Chapter 11

Improving Decision
Making and Managing
Knowledge

11.1 Copyright © 2017 Pearson Education, Inc. publishing as Prentice Hall

 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

Student Learning Objectives

• What are the different types of decisions, and

how does the decision-making process work?

• How do business intelligence and business

analytics support decision making?

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

Germany Wins the World Cup with Big Data at Its Side

11.8 Copyright © 2017 Pearson Education, Inc. publishing as Prentice Hall

 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the different types of decisions, and how does the decision-making
process work?

Business Value of Improved Decision Making

• Possible to measure value of improved decision
making.
• Decisions made at all levels of the firm.
• Some are common, routine, and numerous.
• Although value of improving any single decision
may be small, improving hundreds of thousands of
“small” decisions adds up to large annual value for
the business.

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the different types of decisions, and how does the decision-making
process work?

Types of Decisions
• Unstructured
• Decision maker must provide judgment to solve problem
• Novel, important, nonroutine
• No well-understood or agreed-upon procedure for making
them
• Structured
• Repetitive and routine
• Involve definite procedure for handling them so do not have to
be treated as new
• Semistructured
• Only part of problem has clear-cut answer provided by
accepted procedure
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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the different types of decisions, and how does the decision-making
process work?

Information Requirements of Key Decision-Making

Groups in a Firm

Senior managers,
middle managers,
operational
managers, and
employees have
different types of
decisions and
information
requirements.

Figure 11.1

11.12 Copyright © 2017 Pearson Education, Inc. publishing as Prentice Hall

 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the different types of decisions, and how does the decision-making
process work?

The Decision-Making Process

1. Intelligence
• Discovering, identifying, and understanding the problems
occurring in the organization—why is there a problem, where,
what effects it is having on the firm
2. Design
• Identifying and exploring various solutions
3. Choice
• Choosing among solution alternatives
4. Implementation
• Making chosen alternative work and monitoring how well
solution is working

11.13 Copyright © 2017 Pearson Education, Inc. publishing as Prentice Hall

 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the different types of decisions, and how does the decision-making
process work?

Stages in Decision Making

The decision-making
process can be broken
down into four stages.

Figure 11.2

11.14 Copyright © 2017 Pearson Education, Inc. publishing as Prentice Hall

 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

How do business intelligence and business analytics support decision making?

Business Intelligence and Analytics for Decision Support

Business
intelligence and
analytics requires
a strong database
foundation, a set
of analytic tools,
and an involved
management team
that can ask
intelligent
questions and
analyze data.

Figure 11.3

11.17 Copyright © 2017 Pearson Education, Inc. publishing as Prentice Hall

 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

How do business intelligence and business analytics support decision making?

Predictive Analytics
• Use statistical analytics and other techniques
• Extracts information from data and uses it to
predict future trends and behavior patterns
• Predicting responses to direct marketing campaigns
• Identifying best potential customers for credit cards
• Identify at-risk customers
• Predict how customers will respond to price changes and
new services

• Accuracies range from 65 to 90 percent

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

How do business intelligence and business analytics support decision making?

Big Data Analytics

• Predictive analytics can use the big data

generated from social media, consumer
transactions, sensor and machine output, etc.
• E.g. eBay’s Hunch.com to predict user affinities for items
not immediately obvious
• Public sector’s drive to “smart cities” to inform
decisions on:
• Utility management
• Transportation operation
• Healthcare delivery
• Public safety

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

How do business intelligence and business analytics support decision making?

Location Analytics and GIS

• Location analytics
• Big data analytics that uses location data from
mobile phones, sensors, and maps
• E.g. Helping a utility company view customer costs as
related to location

• GIS – Geographic information systems

• Help decision makers visualize problems with
mapping
• Tie location data about resources to map
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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

How do business intelligence and business analytics support decision making?

Support for Semi-Structured Decisions

• Decision-support systems (DSS)
• BI delivery platform for “super-users” who want to create
own reports, use more sophisticated analytics and models

• What-if analysis

• Sensitivity analysis

• Backward sensitivity analysis

• Pivot tables: Spreadsheet function for multidimensional

analysis

• Intensive modeling techniques

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

How do business intelligence and business analytics support decision making?

Sensitivity Analysis

This table displays the results of a sensitivity analysis of the effect of

changing the sales price of a necktie and the cost per unit on the product’s
break-even point. It answers the question, “What happens to the break-even
point if the sales price and the cost to make each unit increase or
decrease?”
Figure 11.5
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Reference: https://expertprogrammanagement.com/2018/11/break-even-analysis/
 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

How do business intelligence and business analytics support decision making?

Decision Support for Senior Management

• Executive support systems

• Balanced scorecard method
• Measures four dimensions of firm performance
• Financial
• Business process
• Customer
• Learning and growth
• Key performance indicators (KPI) used to
measure each dimension

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the business benefits of using intelligent techniques in decision

making and knowledge management?

• Intelligent techniques for enhancing decision making

• Many based on artificial intelligence (AI)
• Computer-based systems (hardware and software) that
attempt to emulate human behavior and thought
patterns
• Include:
• Expert systems
• Case-based reasoning
• Fuzzy logic
• Neural networks
• Genetic algorithms
• Intelligent agents

11.34 Copyright © 2017 Pearson Education, Inc. publishing as Prentice Hall

 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the business benefits of using intelligent techniques in decision

making and knowledge management?

• Case-based reasoning
• Knowledge and past experiences of human specialists
are represented as cases and stored in a database for
later retrieval.

• System searches for stored cases with problem

characteristics similar to new one, finds closest fit, and
applies solutions of old case to new case.

• Successful and unsuccessful applications are tagged and

linked in database.

• Used in medical diagnostic systems, customer support.

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the business benefits of using intelligent techniques in decision

making and knowledge management?

• Fuzzy logic
• Rule-based technology that represents imprecision in
categories (e.g., “cold” versus “cool”) by creating rules
that use approximate or subjective values
• Describes a particular phenomenon or process
linguistically and then represents that description in a
small number of flexible rules
• Provides solutions to problems requiring expertise that is
difficult to represent in the form of IF-THEN rules
• E.g., Sendai, Japan subway system uses fuzzy logic
controls to accelerate so smoothly that standing
passengers need not hold on
11.39 Copyright © 2017 Pearson Education, Inc. publishing as Prentice Hall
 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the business benefits of using intelligent techniques in decision

making and knowledge management?

• Neural networks
• Use hardware and software that parallel the processing
patterns of a biological brain.

• “Learn” patterns from large quantities of data by searching

for relationships, building models, and correcting over and
over again the model’s own mistakes.

• Humans “train” the network by feeding it data for which the

inputs produce a known set of outputs or conclusions.

• Machine learning

• Useful for solving complex, poorly understood problems for

which large amounts of data have been collected.
11.41 Copyright © 2017 Pearson Education, Inc. publishing as Prentice Hall
 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the business benefits of using intelligent techniques in decision

making and knowledge management?

Knowledge Management
• Business processes developed for creating,
storing, transferring, and applying knowledge
• Increases the ability of organization to learn
from environment and to incorporate knowledge
into business processes and decision making
• Knowing how to do things effectively and
efficiently in ways that other organizations
cannot duplicate is major source of profit and
competitive advantage

11.48 Copyright © 2017 Pearson Education, Inc. publishing as Prentice Hall

 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the business benefits of using intelligent techniques in decision

making and knowledge management?

Enterprise-Wide Knowledge Management Systems

• Three kinds of knowledge
• Structured: structured text documents
• Semistructured: e-mail, voice mail, digital pictures, etc.
• Tacit knowledge (unstructured): knowledge residing in heads
of employees, rarely written down

• Enterprise-wide knowledge management systems

• Deal with all three types of knowledge
• General-purpose, firm-wide systems that collect, store,
distribute, and apply digital content and knowledge

11.49 Copyright © 2017 Pearson Education, Inc. publishing as Prentice Hall

 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What types of systems are used for enterprise-wide knowledge management

and knowledge work, and how do they provide value for businesses?

An Enterprise Content Management System

An enterprise content management

system has capabilities for classifying,
organizing, and managing structured
and semistructured knowledge and
making it available throughout the
enterprise.
Figure 11.14
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