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Using Information to Make Decisions

The Decision Making Process
We have suggested that one important role of information systems is to support
decision making. How do people make decisions?
1: Problem Finding and Solving
We must be aware of a problem before we can make a decision. A problem exists
when the decision maker's ideal situation differs from reality, for example, when
sales are below expectations. This example corresponds to something we call disturbance handling; the manager discovers a discrepancy between the ideal model and reality, and attempts to find some way to eliminate the discrepancy.
2: What caused it?
After noting the existence of a problem, the decision maker must decide what
caused it. Are inventories up? Is the advertising budget too low? After determining the cause or causes, the decision maker tries to solve the problem by developing some program to remedy the situation.
3. What else could we be doing at the present time?
There is also another type of problem finding activity undertaken by the manager who is looking for improvement projects. In this sense, the problem can be defined by asking, "What else could we be doing at the present time?" The manager is trying to anticipate problems and plan for them.

The Decision Making Process
The tremendous amount of information available in corporate databanks or
data warehouses combined with the vast information resources of the World
Wide Web on the Internet make problem finding an extremely important managerial activity.
You must learn how to discover that a problem exists and then use the variety of resources available through computers and networks to locate data. You will use the data to both understand the problem and develop a solution for it.



Types of Decisions
Not all decisions are alike; some involve different levels of the organization and
some are more important than others. There are three broad categories of decisions made in organizations.
ONE Strategic Planning
Strategic Planning In strategic planning the decision maker develops objectives
and allocates resources to obtain them. Decisions in this category are characterized
by long time periods and usually involve a substantial investment and effort. The development and introduction of a new product is an example of a strategic decision.
TWO Managerial Control
Decisions involving managerial control concern the use of resources in the organization and often include personnel or financial problems. For example, an accountant may try to determine the reason for a difference between actual and budgeted costs.
THREE Operational Control
An operational control decision covers the day-to-day problems that affect the operation of the firm: What should be produced today in the factory? What items should be ordered for inventory?
Top managers in the organization spend more time on strategic decision making than supervisors, and supervisors would be more concerned with operational decisions.


Stages in the Decision Making Process
CIRCULAR ARROWS
In finding and solving a problem, the decision maker faces myriad decision cycles.
What is the problem?
What is its cause?
What additional data are needed?
How should the solution be implemented??
Each of these major steps in solving a problem involves the solution of sub problems.


Stages in the Decision Making Process
The Nobel laureate, Herbert Simon (1965), suggests a series of descriptive
stages for decision making to help understand the decision process.
Stage One
The first stage is defined as intelligence, which determines that a problem exists. The decision maker must become aware of a problem and gather data about it. We have described this stage as problem finding or identification.
Stage Two
During the design stage, the problem solver tries to develop a set of alternative
solutions. The problem solver asks what approaches are available to solve the problem and evaluates each one.
Stage Three
In the choice stage, the decision maker selects one of the solutions. If all the alternatives are evaluated well, the choice stage is usually the simplest one to execute.
Stage Four
The implementation stage is the fourth stage, in which we ensure that the solution is carried out.
Click here to access a more elaborate model of the decision-making process


How do Individuals make Decisions?
First, a decision maker must recognize that a decision needs to be made. Although this observation probably sounds obvious, there have been many examples of individuals who ignored the need for decisions.
Next the decision maker must identify alternatives, a process similar to the design
stage in Simon's model of decision making. For routine or repetitive decisions,
the decision maker may be able to simply choose the usual action. When
sales of a particular product are up, there may be a standard rule that says to reorder a certain quantity of new products for every increase of one hundred units in sales. Most of the time, however, the decision maker will have to evaluate the alternatives identified in the previous step.
The decision maker must rate the alternatives on some basis; he or she
then chooses the most attractive (or in some cases the least unattractive) alternative.
If the situation is hopeless, the decision maker may abandon the problem. In most organizational settings, this last course of action is not acceptable or is certainly not encouraged.

How do Individuals make Decisions?
Once the decision maker has made a choice, it is necessary to implement it, that
is, to effect the choice. Many managers and leaders have been faulted, not because
they made bad decisions, but because they failed to take the action necessary to
implement them.
Implementation is often difficult for managers because they have to act through others. The individuals charged with implementation may not be committed to the decision or may have reasons to subvert it.
Making a decision can be a complex undertaking; however, decisions are what
determine the direction of our lives and our organizations. Information systems,
among other roles, help provide information for decision making.


The Influence of The Organization on Decision Making
We have been discussing how individuals make decisions. In most organizations,
groups of individuals are involved in making decisions. How does this group finally reach a consensus and make a decision that commits the entire firm?
We all have observed different organizations in action and wondered how decisions
are made. There are a number of ways to classify organizations.
ONE: The Bureaucracy
Most universities, government agencies, and many large organizations fall into this category. Bureaucracies are characterized by a large number of management layers. There are many rules and procedures to protect individuals; if you follow the procedures, how can you be wrong? Bureaucracies try to survive and to minimize uncertainty; members of these organizations stress job security. We would expect decisions in bureaucracies to be conservative and require modest changes to existing procedures.
TWO: The Charismatic Organization
The charismatic organization is dominated by a strong leader. This individual
sets the goals of the firm and tends to make all decisions. His or her decisions are
hard to predict because this kind of leader often does not reveal plans to the rest of
the organization. It is safe to say that the leader is likely to make the decision that
subordinates then execute.
THREE: The Adaptive Organization
The adaptive organization tries to respond quickly to its environment. The organization stresses rapid response times and does not have a large number of layers of management. A small group of decision makers analyse data and come to
decisions quickly.

The Influence of The Organization
Although there are many other types of organizations, our main point is that
individuals usually make decisions in the context of some organization. It is
clear that most decisions are not entirely rational as advocated by an economist.
People are not always able to examine all alternatives and choose a course that
maximizes the value of some outcome. The nature of the organization will influence
the decision and the kind of information that people making the decision
require.


Implications for Management
Information is a tricky substance. You can give it away and still keep it for yourself.
If someone already knows the information, giving it to them again does not provide
any benefits.
The same information can have widely differing impacts on different
people.
Countries with advanced economies more and more use information to add
value to products and services.
As a manager you will work in an information-rich
environment and you will use and communicate information in a variety of ways.
Try to keep in mind the unusual characteristics of information, especially the factors
that influence how different people come up with radically different interpretations
of the same information.
If you can turn information into knowledge, you should be
able to use the knowledge as a strategic resource for competitive purposes.