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Information Systems: the Foundation of E-Business (CIS 108)

Decision and Decision Making and its Implications for the Design of IT/IS

Lecture SEVEN (7th March 2005)

Amare Michael Desta

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Objectives

To explain the nature of decision-making To identify different models of the decision-

making process To examine the implications of theory and

research on decision-making for the development of IS/IT systems

To explain the role of DSS in supporting decision-making

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Decision and Decision making defined

Decision is the ability to decide quickly and without pausing because of uncertainty:

Decision making: the processes involved in making a selection between alternative courses of action

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Decision-Making Has Become More Difficult

Increasing complexity of problems and bewildering array of alternatives

Decisions often have to be made under tight time constraints

Increased environmental uncertainty has made sophisticated analysis more important

Remote working has increased the difficulties of accessing information and reaching consensual decisions

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Decision-Making By Level

Strategic Decisions What products and services to offer, how and where

to obtain resources, market strategies and position, pricing policies

Tactical Decisions Obtaining and using resources, allocating duties,

hiring personnel, selecting suppliers Operational Decisions

Scheduling production, allocating work, training, dealing with employee problems and grievances

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Key IT Decisions

What new systems do we need to acquire to help the company remain competitive?

Should we outsource any of our IT? Who should we appoint to manage our IT/IS

systems? If we merge with another company, should we

install new systems compatible with our own? Should we invest in expensive new software to make

our systems more secure?

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Decision-Making Models

Rational Model Decision-making by individuals is the outcome

of logical, rational processes Bounded Rationality

Various factors conspire to undermine rational decision-making processes; in reality, people satisfy rather than optimise

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Rational Model

People try to maximise outputs in an orderly, logical way

Identify problem

Examine alternatives

Compare and evaluate alternatives

Select best one

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Bounded Rationality

People do not always behave in rational ways:

“ .. . The individual is limited by his unconscious skills, habits and reflexes; he is limited by his values and conceptions of purpose, which may diverge from organizational goals; he is limited by the extent of his knowledge and information”

(Simon, 1976, p.76)

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Bounded Rationality (Contd….) Factors undermining rationality

Lack of environmental surveillance People tend to deal with problems that require

immediate attention rather than focus on the future; people select the most obvious rather than the best alternatives

Satisfying behaviour People choose the solution that will do rather than is

necessarily the best, I.e. don’t look for optimal solutions

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Bounded Rationality (Contd….)Identify problem

Determine minimum criteria all alternatives must meet

Choose the alternative that best deals with the problem

If acceptable, implement it

Evaluate ease of discovering alternatives and use this to determine acceptable standards for similar problems in future

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Bounded rationality (Contd…)

Other factors that limit rational behaviour People are strongly influenced by the outcomes of past

decisions People will discount information that conflicts with

their beliefs or values People tend to construct general decision-making rules

and follow them, even if they are inappropriate in a particular situation

People rationalise their choices

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Organisational Decision-Making

In theory, decision-making at the organisational level is more rational since there are likely to be organisation-wide procedures for identify, evaluating and selecting alternatives

Research indicates, however, that organisational decision-making is strongly influenced by past events, the full range of alternatives is rarely considered and decisions are taken on a piecemeal basis

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Computers can help

Computer-based IS have the capacity can gather vast amounts of data and present it in easy-to-understand formats, thus increasing the likely hood that more and better quality information will be taken into account in decision-making

Computer-based IS have the capacity to model alternatives and indicate the outcomes of likely courses of action. In this way they are able to simplify what, in reality, is a highly complex process and help people envisage different decision scenarios

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Defining Decision Support System

The concept of a (DSS) is extremely broad and itsdefinitions vary: It is "a computer-based system that aids the process of

decision making, (Finlay, 1994)

It is "an interactive, flexible, and adaptable computer-based IS - especially developed for supporting the solution of a non-structured management problem for improved decision making, (Turban, 1995)

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Defining DSS ….. (Contd…)

“DSS couple the intellectual resources of individuals with the capabilities of the computer to improve the quality of decisions”, (Keen & Scott, 1978)

DSS are "interactive computer-based systems that help decision makers utilize data and models to solve unstructured problems", (Sprague & Carlson, 1982),

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Defining DSS ….. (Contd…)

A“ …a computer-based information system that combines models and data in an attempt to solve semi-structured problems with extensive user involvement.”

(Turban et al, 2002)

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Uses of DSS – Some Examples

Forecast passenger demand and schedule aircraft

Evaluate bids from various contractors for major projects

Discern customer buying patterns Corporate forecasting and planning Risk evaluation on major projects

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Characteristics of DSSs

Turban et al (2002) identify the following key characteristics of DSSs

Can be used by individual managers and groups of managers at all levels of the organisation to solve semi and unstructured problems

Supports several interdependent and sequential decisions Supports all stages of the decision-making process and different

styles of decision-making Can be adapted over time to meet changing circumstances Easy to construct and use Promotes learning which creates demands for improvements Uses quantitative models Allows the easy execution of sensitivity analyses

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Characteristics of DSSs (Contd…..)

Curtis (1998) identifies the following key characteristics of DSSs

Supports rather than usurps the role of the decision-maker

Give flexible and interactive access to data Fragmented – DSS tend to be developed in an ad

hoc way to support the needs of particular individuals or groups

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Components of a DSS

Data Management Component Contains data that is extracted from various sources and

then entered into DSS database or entered into DSS as required

Model Management Component Contains standard and customised models used to develop

decision support applications Contains Model Base Management System that can

create DSS models easily and quickly, stores and manages different models, allows users to manipulate models thus enabling them to conduct sensitivity analyses

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Components of a DSS (Contd…)

User Interface and Users Every aspect of the communications between the

system and the user Most modern user interfaces are Web based. Users are viewed as part of the system. Typically

comprise managers and specialists

Knowledge Management Component For very complex problem situations requiring expert

knowledge, DSS may include special various expert or intelligent decision

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Group Decision Support Systems (GDSS)

“ … an interactive computer-based system to facilitate the solution of unstructured problems by a set of decision-makers working together as a group”

(Laudon and Laudon, 2001)

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Aims of GDSS

Aim is to improve the effectiveness of group meetings

Supports the exchange of ideas, opinions, information etc within the group

Early systems were designed to support face-to-face meetings; more recent systems cater for networked meetings of participants in different locations

How Can GDSS Help?

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How Can GDSS Help?

Providing group with rapid access to external and internal sources of data

Permit non-sequential discussion of issues Create instant, anonymous voting results Structure the planning process Record proceedings of meetings for future

analysis

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GDSS Components

Hardware The conference facility, i.e. room which will include electronic

display boards, audiovisual and networking equipment or GDSS facility specifically designed for electronic meetings, e.e. group-to-group video or teleconferencing

Software Usually includes ten or more tools and packages integrated into a

comprehensive system. Software includes electronic questionnaires, electronic brainstorming tools, ideas organisers, tools for voting, policy formation tools, stakeholder analysis tools

People Usually consists of group members and a facilitator Enterprise Decision Support Systems

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Enterprise Decision Support Systems

Organisational Decision Support Systems Used mainly by specialists such as planners, analysts

and researchers Used for an organisational task that involves a

sequence of operations and decision-makers, e.g constructing a marketing plan

DSS cut across organisational levels and units because it addresses corporate wide problems

Enterprise Decision Support Systems

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Enterprise Decision Support Systems (Contd…)

Executive Information System Serves the information needs of top executives Provides access to management reports, provides

exception reporting and drill down facilities, graphics and is very user-friendly

Executive Support Systems offer enhanced capabilities, including analysis, office automation, business intelligence

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Common Features of EIS

Drill down Critical Success Factors (CSFs) Trend analysis Ad hoc analysis Exception reporting

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Web-Based DSS

Many DSS are now available on the Web, making them available to anyone in the organisation who needs them

Web-based DSS can be accessed remotely, thus making them more flexible and easy to use

Facilitates development and maintenance of DSS

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Summary

Decision-making is a key part of the role of management Evidence suggests that people have limited information

processing capabilities. IT has an important role to play in providing access to information, helping decision-makers analyse information and evaluate alternatives in problem situations

DSS exist for specialists and managers at every level of the organisation

Development of Web-based DSS is making DSS an enterprise-wide facility

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Reading Cooke, S. and Slack, N. (1991) Making

Management Decisions, Prentice-Hall.Laudon, K. C. and Laudon, J. P. (2002) Management Information Systems: Managing the Digital Firm, Prentice Hall.

Simon, H. A. (1967) Administrative Behavior, The Free Press.

Turban, E. and Aronson, J. (2001) Decision Support Systems and Intelligent Systems, Prentice-Hall