How Information SupportsDecision Making
Now that you have been introduced to the basics of data, how it can be
stored, and the importance of data quality, let’s look at how data
transformed into information supports organizational decision making. In
their simplest form, information systems are all about getting the right
information in the most usable format to the right people, at the right
time and place. Advances in integrated software applications, the
internet, and better data management practices provide businesses with
better tools to support that goal.
A key competitive advantage of an organization is the ability to react to
changes quickly. Being able to make the right decision to address a
potential threat or seize an opportunity could make the difference in
whether or not the company stays in business or continues to increase
profits. The key to making good decisions is having the relevant
information readily available in the form that is needed. There are three
basic levels of decision making in an organization: operational,
managerial, and strategic as illustrated below.
Learning Resource
How Information Supports Decision Making
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Let's look at the process of creating an invoice. An invoice contains
several pieces of data, such as customer name, number, address, shipping
method, items ordered, and quantities. This data is required at an
operational level to update inventories, handle logistics, add to accounts
receivable, and so forth. At the mid‐level of our pyramid, the management
level, the data from each individual invoice are not as important as the
cumulative information that many invoices can provide. For example,
sales have increased 25% on product A, orders for product B are shipping
consistently behind schedule, and shipping costs with shipper X are
increasing more than with other shippers. With this information on trends
or patterns, management can investigate further and make decisions on
production schedules, supplier relationships, or preferred shipping
vendors.
At the senior or executive level of an organization, the company
leadership is less concerned than middle management about the trends or
patterns—their concerns are strategic. Senior management looks at
information, both from within the organization and external. For example,
suppose a key component needed in the manufacturing process is
petroleum‐based. Rising oil prices, coupled with industry forecasts that
prices will continue to rise, call for addressing this situation at a strategic
level. Senior management might consider whether a price increase can be
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justified, how much of an increase the market can bear, or whether there
are alternatives that would not degrade the product.
A primary advantage of an information system is its ability to support and
improve decision making throughout the organization by turning data into
useful information. However, the system is just a tool and does not
replace the human factor; people are still required to make the choices
involved in the decisions. Individuals at all levels of the organization can
use the information provided by the system as they make their decisions.
In the invoice example above, the creation and use of the invoice data
could all be done by hand, using paper invoices. However, the use of a
system to capture, store, and share that information throughout the
organization significantly increases the efficiency and effectiveness of the
process and makes the information immediately and readily available to
those who need it to make their decisions.
We can see that information moves through the organization and is
viewed for different purposes by different levels within the organization.
However, the data are captured at the operational level (transaction‐
processing systems) and made available in appropriate forms (summary of
product, customer, geographic distribution differences, and so on) at the
various managerial levels.
It is important to note that information can flow both up and down the
levels within an organization. Information that is useful for monitoring
("How are we doing?") typically flows from the operational level upward.
Control information ("Is business going as planned?") typically flows from
the top level downward. For example, a senior manager notes that sales
figures are declining. She queries down through the organization to find
more information to control the declining sales. From mid‐level
management, she may learn that only the Midwest region is experiencing
a decline. From the operational level, she may learn that the sales force in
that region has had significant turnover and that 40 percent of its sales
representatives have fewer than six months of experience.
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More specifically, let’s look at some examples of possible types of
information and decisions different levels of the organization based on
information from an invoice processing system based on the graphic
above.
Level
Types ofInformation
Area ofFocus orConcern
DecisionExample
SupportingInformation from theIT System
Strategic Overall sales
figures
Amount of
increase in
market
share.
Monitor
sales volume
vs. projected
sales.
Decide to
discontinue
under‐
performing
products.
The system
could
produce a
report of
products
where the
sales volume
is not
meeting the
projected
volume.
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Level
Types ofInformation
Area ofFocus orConcern
DecisionExample
SupportingInformation from theIT System
Strategic Overall Sales
Figures
Determine
manufacturi
ng capacity
requirement
s and
resource
utilization.
Identify
increasing
costs of raw
materials
due to
increased oil
prices.
Decide
whether to
reduce
production
of products
that use
significant
petroleum‐
based
ingredients.
The system
could
provide a
report on
products
that include
more than
10%
petroleum‐
based
ingredients.
Managerial Monthly
Invoices
Plan
monthly
production
schedule.
Schedule
employees.
Plan
maintenance
schedules.
Manage
inventory.
Decide to
increase
production
schedule to
meet
increased
demands on
certain
products.
The system
would
provide
product
sales volume
information
to indicate
high‐
demand
products.
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Level
Types ofInformation
Area ofFocus orConcern
DecisionExample
SupportingInformation from theIT System
Managerial Monthly
Invoices
Impact on
monthly
payroll;
overtime
hours
worked.
Decide to
increase
number of
employees
in certain
departments
to reduce
excessive
overtime.
The system
could
provide a
report
indicating
where sales
exceeded
projected
demand by
15%.
Operational Invoice Data Update
inventory,
schedule
production.
Coordinate
shipping.
Decide to
negotiate
shipping
rates with
most‐used
shippers.
The system
could
produce a
report of the
volume of
shipping
done with
each
shipping
vendor and
their
shipping
rates.
To provide a more personal example, think about the information you can
gain from your online bank account system. The system can show your
current balance, total of deposits, total of withdrawals, pending payments
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(if you use online bill paying), etc. Then based on information the system
provides, you can make more informed decisions about your budgeting
and spending. If the system showed information that last month your
total withdrawals at ATM machines had increased significantly, on
average you were hitting the ATM machine 3 or 4 times each week, and
the withdrawals averaged $50 per withdrawal, you could decide to limit
yourself to once‐a‐week ATM withdrawals of no more than $100. Further
analysis of your spending habits could show a significant amount of
money being spent daily on eating lunch out. You could then decide to
pack your lunch two days a week. This shows how you could make fact‐
based decisions supported by information from the banking information
system.
Keep in mind that information technology is simply a tool. Knowing how
to use the tool correctly is instrumental to overall effectiveness. The key
to using IT successfully is knowing what data an information system
contains and how the data can be converted into useful information to
support decision making at each level in the organization. This helps
organizations achieve their business strategy and maintain or increase its
competitive advantage.
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