Baltzan Chapter 2: Decisions and Processes

MAKING ORGANIZATIONAL BUSINESS DECISIONS

Managerial decision-making challenges

• Analyze large amounts of information

• Apply sophisticated analysis techniques

• Make decisions quickly

The six-step decision-making process

1. Problem identification

2. Data collection

3. Solution generation

4. Solution test

5. Solution selection

6. Solution implementation

Problem identification (decision-making process)

Define the problem as clearly and precisely as possible

Data Collection (decision-making process)

Gather problem-related data, including who, what, where, when, why, and how. Be sure to gather facts, not rumors or opinions about the problem.

Solution Generation (decision-making process)

Detail every solution possible, including ideas that seem farfetched.

Solution Test (decision-making process)

Evaluate solutions in terms of feasibility (can it be completed?), suitability (s it a permanent or a temporary fix?), and acceptability (can all participants form a consensus?)

Solution Selection (decision-making process)

Select the solution that best solves the problem and meets the needs of the business.

Solution Implementation (decision-making process)

If the solution solves the problem, then the decisions made were correct. If not, then the decisions were incorrect and the process begins again.

DECISION-MAKING ESSENTIALS

Decision-making and problem-solving occur at each level in an organization:

1.) Strategic

2.) Managerial

3.) Operational

DECISION-MAKING ESSENTIALS

• Operational decision making

• Structured decisions

• Managerial decision making

• Semistructured decisions

• Strategic decision making

• Unstructured decisions

Operational decision making (DECISION-MAKING ESSENTIALS)

Employees develop, control, and maintain core business activities required to run the day-to-day operations

Structured decisions (DECISION-MAKING ESSENTIALS)

Situations where established processes offer potential solutions

Managerial decision making (DECISION-MAKING ESSENTIALS)

Employees evaluate company operations to identify, adapt to, and leverage change

Semistructured decisions (DECISION-MAKING ESSENTIALS)

Occur in situations in which a few established processes help to evaluate potential solutions, but not enough to lead to a definite recommended decision

Strategic decision making (DECISION-MAKING ESSENTIALS)

Managers develop overall strategies, goals, and objectives

Unstructured decisions (DECISION-MAKING ESSENTIALS)

Occurs in situations in which no procedures or rules exist to guide decision makers toward the correct choice

Project

A temporary activity a company undertakes to create a unique product, service, or result

Metrics

Measurements that evaluate results to determine whether a project is meeting its goals

Critical Success Factors / Crucial success factors

Crucial steps companies perform to achieve their goals and objectives and implement their strategies

• Create high-quality products

• Retain competitive advantages

• Reduce product costs

• Increase customer satisfaction

• Hire and retain the best business professionals

Key performance indicators

- Quantifiable metrics a company uses to evaluate progress toward critical success factors

- The quantifiable metrics a company uses to evaluate progress toward critical success factors

• Turnover rates of employees

• Percentage of help desk calls answered in the first minute

• Number of product returns

• Number of new customers

• Average customer spending

External KPI

• Market share – The portion of the market that a firm captures (external)

Internal KPI

• Return on investment (ROI) – Indicates the earning power of a project

Efficiency MIS metric

Measures the performance of the MIS system itself including throughput, speed, and availability

Effectiveness MIS metric

Measures the impact MIS has on business processes and activities including customer satisfaction, conversion rates, and sell-through increases

THE INTERRELATIONSHIP BETWEEN EFFICIENCY AND EFFECTIVENESS METRICS

Ideal operation occurs in the upper right corner

Benchmarks

Baseline values the system seeks to attain

Benchmarking

A process of continuously measuring system results, comparing those results to optimal system performance (benchmark values), and identifying steps and procedures to improve system performance

Model

• A simplified representation or abstraction of reality

• Models help managers to:

  • Calculate risks

  • Understand uncertainty

  • Change variables

  • Manipulate time to make decisions

Types of Decision Making MIS Systems

1.) Executive Information System

2.) Decision Support Systems
3.) Transaction Processing System

OPERATIONAL SUPPORT SYSTEMS

1.) Transaction processing system (TPS)

2.) Online transaction processing (OLTP)

3.) Source document

Transaction processing system (TPS) (OPERATIONAL SUPPORT SYSTEMS)

Basic business system that serves the operational level and assists in making structured decisions

Online transaction processing (OLTP) (OPERATIONAL SUPPORT SYSTEMS)

Capturing of transaction and event information using technology to process, store, and update

Source document (OPERATIONAL SUPPORT SYSTEMS)

The original transaction record

MANAGERIAL SUPPORT SYSTEMS

1.) Online analytical processing (OLAP)

2.) Decision support system (DSS)

Online analytical processing (OLAP) (MANAGERIAL SUPPORT SYSTEMS)

Manipulation of information to create business intelligence in support of strategic decision making

Decision support system (DSS) (MANAGERIAL SUPPORT SYSTEMS)

Models information to support managers and business professionals during the decision-making process

Four quantitative models used by DSSs (Decision support system)

1. What-if analysis

2. Sensitivity analysis

3. Goal-seeking analysis

4. Optimization analysis

Systems Thinking View of a TPS (Transaction processing system) OPERATIONAL SUPPORT SYSTEMS

Systems Thinking View of a DSSs (Decision support system)

MANAGERIAL SUPPORT SYSTEMS

Interaction Between a TPS (Transaction processing system) and DSSs (Decision support system) MANAGERIAL SUPPORT SYSTEMS

Organization Information Levels (STRATEGIC SUPPORT SYSTEMS)

Executive information system (EIS) (STRATEGIC SUPPORT SYSTEMS)

A specialized DSS that supports senior level executives within the organization:

• Granularity

• Visualization

• Digital dashboard

Interaction Between a Transaction processing system (TPS) and Executive information system (EIS) (STRATEGIC SUPPORT SYSTEMS)

Most EISs offering the following capabilities

• Consolidation

• Drill-down

• Slice-and-dice

• Pivot

Artificial intelligence (AI)

Simulates human intelligence such as the ability to reason and learn

Machine learning

A type of artificial intelligence that enables computers to both understand concepts in the environment, and also to learn

• Weak AI

• Strong AI—currently a science fiction “Ultron”

6 MOST COMMON CATEGORIES OF AI

1.) Expert systems

2.) Neural Network

3.) Genetic algorithm

4.) Shopping bot

5.) Intelligent agent

6.) Virtual reality

Expert systems (CATEGORIES OF AI)

-Computerized advisory programs that imitate the reasoning processes of experts in solving difficult problems

• Machine vision – The ability of a computer to “see”: by digitizing an image, processing the data it contains, and taking some kind of action

-Cannot learn beyond programmed rules

• Examples:

  • Medical Diagnosis—provide diagnosis and suggest medicine

  • Computer configuration

Neural Network (CATEGORIES OF AI)

Attempts to emulate the way the human brain works. Excellent in pattern recognition, classification and prediction

• Fuzzy logic – A mathematical method of handling imprecise or subjective information

• Deep learning – A process that employs specialized algorithms to model and study complex datasets; the method is also used to establish relationships around data and datasets

Examples: image recognition, speech to text, fraud detection

Genetic algorithm (CATEGORIES OF AI)

An artificial intelligent system that mimics the evolutionary, survival-of-the-fittest process to generate increasingly better solutions to a problem

Shopping bot (CATEGORIES OF AI)

Software that will search several retailer websites and provide a comparison of each retailer’s offerings, including price and availability

Intelligent agent (CATEGORIES OF AI)

Special-purpose knowledge-based information system that accomplishes specific tasks on behalf of its users

• Ex: Robotic process automation, smart assistant

Virtual reality (CATEGORIES OF AI)

A computer-simulated environment that can be a simulation of the real world or an imaginary world

• Ex: Flight simulations, medical training, virtual collaboration spaces

MANAGING BUSINESS PROCESSES

• Businesses gain a competitive edge when they minimize costs and streamline business processes

Accounting and Finance (MANAGING BUSINESS PROCESSES)

• Creating financial statements

• Paying of Accounts Payable

• Collecting of Accounts Receivable

Marketing and Sales (MANAGING BUSINESS PROCESSES)

• Promoting of discounts

• Communicating marketing campaigns

• Attracting customers

• Processing sales

Operations Management (MANAGING BUSINESS PROCESSES)

• Ordering inventory

• Creating production schedules

• Manufacturing goods

Human Resources (MANAGING BUSINESS PROCESSES)

• Hiring employees

• Enrolling employees in health care

• Tracking vacation and sick time

The Order-to-Delivery Process

The steps in the example of an order-to-delivery process include:

• Step 1 – Create campaign and check inventory. Done by marketing.

• Step 2 – Place order, notify production, and check credit. Done by sales.

• Step 3 - Manufacture goods. Done by operations management.

• Step 4 – Delivery goods and bill customer. Done by accounting and finance.

• Step 5 – Support sales. Done by customer service.

Customer facing process

Results in a product or service that is received by an organization’s external customer

• Process:

  • Order processing

  • Customer service

  • Sales process

  • Customer billing

  • Order shipping

Business facing process

Invisible to the external customer but essential to the effective management of the business

• Process:

  • Strategic planning

  • Tactical planning

  • Budget forecasting Training

  • Purchasing raw materials

Industry-Specific Customer Facing Processes

• Processes:

  • Banking - Loan processing

  • Insurance - Claims processing

  • Government-Grant allocation

  • Hotel - Reservation handling

  • Airline - Baggage handling

Business Process Model and Notation

• Event

• Activity

• Gateway

• Flow

Event (Business Process Model and Notation)

• is anything that happens during the course of a business process.

• An occurrence that happens during a process. (Example: Customer Request, End of Process)

Activity (Business Process Model and Notation)

• is a task in a business process

• A task or piece of work performed in a process. (Example: Checking Availability, Picking up customer)

Gateway (Business Process Model and Notation)

• is used to control the flow of a process.

• A decision point controlling flow through a process. (Example: Determining Status, Accept/Decline Request)

Flow (Business Process Model and Notation)

• display the path in which the process flows.

• The path in which the process flows. (Example: Path a customer takes through taxi cab booking)

Business process modeling (or mapping)

The activity of creating a detailed flowchart or process map of a work process showing its inputs, tasks, and activities, in a structured sequence

Business process model

A graphic description of a process, showing the sequence of process tasks, which is developed for a specific

• As-Is process model

• To-Be process model

As-Is process model (Burger Example)

To-be process model (Burger Example)

As-if Order Fulfillment Process

Workflow

Includes the tasks, activities, and responsibilities required to execute each step in a business process

USING MIS TO IMPROVE BUSINESS PROCESSES

Types of change an organization can achieve, along with the magnitudes of change and the potential business benefit

Operational business processes

Static, routine, daily business processes such as stocking inventory, checking out customers, or daily opening and closing processes

Operationalized analytics

Makes analytics part of a business process

Business process improvement

Attempts to understand and measure the current process and make performance improvements accordingly

Automation

The process of computerizing manual tasks

Steps in Business Process Improvement

Streamlining (MANAGERIAL BUSINESS PROCESSES STREAMLINING)

Improves business process efficiencies by simplifying or eliminating unnecessary steps

Bottleneck (MANAGERIAL BUSINESS PROCESSES STREAMLINING)

Occur when resources reach full capacity and cannot handle any additional demands

Redundancy (MANAGERIAL BUSINESS PROCESSES STREAMLINING)

Occurs when a task or activity is unnecessarily repeated

Business process reengineering (BPR)

Analysis and redesign of workflow within and between enterprises

Progressive Insurance Mobile Claims Process

STRATEGIC BUSINESS PROCESSES REENGINEERING