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A presentation on

MIS & DECISION MAKING


Submitted by Arjyajyoti Goswami 02/ PRD/10 Submitted to Dr. Vipin Kumar

MANAGEMANT INFORMATION SYSTEM


MIS refers broadly to a computer-based system that provides managers with the tools for organizing, evaluating and efficiently running their departments

Management Information System (M.I.S.) is basically concerned with processing data into information, which is then communicated to the various departments in an organization for appropriate decision-making

PLANNING: Goal setting Environmental scanning Forecasting Data collection MANAGEMENT is the task of DIRECTING: Authority Motivating Delegation of Responsibilities Supervising Negotiation Persuading CONTROLLING: Resources Measuring Evaluating Reporting corrective action

ORGANISING: Staffing Coordinating Delegating Understanding Procedures/ Policies

COMMUNICATING: Goals/Objectives Informing Persuading Negotiation Corrective action Listening

INFORMATION
Information is data that has been processed into a form that is meaningful to the recipient (USER) and is of real or perceived value in current or prospective actions or decisions CHARACTERISTICS OF INFORMATION: meaningful perceived value motivating action Presented facts business based (Domain based) transformed form data The value of information is the value of the change in decision behavior caused by the information, minus the cost of the information. If it does not change decisions to the better, it may have no value

SYSTEM
An orderly arrangement of interdependent ideas or constructs A set of elements which operate together to accomplish an objective MAIN PARAMETERS OF A SYSTEM: Effectiveness: the extent to which a systems achieves its objectives Efficiency: consumption of inputs relative to outputs Usability: the ability of the user to use the system Satisfaction: A subjective measure of "like" or usability or effectiveness General Model of a System: Input, process and output

A System and its Subsystems


Environment System Interconnection System Boundary

Inputs

Outputs

Objectives

Subsystems (components) Constraints

SYSTEM INTERDEPENDENCE
INTERDEPENDENCE
HARDWARE

BUSINESS Strategy Rules Procedure


ORGANIZATION

SOFTWARE

DATABASE

TELETELECOMMUNICATIONS INFORMATION SYSTEM

THE CONCEPT OF MIS

Objectives of MIS
To provide relevant information at the right place at right time at right cost To keep the information up-to-date To store information in an orderly manner so that it can be used in decision making whenever required To condense and summarize the data collected at lower level so as to make it suitable to be used by higher level managers To have a clear interpretation of past experience To reduce uncertainty in decision making Helps in screening the relevant information form the irrelevant ones so as to prevent confusion

MANAGEMENT INFORMATION CATEGORIES


EXTERNAL INFORMATION: These corresponds to the information which is obtained from outside the organization and plays a major part in shaping the decision process. Strategic planning information/ environmental information These includes the information related to the political, social and environmental conditions in which the organization is expected to operate in the future. It may include population, customer needs, labour and raw material availability, govt policy, political atmosphere etc This information are required to decide the major policies and objectives of the business.

Competitive information Includes information about the competitors, their share in the market, their future plans, past performance and current activities. It helps in shaping the policy to withstand the competition, survival and growth. INTERNAL INFORMATION: It represents the data to identify the strengths and weakness of the enterprises so that the future plans for the organization may be mapped out efficiently and effectively. These data are collected from with in the organization. Management control information: It enables the managers to have efficient and effective utilization of the available resources in the meeting the organizational objectives

Operational information : Operational information pertains to day to day activities of the organization. It helps to ensure that the specific tasks are performed effectively and efficiently. It also includes the production of routing and necessary information such as financial accounting, pay rolls, equipment inventories and logistics. Operational information can be clearly defined and easily converted to series of instructions, whereas strategic information is difficult to define and convert into series of information It is to be noted that in decision making all types of information are incorporated and cumulative assessment of the situation is done to make the best possible decision

ADVANTAGES
Completeness : MIS gives the decision maker, all the elements needed for making the decision as well as all the alternatives Clarity and conciseness : information is presented clearly and concisely Consistency: even the information gathered by different persons are identical and thus MIS helps in avoiding confusion Predictive ability : helps in identifying the problem areas before their actual occurrence Effective: it helps in decision making and taking of the corrective action effectively and timely. Helps in fulfilling the needs of the organization. MIS helps in condensing and summarizing the data obtained at lower levels of the organization so that it is easily utilized by the higher levels of the organization

REASON FOR POSSIBLE FAILURE OF M.I.S


MIS systems are complex and expensive and many people are involved with the design both within the organisation and from outside. Often they are built by software houses to the precise requirements of the organisation. So the client organisation needs to be very clear as to what it wants, and the software house analysts need also to be very clear about the requirements. MIS failure can arise due to: Inadequate analysis - problems, needs and constraints arent understood in the early stages. Lack of management involved in the design wrong expectations of a new system / no-one understands the system.

Emphasis on the computer system Need procedures for handling input and output / select the right hardware and software Lack of teamwork A manager must co-ordinate the accounts, marketing, sales etc. departments and help everyone understand the benefits of the system Lack of professional standards All systems need clear documentation that all users can understand MIS failures can be expensive and bring bad publicity to all parties.

Organisations can judge how successful the implementation of an MIS system has been by applying the following evaluations: High level of use - Is it actually used? Some systems dont become operational for reasons such as it taking too long to enter data. High level of user satisfaction - Do users like the systems? Accomplishment of original objectives - Have the objectives specified been achieved? Appropriate nature of use - Is the software being correctly used? Has proper training been given? Institutionalization of the system - Has it been taken on board enthusiastically?

APPLICATION
With computers being as ubiquitous as they are today, there's hardly any large business that does not rely extensively on their IT systems. 1. STRATEGY SUPPORT: While computers cannot create business strategies by themselves they can assist management in understanding the effects of their strategies, and help enable effective decision-making MIS systems can also use these raw data to run simulations hypothetical scenarios that answer a range of what if questions regarding alterations in strategy. These Decision Support Systems (DSS) enable more informed decision making within an enterprise than would be possible without MIS systems

2. DATA PROCESSING: MIS systems provide a valuable function by condensing unmanageable volumes of data in coherent reports that would otherwise be broadly useless to decision makers. By studying these reports decision-makers can identify patterns and trends that would have remained unseen if the raw data were consulted manually. It saves lot of time and effort and makes the process effective and accurate M.I.S is an ultimate requirement to carry out different managerial functions like MARKET STUDY, INVENTORY MANAGEMNT, FORECASTING, SCHEDULING, RESOURCE ALLOCATION, NECESSARY CONTROL OVER THE DAY-TO-DAY DAY-TOOPERATIONS

DECISION MAKING

Decision-making is the process of identifying and selecting from among possible solutions to a problem according to the demands of the situation. Although the terms "problem-solving" and "decision-making" are sometimes used interchangeably, management literature makes a clear distinction between the two. Problem-solving is a larger process that starts with the identification of a problem and ends with an evaluation of the effectiveness of the chosen solution. Decision-making is a subset of the problem-solving process and refers only to the process of identifying alternative solutions and choosing from among them

ELEMENTS OF DECISION MAKING


The decision maker The decision problem The environment in which the decision is to be made The objectives of the decision maker The alternative courses of action The outcomes expected from various alternatives The final choice of the alternative

CHARACTERISTICS OF DECISION MAKING


It is a process of choosing a course of action from among the alternative courses of action It is a human process involving to a great extent the application of intellectual abilities It is the end process preceded by deliberation and reasoning. It is always related to the environment. A manager may take one decision in a particular set of circumstances and another in a different set of circumstances It always has a purpose. Keeping this in view, there may just be a decision not to decide.

PROCEDURE
The decision making process starts when the problem has been already identified and analysed

1. Developing alternatives Alternatives exist for every decision problem. Effective planning involves a search for the alternatives towards the desired goal. It should also be noted that development of alternatives is no guarantee of finding the best possible decision, but it certainly helps in weighing one alternative against others and, thus, minimizing uncertainties.

The development of alternatives, if thorough, will often unearth so many choices that the manager cannot possibly consider them all. He will have to take the help of certain mathematical techniques and electronic computers to make a choice among the alternatives 2. Review of key factors A limiting factor is , which stands in the way of accomplishing the desired goal. It is a key factor in decision-making. If such factors are properly identified, manager can confine his search for alternative to those, which will overcome the limiting factors. In choosing from among alternatives, the more an individual can recognize those factors which are limiting or critical to the attainment of the desired goal, the more clearly and accurately he or she can select the most favorable alternatives

3. Selecting the best alternative in order to make the final choice of the best alternative, one will have to evaluate all the possible alternatives. There are various ways to evaluate alternatives , most common being through intuition. Peter Drucker has laid down four criteria in order to weigh the consequences of various alternatives: 1. Risk: a manager should weigh the risks of each course of action against the expected gains 2. Economy of effort : The decision to be chosen should ensure the maxm. possible economy of efforts, money and time 3. Situation or timing 4. Limitation of resources : in choosing among the alternatives, primary attention must be given to those factors that are limiting or strategic to the decision involved

CLASSIFICATION
1. DECISION MAKING UNDER CERTAINITY: the decision maker has knowledge about all possible outcomes of a particular decision. Thus it is the easiest form of decision making and allows to pick the decision yielding the highest payoff.

2. DECISION MAKING UNDER RISK: In this the decision maker do not have complete knowledge about the nature of outcome from a particular decision. This is because it is not known which outcome will occur, rather the probability of outcome resulting from a particular strategy is known

EXPECTED MONETRAY VALUE: It is the weighted sum of possible payoffs for each alternatives. The EMV is the long run average value that would be obtained if the decision is repeated a large number of times Steps for using EMV method 1. Construct a payoff matrix listing all possible courses of action and states of nature. Enter the conditional payoffs corrs. to each combination of course of action and states of nature. Also enter the probabilities of occurrence of each state of nature 2. Calculate EMV for each course of action by multiplying the conditional payoffs by the associated probabilities and adding the weighted values for each course of action 3. select the course of action that yields the optimal EMV.

STATES OF NATURE S1

PROBABI A1 LITIES 0.1 0

A2

A3

A4

-30

-60

-90

S2

0.2

10

-20

-50

S3

0.3

10

20

-10

S4

0.4

10

20

30

EMV

-10

CHOOSE A2

EXPECTED OPPURTUNITY LOSS: It is an alternative decision making process for decision making under risk and yields the same results as thopse obtained by EMV Steps for EOL 1. Prepare a conditional profit table along with the associated probabilities 2. For each state of nature calculate the conditional opportunity loss COL values by subtracting each payoff form maximum payoff for that outcome 3. Calculate EOL for each course of action by multiplying the probability for each state of nature with the COL value and then adding the value 4. Select the course of action with the lowest EOL value

OPPURTUNITY LOSS TABLE


STATES OF NATURE S1 PROBABI A1 LITIES 0.1 0 A2 A3 A4

30

60

90

S2

0.2

10

30

60

S3

0.3

20

10

30

S4

0.4

30

20

10

EOL

20

14

16

30

CHOOSE A2 SINCE IT HAS MINIMUM LOSS

EXPECTED VALUE OF PERFECT INFORMATION: It is the maximum amount of money the decision maker has to pay in order to get additional information about the occurrence of various states of nature before a decision has to be made. Steps for finding EVPI: 1. Find the optimal course of action using EMV 2. Then find EPPI, by choosing optimal course of action for each state of nature and multiplying it conditional profit by the given probability to get weighted profit. And then adding these weights. 3. EVPI = EPPI EMV ( of the selected strategy) The EVPI helps to get an absolute upper bound on the amount that should be spent to get additional information on which a decision is to be based.

STAT ES OF NAT URE S1 S2 S3 S4

PRO A1 BABI LITIE S 0.1 0.2 0.3 0.4 0 0 0 0

A2

A3

A4

PROBABILITY OF A PARTICULAR STATE OF NATURE X BEST OUTCOME FOR THT STATE OF NATURE 0.1 X 0 = 0 0.2 X 10= 2 0.3 X 20 = 6 0.4 X 30 =12

-30 10 10 10

-60 -20 20 20

-90 -50 -10 30

EPPI = 0+ 2 + 6+ 12 = 20 Max EMV = 6 Therrfore, EVPI = 20-6 =14

DECISION MAKING UNDER UNCERTAINITY: In the absence of knowledge about probabilities of any state of nature occurring the decision maker must arrive at a decision only on the actual conditional pay off values, together with a policy.

The different policies for making decision under uncertainities are listed below: 1. Optimism criterion 2. Pessimism criterion 3. La place criterion 4. Hurweiz criterion 5. Regret criterion

Optimism criterion The decision maker selects an alternative with largest possible pay off value. 1. Locate the maximum ( or minimum) payoff values corresponding to each course of action 2. Select the strategy with best anticipated payoff value ( maximum for profit minimum for cost) Pessimism criterion: Decision maker is conservative about the future and always anticipates the worst possible outcome and tries to make the best decision anticipating the worst 1. Locate minimum payoff value 2. Select the best strategy form the minimum payoff

A1

A2

A3

A4

S1

-30

-60

-90

S2

10

-20

-50

S3

10

20

10

S4

10

20

30

maximax Maximin

10 -30

20 -60

30
-90

La place criterion: 1. Assign equal probability value for each state of outcome 2. Compute the expected payoff for each course of action by adding all the payoffs and dividing by the number of possible states of nature 3. Select the best expected payoff ( maximum for profit minimum for cost) Regret criterion: 1.Develop an opportunity loss matrix from given payoff matrix 2.For each course of action identify the worst or maximum regret value. Record this number in a new row. 3. Select the course of action with the smallest anticipated opportunity loss value.

STATES OF NATURE S1

PROBABI A1 LITIES 0.25 0

A2

A3

A4

-30

-60

-90

S2

0.25

10

-20

-50

S3

0.25

10

20

-10

S4

0.25

10

20

30

EMV

-10

-10

Choose either A1 or A2

Hurwicz criterion: This criterion suggests that a rational decision maker should neither be completely optimistic nor completely pessimistic, but he should be a mixture of both. Hurwicz introduced the concept of co efficient of optimism . 1. Decide the co efficient of optimism . And then find the co efficient of pessimism 12. For each alternative select the largest and lowest pay off value and multiply those with and 1- respectively. Then calculate the weighted average as H= ( maximum in strategy) + (1- ) ( minimum in strategy)

3. Select an alternative with best anticipated weighted average payoff value

Choosing

= 0.6

D (A1) = 0.6 X 0 + [ {1-0.6} X 0] = 0 D (A1) = 0.6 X 10 + [ {1-0.6} X -30] = -6 D (A1) = 0.6 X 20 + [ {1-0.6} X -60] = -12 D (A1) = 0.6 X 30 + [ {1-0.6} X -90] = -18

Since the given table was payoff table. We choose A1 as it gives the best payoff.

REFERENCES
Industrial Engineering and Production Management by R. Mahajan, Dhanpat Rai Publications, reprint 2007, pg 134-144 www.diacritech.com/samples/interior_design/Computer4color.pdf urbanindia.nic.in/publicinfo/swm/chap23.pdf www.acadjournal.com/Management_Information_System.PDF www.webopedia.com/TERM/M/MIS.html www.mcis.wetpaint.com/Different+Types+of+Management+Info+System s.html www.fao.org/docrep/w5830E/w5830e0k.htm www.mindtools.com/pages/main/newMN_TED.htm www.decisionmaking.org/ www.thinkingmanagers.com/business/decision-making.php