system is usually developed using
general software that is adapted for a specific decision.
• An example of DSS software is spreadsheet software.

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Group Decision Support Systems
• A Group Decision Support Systems (GDSS) is a system
designed to support group decision making.
• A GDSS is typically used in a network.

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Geographic Information System
• A Geographic Information System (GIS) is an information
system that provides information for decision making
based on geographic location.
• A GIS includes a database in which all data is organized
by geographic location.

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Executive Support
Systems
Management Decision Making

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Executive Support Systems
• An Executive Support System (ESS) is designed
specifically for the information needs of strategic
managers.
• Also called an Executive Information System (EIS).

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Executive Information Needs

• While strategic level managers generally need

summarized information, occasionally they need
detailed information.
• The detailed information is available through a
process called drilling down.

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Executive Support System Structure

• An ESS may include any of the following:

• On-line access to reports.
• The ability to query the MIS database for information not
usually received in reports.
• The ability to access external databases.
• The ability to analyze and summarize data from reports
and queries, and to view the results of the analysis
graphically.

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Executive Support System Structure
(cont’d.)
• The ability to drill down to detailed information.
• Electronic mail (e-mail) to communicate with employees.
• An electronic appointment calendar.
• Basic word processing capabilities for writing notes,
memos, and other simple communications.

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Executive Support System Functions

• An executive support system provides its capabilities

through the four information system functions:
• Input function
• Storage function
• Processing function
• Output function

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Expert Systems
Management Decision Making

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Expert Systems
• An Expert System (ES) is a type of information system
that gives expert advice to the decision maker.
• The system accomplishes this task by incorporating
human expert knowledge and using this knowledge to
analyze specific problems.

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Expert Advice
• Expert advice is used at all levels of a business, but is
most commonly required for structured problems at the
operational and tactical levels.
• Problems in research and development, engineering,
production, finance, computer systems, accounting, and
other areas use expert advice.

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Expert System Structure
• The knowledge base is a database of expert knowledge.
• Different types of expert systems use different
techniques for storing knowledge.
• One technique is to use rules.
• A rule is an if-then structure.

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Expert System Structure (cont’d.)
• The expert system software consists of a user interface
and an inference engine.
• The inference engine analyzes rules in the knowledge
base to draw conclusions.

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Expert System Functions
• Expert system capabilities are provided by the four
information system functions:
• Input function
• Storage function
• Processing Function
• Output Function

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Expert System Software
• Expert system software is very complex.
• Knowledge engineers usually do the development of the
rules and the knowledge base.
• Programming languages include:
• LISP
• PROLOG

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Other Artificial Intelligence
Applications
• Neural networks consist of artificial neurons, which are
software elements that act like human neurons.
• An intelligent agent is a program that acts on behalf of
an individual, based on preferences that are given to the
agent.

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Knowledge Management
Systems
Management Decision Making

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Organization Knowledge
• Explicit knowledge can be stated or written in a form
someone else can understand.
• Implicit knowledge cannot be expressed easily but is
understood by the individual.
• Making decisions involves the use of both explicit and
implicit knowledge.

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Knowledge Management
• Knowledge management is the process of managing
organizational knowledge.
• An organization must determine what knowledge it has
and acquire the knowledge that it is lacking.

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Knowledge Management (cont’d.)
• Explicit knowledge needs to be organized and recorded
in a way that makes it usable by others in the
organization who do not have that knowledge.
• Knowledge needs to be communicated to those who
need it and share among the employees in an
organization.

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Management Decision
Making
Key Terms

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Key Terms
• Ad Hoc Report • Executive Support System
• Artificial Intelligence (AI) (ESS)
• Decision Support System (DSS) • Expert System (ES)
• Demand Report • Geographic Information
System (GIS)
• Drilling Down
• Group Decision Support
• Executive Information System System (GDSS)
(EIS)
• Inference Engine
• Intelligent Agent

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Key Terms (cont’d.)
• Knowledge • Model Base
• Knowledge Base • Neural Network
• Knowledge Management • Organizational Knowledge
• Knowledge Management • Query
System • Rule
• Management Information • Scheduled Report
System (MIS)

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Summary
• Improving Management Decision-Making Effectiveness
• Management Decisions
• Management Information Systems
• Decision Support Systems
• Executive Support Systems

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Summary (cont’d.)
• Expert Systems
• Knowledge Management Systems

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Final Black Slide