Bis Chapter1

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Chapter 1

Basic concepts - understanding information

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Topics

(I) Data and information

(II) Creating information

(III)Qualities of information

(IV) The business environment

(V) Managerial decision making

(VI) Knowledge management

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What is data ?

Data are raw facts or observations that are considered to have little or no value until they have been processed and transformed into information.

Other common definitions for data(a) a series of non-random symbols, numbers,

values or words(b) a series of facts obtained by observation or

research and recorded(c) a collection of non-random facts(d) the record of an event or fact

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What is data ? (Continued)

Examples:

• Today’s date

• Measurements taken on a production line

• Records of a business transaction, such as a single visit to a website

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Some definitions of information

(a) Data that have been processed so that they are meaningful (meaningful can cover all the following 3 definitions)

(b) Data that have been processed for a purpose

(c) Data that have been interpreted and understood by the recipient

(d) Information acts to reduce uncertainty about a situation or event

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Some definitions of information (Continued)

Examples

• a bank statement

• a sales forecast

• a telephone directory

• graphs of trends in visitors numbers to a website.

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Data processes

Some examples of data processes are:Classification• This involves placing data into categories.• For example, categorizing an expense as

either a fixed or variable cost.

Rearranging/sorting• This involves organizing data so that items are

grouped together or place into a particular order.

• For example, employee data might be sorted according to surname or payroll number.

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Data processes (Continued)

Aggregating

• This involves summarizing data.

• For example, by calculating averages, totals or subtotals.

Performing calculations

• An example might be calculating an employee’s gross pay by multiplying the number of hours worked by the hourly rate of pay.

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Data processes (Continued)

Selection

• This involves choosing or discarding items of data based on a set of selection criteria.

• For example, a sales organization might create a list of potential customers by selecting those with incomes above a certain level.

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Value of information

• Tangible value: A value or benefit that can be measured directly usually in monetary terms.

• Intangible value: A value or benefit that is difficult or impossible to quantify.

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Value of information (Continued)

Which of the following items listed illustrates a tangible or intangible value of information ?

• improved inventory control (Tangible)

• enhanced customer service (Intangible)

• increased production (Tangible)

• reduced administration costs (Tangible)

• greater customer loyalty (Intangible)

• enhanced public image (Intangible)

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Sources of information

BIS should support both formal and informal communication.

• Formal communication involves presenting information in a structured and consistent manner. Examples: reports, newsletters, accounts and sales figures

• Informal communication describes less well structured information that is transmitted by informal means such as casual conversations between members of staff. Examples: Word of mouth, ad-hoc reports shared within a team and with managers.

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Qualities of information

A group of characteristics by which the quality of information can be assessed, normally grouped into categories of time, content and form.

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Time Content Form Additional Characteristics

Timeliness Accuracy Clarity Confidence In SourceCurrency Relevance Detail ReliabilityFrequency Completeness Order AppropriateTime Period Conciseness Presentation Received By Correct

PersonScope Media Sent By Correct Channels

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Time dimension describes the time period that the information deals with and the frequency at which the information is received.

• Timeliness – Information should be available when needed e.g. Avoid late information

• Currency – Information should reflect current circumstances when provided e.g. should be update

• Frequency – Information should be available as often as needed e.g. weekly or yearly

• Time period – Information should cover the correct time period e.g. one year for profit and loss statement

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Content dimension describes the scope and contents of the information

• Accuracy – Information that contains errors has only limited value to an organization.

• Relevance – Information supplied should be relevant to a particular situation and should meet the information needs of the recipient e.g. financial statements to potential shareholders of a company

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• Completeness – All the information required to meet the information needs of the recipient should be provided e.g. full profit and loss statement

• Conciseness – Only information relevant to the information needs of the recipient should be supplied e.g. totals of items in a balance sheet

• Scope -- The scope of the information supplied should be appropriate to the information needs of the recipient e.g. presentation of financial statement during the acquisition of a subsidiary company by a holding company

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Form dimension describes how the information is presented to the recipient.

• Clarity – Information should be presented in a form that is appropriate to the intended recipient.

• Detail – Information should contain the correct level of detail in order to meet the recipient’s information needs.

• Order – Information should be provided in the correct order.• Presentation – Information should be presented in a form

that is appropriate to the intended recipient e.g. graphical information

• Media – Information should be presented using the correct media e.g. hard copy or soft copy of information.

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The business environment

• All businesses operate within an environment that influences the way in which the organization operates.

• For example, legislation will act to control some of the organization’s activities.

• The actions of an organization may also influence parts of the environment.

• Figure 1.2 illustrates some of the elements that may influence the way in which an organization operates.

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The business environment

• For managers, making use of information about the external environment is vital to decision making.

• BIS need to provide information from both the micro-environment and the macro-environment.

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Internal business resources

• To operate within the business environment, organizations use a business resource base which supports their activities.

• The resource base consists of – tangible (or physical) resources – intangible (or conceptual) resources.

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Tangible assets (physical resource base)

• Physical resources are often known as tangible assets and are normally directed towards the production of a product or service

• Examples of physical resources include money, land, plant and labour power.

• The hardware and software making up BIS are also physical resources.

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Intangible assets (conceptual resource base)

• Conceptual resources are often known as intangible assets and are normally used to support an organization’s activities, for example by helping managers to make better decisions.

• Examples of intangible resources include experience, motivation, knowledge, ideas and judgement.

• The data and information that are part of BIS can be considered a valuable intangible resource which must be protected.

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The e-business concept

• Increasingly, business communications, both within an organization and between its environment, are achieved through BIS.

• This has given rise to the concept of e-business.

• E-business involves increasing the efficiency of information flows and business processes within an organization and with other partners such as customers, suppliers, distributors and other intermediaries.

• E-business and the related concept of e-commerce will be considered in more detail in later chapters.

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Decision behaviour

• The way in which managers make decisions, and the factors that influence those decisions, are often described as decision behaviour.

• Decisions can be classified as – Structured, or – Unstructured

• In reality, however, many decisions fall somewhere in between the two extremes and are known as semi-structured decisions.

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Decision behaviour (Continued)

• Structured decisions tend to involve situations where the rules and constraints governing the decision are known.

• They tend to involve routine or repetitive situations where the number of possible courses of actions is relatively small.

• An example is stock control decision : The decision to reorder a given item will be governed by a fairly simple set of rules and constraints. When the amount of stock held falls below a certain point, a fixed quantity of new stock will be ordered.

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Decision behaviour (Continued)

• Unstructured decisions tend to involve more complex situations, where the rules and constraints governing the decision are complicated and unknown.

• They tend to be made infrequently and rely heavily on the experience, judgment and knowledge of the decision maker.

• An example is whether or not an organization should open a new branch in a particular area.

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Hard data and soft data

• Hard data, also known as quantitative data, tend to make use of figures, such as statistics.– Hard data are often collected in order to measure

or quantify an object or situation.

• Soft data, often known as qualitative data, tend to focus on describing the qualities or characteristics of an object or situation. – Interviews, for example, are often used to collect

qualitative data related to a person’s opinions or beliefs.

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Levels of managerial decision making

• The characteristics of the decisions taken in an organization vary according to the level at which they are taken.

• Figure 1.3 shows the distribution of managerial responsibility within a typical organization.

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Strategic level

• Managers are largely concerned with long-term organizational planning.

• Decisions tend to be unstructured and are made infrequently.

• These decisions are likely to have a large impact on the organization as a whole and cannot be reversed easily.

• Example: a choice of new markets to move into.

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Tactical level• Managers are largely concerned with

medium-term organizational planning.• Managers monitor the performance of the

organization, control budgets, allocate resources and set policies.

• Decisions taken at this level are used to set medium-term goals that form stages leading to the accomplishment of the organization’s strategic objectives.

• Example: setting a departmental budget

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Operational level• Managers deal with short-term planning and

the day-to-day control of the organization’s activities.

• The decisions taken at this level direct the organization’s efforts towards meeting the medium-term goals, abiding by the budgets, policies and procedures set at the tactical level.

• Operational decisions tend to be highly structured and have little impact on the organization as a whole.

• Example: setting a daily or weekly production schedule.

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• A direct relationship exists between the management level at which a decision is taken and the characteristics of the information required to support decision making.

• Tables 1.2 and 1.3 illustrate how the characteristics of the information needed by managers change according to the type of decision being made.

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Decision characteristics

Table 1.3 Information characteristics for decisions by management levels

Information

Management Level

Time Period Frequency Source Certainty Scope Detail

Strategic Wide Infrequent External Less Certain Wide Summarised

Tactical

Operational Narrow Frequent Internal More Certain Narrow Detailed

Table 1.2 Decision characteristics and management level

Decision

Management Level

Type Of Decision Time Scale Impact On Organisation

Frequency Of Decisions

Strategic Unstructured Long Large Infrequent

Tactical Medium Medium

Operational Structured Short Small Frequent

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Decision-making theory

• Decision-making theory is important in defining how structured decisions or business rules based on quantitative data are incorporated into BIS.

• A business rule defines the actions that need to occur in a business when a particular situation arises.

• Example: A business rule may state that if a customer requests credit and they have a history of defaulting on payments, then credit will not be issued.

• A business rule is broken down into an event that triggers a rule and test conditions that result in defined actions.

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An example

Name of event or process

Credit request

Condition (question when event occurs)

Is credit OK ?

Alternative results Yes or No

Alternative actions If Yes: Continue

IF No: Refuse order

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• Decision making involves selecting the correct action from a series of choices.

• The business rules governing the correct action may be complex, so we use diagrams and tables to help take the decision in a structured way and to ensure the rules are defined correctly for when they are implemented as program code in software.

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• Most business rules will involve several questions and these can be misinterpreted if they are not clearly defined. In more complex cases we use a combination of decision trees and decision tables.

• Decision trees are usually drawn first and then the corresponding decision table is based on the decision tree.

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• A decision tree is a diagram showing the sequence of events, decisions and consequent actions that occur in a decision-making process.

• It shows the different business rules using flow chart notation.

• A decision table is a matrix showing all the alternative outcomes of different decisions which occur when certain input conditions occur.

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Knowledge Management

• Knowledge Management (KM) is used to describe a broad range of activities related to ensuring that an organization makes the best use of its information resources.

• Knowledge can be thought of as the combined result of a person’s experiences and the information they possess.

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Two main knowledge types

1. Explicit – details of processes and procedures. Explicit knowledge can be readily detailed in procedural manuals and databases.

2. Tacit – less tangible than explicit knowledge, this is experience on how to react to a situation when many different variables are involved.(It is more difficult to encapsulate this knowledge, which often resides in the heads of employees.)

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Applications of Knowledge management

1. Business intelligence (BI) (sometimes known as corporate intelligence or competitive intelligence)

• This describes approaches towards gathering a range of information to ensure that an organization is able to keep pace with competitors.

• The information gathered might cover areas such as new advances in technology, market conditions, customer data and the action of competitors.

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2. Document image processing (DIP) involves converting printed documents into an electronic form.

– One advantage of DIP is that documents can be searched quickly and easily in order to locate specific items of information.

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3. Data mining involves analyzing a body of corporate data in order to discover patterns or trends that are not immediately obvious.

– The results of data mining can bring many benefits, e.g. the potential to launch a new product or service might be identified.

Technology

Bis Chapter1