Cost and Value of Information  and Decision Making
COST & VALUE OF INFORMATION <ul><ul><li>VALUE OF CHANGE IN DECISION BEHAVIOUR CAUSED BY THE INFORMATION LESS THE COST ACTU...
<ul><li>A – Data Collection Period </li></ul><ul><li>B – Current Period </li></ul><ul><li>C – Planning Period </li></ul>Ti...
Value Cost Increasing Time Lag Cost/value of information
<ul><li>Gap between A&B increases, decision making becomes more and more difficult. Cost and value both go down. </li></ul...
Level of Detail Cost of Acquiring Information
Cost of Information <ul><li>CAPITAL COSTS </li></ul><ul><ul><ul><li>Buildings, Installation, Organization. Analysis, Desig...
Types of Decisions <ul><li>PROGRAMMEABLE </li></ul><ul><li>Repetitive & Routine </li></ul><ul><li>Procedural, Decision rul...
Types of Decisions <ul><li>NON-PROGRAMMEABLE : </li></ul><ul><li>Occasional – once in a life time </li></ul><ul><li>One-sh...
Simon’s Rational Decision Making Model <ul><li>Intelligence </li></ul><ul><ul><li>Involves gathering information from exte...
TYPES OF OUTCOME STAGES <ul><li>CERTAINTY-TPS </li></ul><ul><ul><ul><ul><li>Complete, accurate knowledge of each alternati...
AUTOMATED  DECISION INFORMATION TO DECISION MAKER PROCESSOR Process Information in accordance with pre-determined DECISION...
Sales Forecasts Inventory Costs & Limits Customer Service Standards Procurement Lead Times, Costs Manufacturing Lead Times...
Types of Decisions <ul><li>Decisions made individually </li></ul><ul><ul><li>Decision Support Systems </li></ul></ul><ul><...
Group Decision Making <ul><li>Group Decision Support Systems (GDSS)  are designed to assist in group decisions. </li></ul>...
Strategic Planning <ul><li>Executive Support Systems (ESS): designed to support the information needs of top-level managem...
Types of Problems <ul><li>Controlling / Monitoring everyday business operations (highly structured problems) </li></ul><ul...
IS to Improve Decision Making <ul><li>Controlling/Monitoring: </li></ul><ul><ul><li>Transactional processing systems (TPS)...
IS to Improve Decision Making <ul><li>Automating Structured Problems </li></ul><ul><ul><li>A structure decision situation ...
IS to Improve Decision Making <ul><li>Management Science has evolved to bring more structure to  unstructured decision mak...
Mis 002
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Mis 002

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Mis 002

  1. 1. Cost and Value of Information and Decision Making
  2. 2. COST & VALUE OF INFORMATION <ul><ul><li>VALUE OF CHANGE IN DECISION BEHAVIOUR CAUSED BY THE INFORMATION LESS THE COST ACTUALLY PAID FOR THE INFORMATION </li></ul></ul><ul><ul><ul><li>If the added information does not change the value of the decision, do not pay for it. </li></ul></ul></ul><ul><ul><ul><li>Any information that changes the decision has got a value. </li></ul></ul></ul><ul><ul><ul><li>We cannot find absolute values, only approximations can be made. </li></ul></ul></ul>
  3. 3. <ul><li>A – Data Collection Period </li></ul><ul><li>B – Current Period </li></ul><ul><li>C – Planning Period </li></ul>Time A B C PERFORMANCE
  4. 4. Value Cost Increasing Time Lag Cost/value of information
  5. 5. <ul><li>Gap between A&B increases, decision making becomes more and more difficult. Cost and value both go down. </li></ul><ul><li>A and B coincide means as and when information is collected, it is processed and decision is taken. </li></ul>
  6. 6. Level of Detail Cost of Acquiring Information
  7. 7. Cost of Information <ul><li>CAPITAL COSTS </li></ul><ul><ul><ul><li>Buildings, Installation, Organization. Analysis, Design, Development, Testing, Training, and Implementation. </li></ul></ul></ul><ul><li>OPERATING COSTS </li></ul><ul><ul><ul><li>Data Collection, Storage, Retrieval, H/W, S/W Maintenance, Communications, Supplies, Personnel, and Overheads. </li></ul></ul></ul>
  8. 8. Types of Decisions <ul><li>PROGRAMMEABLE </li></ul><ul><li>Repetitive & Routine </li></ul><ul><li>Procedural, Decision rule based </li></ul><ul><li>Can be delegated </li></ul><ul><li>Have short term impact </li></ul><ul><li>Data requirements are known </li></ul><ul><li>Mostly internal data </li></ul><ul><li>Structured DM process </li></ul>
  9. 9. Types of Decisions <ul><li>NON-PROGRAMMEABLE : </li></ul><ul><li>Occasional – once in a life time </li></ul><ul><li>One-shot, Ill-structured </li></ul><ul><li>Judgement, intuition based </li></ul><ul><li>No rules, hunch based </li></ul><ul><li>Cannot be delegated </li></ul><ul><li>Long term impact </li></ul><ul><li>Unknown data requirements </li></ul><ul><li>Mostly use external information </li></ul>
  10. 10. Simon’s Rational Decision Making Model <ul><li>Intelligence </li></ul><ul><ul><li>Involves gathering information from external and internal sources. </li></ul></ul><ul><ul><ul><ul><li>MIS SHOULD PROVIDE THESE CAPABILITIES </li></ul></ul></ul></ul><ul><li>Design </li></ul><ul><ul><li>Involves generating alternative decisions. </li></ul></ul><ul><ul><ul><ul><li>MIS SHOULD PROVIDE DECISION MODELS AND PROCESS DATA FOR ALTERNATE SOLUTIONS. MODELS FOR ASSISTANCE IN DECISION ANALYSIS </li></ul></ul></ul></ul><ul><li>Choice </li></ul><ul><ul><li>Involves selecting one of the alternatives. </li></ul></ul><ul><ul><ul><ul><li>MIS SHOULD PRESENT THE RESULTS IN DECISION IMPELLING FORMAT. </li></ul></ul></ul></ul><ul><li>Implementation </li></ul><ul><ul><li>Alternative is put into action. </li></ul></ul><ul><ul><ul><ul><li>ROLE OF MIS SHOULD CHANGE ON IMPLEMENTATION TO COLLECT DATA FOR FEED BACK AND CORRECTIVE ACTION </li></ul></ul></ul></ul>
  11. 11. TYPES OF OUTCOME STAGES <ul><li>CERTAINTY-TPS </li></ul><ul><ul><ul><ul><li>Complete, accurate knowledge of each alternative </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Only one outcome for each alternative </li></ul></ul></ul></ul><ul><li>RISK-MIS </li></ul><ul><ul><ul><ul><li>Multiple possible outcomes of each alternative can be identified </li></ul></ul></ul></ul><ul><ul><ul><ul><li>A probability of occurrence can be attached </li></ul></ul></ul></ul><ul><li>UNCERTAINTY-DSS </li></ul><ul><ul><ul><ul><li>Multiple outcomes for each alternative can be identified </li></ul></ul></ul></ul><ul><ul><ul><ul><li>There is no knowledge of probability </li></ul></ul></ul></ul>
  12. 12. AUTOMATED DECISION INFORMATION TO DECISION MAKER PROCESSOR Process Information in accordance with pre-determined DECISION RULES DATA BASE
  13. 13. Sales Forecasts Inventory Costs & Limits Customer Service Standards Procurement Lead Times, Costs Manufacturing Lead Times, Costs Transformation Lead Times, Costs Warehousing Lead Times, Costs Decision Rules Distribution Management System DATA BASE PROCESSO R INPUTS OUTPUTS <ul><ul><li>Procurement & Vendor Schedules $ Mgmt. Reports </li></ul></ul><ul><ul><li>Raw Materials & Warehousing Schedules $ Program Evaluation </li></ul></ul><ul><ul><li>Production Schedules Data </li></ul></ul><ul><ul><li>Shipping Schedules $ Statistical Reports </li></ul></ul><ul><ul><li>Finished Goods Warehousing Schedules $ Research for future </li></ul></ul><ul><ul><li>Etc. </li></ul></ul>DISTRIBUTION DECISIONS OTHER MGMT. REPORTS
  14. 14. Types of Decisions <ul><li>Decisions made individually </li></ul><ul><ul><li>Decision Support Systems </li></ul></ul><ul><li>Decisions made as part of a group </li></ul><ul><ul><li>Group Decision Support Systems </li></ul></ul>
  15. 15. Group Decision Making <ul><li>Group Decision Support Systems (GDSS) are designed to assist in group decisions. </li></ul><ul><ul><li>Groupware </li></ul></ul><ul><ul><li>Collaborative Software </li></ul></ul><ul><ul><li>Electronic Brainstorming </li></ul></ul>
  16. 16. Strategic Planning <ul><li>Executive Support Systems (ESS): designed to support the information needs of top-level management. </li></ul><ul><ul><li>Systems cut across functional areas of the organization. </li></ul></ul><ul><ul><li>Interfaces and commands typically very easy to learn. </li></ul></ul><ul><ul><li>Capability to browse through information on all aspects of the organization – with the ability to “drill-down” many levels. </li></ul></ul>
  17. 17. Types of Problems <ul><li>Controlling / Monitoring everyday business operations (highly structured problems) </li></ul><ul><li>More complex problems – partially structured or unstructured </li></ul><ul><li>Problems related to a specific domain – replicate knowledge of an expert </li></ul><ul><li>Problems related to a specific organization – capture organizational knowledge for re-use </li></ul><ul><li>Executive (Strategic) level problems </li></ul>
  18. 18. IS to Improve Decision Making <ul><li>Controlling/Monitoring: </li></ul><ul><ul><li>Transactional processing systems (TPS) used extensively in this process </li></ul></ul><ul><ul><li>Management Information Systems (MIS) </li></ul></ul><ul><ul><ul><li>Systems used to convert data recorded by a TPS into management reports </li></ul></ul></ul><ul><ul><ul><li>Reports are in standard format </li></ul></ul></ul>
  19. 19. IS to Improve Decision Making <ul><li>Automating Structured Problems </li></ul><ul><ul><li>A structure decision situation is where the inputs, processing, and outputs are all well known </li></ul></ul><ul><ul><li>Situations that are highly structured can be automated </li></ul></ul><ul><ul><li>Information systems can help streamline the internal operations of an organization </li></ul></ul>
  20. 20. IS to Improve Decision Making <ul><li>Management Science has evolved to bring more structure to unstructured decision making situations </li></ul><ul><ul><li>Based on mathematical models </li></ul></ul><ul><ul><li>Statistical analysis </li></ul></ul><ul><li>Decision support systems (DSS) are used to describe information systems that address unstructured decision situations </li></ul>

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