Business Information Systems Analysis Design Amp Practice

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BUSINESS

INFORMATION

SYSTEMS

analysis, design and practice

fifth edition

GRAHAM CURTIS

DAVID COBHAM

fifth

edition

CURTIS

COBHAM

BUSINES

S

INF

ORMA

TION

S

YSTEMS

Business Information Systems 5th edition offers today’s BIS students a comprehensive understanding of how information systems can aid the realisation of business objectives. With equal and clear coverage of the

technical systems aspects of BIS and the softer, more managerial topics, this book is equally useful to BIS students from Business or Computing backgrounds and for students at an Undergraduate or Masters level. Equipped with a wide variety of long, short and extended case studies from across the UK and Europe as well as examples, review questions and exercises throughout the text, students can easily check their under-standing and see how their new-found knowledge applies to real-world situations. The fifth edition includes:

■ Today’s hot topics, such as data

warehousing and data mining, knowledge management, ethical issues and respon-sibility, RAD and extreme programming.

■ A thorough update of coverage of

distributed systems, the Internet and web support, ERP, UML, and networks and the organisation.

■ Updated references and Case Studies

throughout.

■ New companion website material

including a password protected

Instructor’s Manual with worked solutions and slides, and free access multiple choice questions, web-links and tips for students at www.booksites.net/curtis.

Graham Curtis combines lecturing and developing courses in information systems analysis and design,

database and accounting information systems, with research and

consultancy and publications in business information systems. He is Head of Modular Programmes at the University of East London.

David Cobham is an active lecturer, researcher and consultant in Business Information Systems. His current interests are in information systems development methodologies, e-commerce systems development, decision support systems and project management. He is a Senior

Academic in the Faculty of Applied Computer Sciences at the University of Lincoln.

“Well written and

stimulating reading.”

Thomas W. De Boer,

University of Groningen

“Provides extensive and comprehensive coverage of core IS topics,

including development and design.”

Dr Ray Hackney,

Manchester Metropolitan University

www.pearson-books.com An imprint of Additional student support at

www.booksites.net/curtis

Additional student support at

www.booksites.net/curtis

PS - any chance of using the spot varnish also on the lettering on the front cover of the book at reprint, as well as on the strip along the bottom or is that not your department?

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Business Information Systems

Analysis, Design and Practice

Visit the Business Information Systems,

fifth edition

Companion Website at

www.booksites.net/curtis

to find valuable student learning

material including:

n

Quizzes to help test your learning

n

Hints for review questions

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We work with leading authors to develop the strongest educational materials in business studies, bringing cutting-edge thinking and best learning practice to a global market.

Under a range of well-known imprints, including Financial Times Prentice Hall, we craft high-quality print and electronic publications which help readers to understand and apply their content, whether studying or at work.

To find out more about the complete range of our publishing please visit us on the World Wide Web at: www.pearsoned.co.uk

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Fifth Edition

Business Information Systems

Analysis, Design and Practice

GRAHAM CURTIS

University of East London

and

DAVID COBHAM

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Pearson Education Limited

Edinburgh Gate Harlow Essex CM20 2JE England

and Associated Companies throughout the world Visit us on the World Wide Web at:

www.pearsoned.co.uk

First published 1989 Second edition 1995 Third edition 1998 Fourth edition 2002

Fifth edition published 2005

The rights of Graham Curtis and David Cobham to be identified as authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a licence permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, 90 Tottenham Court Road, London W1T 4LP.

All trademarks used herein are the property of their respective owners. The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners.

ISBN: 978-0-273-68792-4

British Library Cataloguing-in-Publication Data

A catalogue record for this book is available from the British Library

Library of Congress Cataloging-in-Publication Data

Curtis, Graham.

Business information systems : analysis, design, and practice / Graham Curtis and David Cobham.— 5th ed.

p. cm.

Includes bibliographical references and index. ISBN 0-273-68792-1

1. Business—Data processing. 2. Information storage and retrieval systems— Business. 3. Management information systems. 4. System design. 5. System

analysis. 6. Expert systems (Computer science). I. Cobham, David P. II. Title.

HF5548.2.C88 2004

658.4′038′011—dc22 2004053160

10 9 8 7 6 5 09 08

Typeset in 10/12pt Sabon by 35 Printed and bound in Malaysia

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To Julia, Edmund and James

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vii

Brief Contents

Preface xv

Publisher’s acknowledgements xix

Chapter 1 Information systems 1

Chapter 2 Strategy and information systems 45

Chapter 3 Business information technology 79

Chapter 4 Distributed systems, networks and the organization 135

Chapter 5 The Internet and the World Wide Web 174

Chapter 6 Electronic commerce and business 210

Chapter 7 Decision support and end-user computing 242

Chapter 8 File organization and databases for business

information systems 283

Chapter 9 Information systems: control and responsibility 339

Chapter 10 Information systems development: an overview 393

Chapter 11 The systems project: early stages 418

Chapter 12 Process analysis and modelling 438

Chapter 13 Data analysis and modelling 475

Chapter 14 Systems design 502

Chapter 15 Detailed design, implementation and review 524

Chapter 16 Systems development: further tools, techniques and

alternative approaches 556

Chapter 17 Expert systems and knowledge bases 604

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ix

Companion Website resources

Visit the Companion Website at www.booksites.net/curtis For students

n Quizzes to help test your learning

n Hints for review questions

For lecturers

n Answers to exercises

n PowerPoint slides that can be downloaded and used as OHTs

Also: This website has a Syllabus and Profile Manager, online help, search

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xv

Preface

Information technology has permeated the organization at every level. There is a grow-ing need for those interested in business, management or accountancy to understand the nature of this technology and the way it can best be harnessed to provide information for business functions. This text aims to examine and explain:

n the nature of information and its use in managerial decision making; n the role of the information system within organizational strategy;

n how recent developments in information technology have been accompanied by the

rise of end-user computing in business;

n the way that information is organized, stored and processed by modern information

technology as viewed from the interests of a business user;

n how developments in networks and the Internet have made an impact on business;

and

n the process of analysis and design of a business information system.

Readership

The book is designed as a core text for those undertaking an information systems course as part of a degree or HND in business studies or a related ﬁeld. It is also recommended for second/third-year undergraduate business information systems modules in computer science courses. The book will be suitable for professional courses run by the major accountancy bodies and the Institute of Data Processing Management (IDPM). It is also appropriate for conversion courses at the Masters level or for MBA-level modules in information systems. It requires minimal prior knowledge of information technology, although an understanding of the basic functions of a business organization is assumed.

Content

It is impossible to appreciate the way that information systems can aid the realization of business objectives unless a basic understanding is obtained both of the informa-tion technology, in its broadest sense, and of the way informainforma-tion systems are designed. The level of understanding needed is not to the same depth as that required of a computer specialist. It must be sufﬁciently comprehensive, however, to enable those in business to assess the opportunities, limitations and major issues surrounding mod-ern business information systems.

Chapter 1 introduces the reader to the idea of information and its relation to man-agement decision making. After covering essential systems concepts, an overview of the structure and purpose of a management information system is explained.

Chapter 2 begins by explaining the central ideas behind business strategic planning. The role of the information system is identiﬁed in this process. Various strategic uses of information systems, such as their use as a competitive weapon, are explored.

Chapter 3 explains the basic hardware, software and communications components in a business information system. The reader who is familiar with elementary com-puter science to A-level may omit most of these sections.

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xvi

Chapter 4 begins by examining the central notions behind distributed computing and its organizational beneﬁts. The latter part of the chapter examines networks and their position within business. Electronic data interchange and its advantages are explored. Chapter 5 concentrates on recent developments in global networks and distributed systems. The application of the Internet and the World Wide Web are examined.

Chapter 6 explores the world of e-commerce. It introduces new models for conducting business that exploit the Internet and the World Wide Web.

Chapter 7 explains the central ideas behind decision support systems and their develop-ment through prototyping. The relation to and role of end-user computing is examined. Human–computer interaction is treated in later sections of the chapter.

Chapter 8 introduces files and file processing, file organization and access in a busi-ness system. The chapter highlights the limitations of a file-based approach to data stor-age and explains the role of databases and database technology in overcoming these. Major data models – hierarchical, network and relational – are compared.

Chapter 9 looks at the checks, balances and controls in the development, imple-mentation and use of information systems. It considers the rights and responsibilities of individuals, organizations and society as a whole.

Chapters 10 to 15 explain, by use of a case study, the stages involved in the develop-ment of an information system. The emphasis is on analysis and overall design of the information system rather than detailed design and implementation. The approach taken is in line with many structured methodologies. Both process analysis and modelling and data analysis and modelling are treated extensively.

Chapter 16 provides alternatives to the linear life-cycle approach and the structured techniques covered in the previous chapters. An introduction to CASE in the develop-ment of business systems is covered and rapid applications developdevelop-ment is introduced as an important systems development framework. The central concepts of object-oriented methods of analysis and design complete the coverage of ‘hard’ approaches to systems development. These ‘hard’ approaches are then critically evaluated and, by way of an alternative paradigm, the ‘soft’ approaches of Checkland and of the socio-technical school of participative analysis and design are introduced. These are covered because it is felt important that the reader appreciate the scope and limitations of structured methodologies.

Chapter 17 provides an explanation of the core ideas behind expert systems. The storage and use of knowledge in expert systems is described. The central ideas and uses of expert systems are ﬁrst explained. More detailed aspects of knowledge representa-tion and inferencing are covered in later secrepresenta-tions of the chapter.

Structure

Each chapter contains an initial brief summary of the forthcoming chapter content. This is followed by the main body of the text and, ﬁnally, a more extensive summary of topics covered. There are numerous questions at the end of each chapter. These fall into two types. First, there are straightforward revision questions, which test the reader’s basic understanding of the text; the solutions to these can be found in the contents of the chapter itself. Second, there are problems that require the reader to apply concepts or techniques covered in the text to a described situation, and there are discussion ques-tions where the reader is expected to apply his or her understanding of the text to a wider business or social context. Solutions to these can be found on the instructors’ website. Also at the end of each chapter are selected references for further reading. Each

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xvii recommended text or article is generally accompanied by a short description indicat-ing the area it covers and the type of reader for which it is most appropriate.

Reader perspectives

Although it is intended that the book be treated as a whole and read in sequence, dif-ferent readers have difdif-ferent interests:

n Business perspective: Those interested in information systems and their development

from a business perspective might well read Chapters 1, 2, 5, 6, 10 and 17 ﬁrst.

n Development perspective: Chapters 10 to 16 can be taken as a more or less

self-contained section on information systems analysis and design, with the reader being able to dip into previous chapters as is felt necessary.

n Technical perspective: For those wishing a technical introduction to business

informa-tion technology, networks, data storage and control, Chapters 3, 4, 5, 7, 8 and 9 can be approached ﬁrst.

Mini case studies

The book makes extensive use of mini case studies. These are used, particularly in the earlier chapters, to provide a context for the understanding of key concepts and also to inform the reader about current issues and latest developments. Brief questions prompt the reader to reﬂect on the content of the mini case study and then apply it to the text.

Longer case studies

Most chapters also conclude with a longer case study. These provide a greater depth of material with which to investigate the topic. They are possible candidates for group activities and can form the basis of productive project work and assignments.

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xviii

Extended case study

The chapters containing the systems development perspective make use of a more extended case study, Kismet, which is developed progressively. This extended case study intro-duces a business problem and follows the project through the stages of feasibility, sys-tems analysis and design then implementation and review to provide a realistic context for understanding the systems development process.

Fifth edition changes

This text differs from the fourth edition in a number of ways:

Many topics have been strengthened or rewritten to reﬂect recent changes and developments. Topics which have been given particular attention compared to the last edition include data mining and data warehousing, the outsourcing of information systems services, enterprise resource planning, the Uniﬁed Modelling Language (UML), which has rapidly become the de facto standard for object-oriented development approaches, and ethical, legal and social issues in information systems development.

The chapter covering e-commerce and business applications of the Internet has again been updated to reﬂect the far-reaching changes that continue to take place. The chapter covering networks and distributed systems has been enlarged to accommodate recent developments in the use of the Internet and in mobile computing.

The presentation of current experience and practice and leading-edge developments in technology through mini case studies and longer case studies has been preserved; these have been completely overhauled to continue to provide that current point of reference.

There have also been numerous minor additions and amendments to bring the book into line with technological developments over the three years since the last edition.

Acknowledgements

We would like to thank colleagues at the University of East London, at the University of Lincoln and those elsewhere who have provided useful comments on earlier drafts. In particular, the comments of anonymous reviewers have been invaluable.

Graham Curtis David Cobham

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xix

Publisher’s acknowledgements

We are grateful to the following for permission to reproduce copyright material: Mini case 1.2 adapted from Computing, July 24, 2003 and Mini case 9.5 adapted from

Computing, November 27, 2003, by permission of Computing; Figure 5.2 reproduced

with permission of Robert H. Zakon; Figure 5.3 reproduced with permission of NeoWorx, Inc.; Figures 5.6 and 5.7 reproduced by permission of the Red Cross; Figure 6.5 reproduced with permission of Toys’R’Us; Figure 6.9 reproduced with permission on FedEx;

In some instances we have been unable to trace the owners of copyright material, and we would appreciate any information that would enable us to do so.

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xx

Guided Tour

•• 210 Learning outcomes Chapter 6

Electronic commerce and business

On completion of this chapter, you should be able to:

nDefine and identify key features of e-commerce

nIdentify the drivers for and barriers to e-commerce

nEvaluate the extent to which e-commerce maps on to traditional trade cycles

nDescribe and review a broad range of business models for e-commerce business activity

nDiscuss the issues in creating a business website

nAssess potential developments in web technology.

Introduction

The move into the Internet age is both driving and being supported by signiﬁcant changes in the information systems that support the commercial activity. Just as the early data-processing era was supplanted by the management information systems generation of the last 30 years, so the Internet era is building upon and replacing the MIS age. The access-ibility of data and information and the relative ease of establishing channels of commu-nication have fundamentally changed the expectations of decision makers in companies, and of all participants in the supply chain from manufacturers through suppliers to customers. The supporting information systems tend to be collaborative rather than stand-alone, distributed rather than centralized, networked globally rather than locally. The coming together of business activities and Internet technology has fundament-ally changed the environment and structure of business. This is evidenced in many ways. For example:

nThe marketplace for all vendors has become potentially global.

nExecution and settlement of transactions can easily be automated for small as well as large organizations.

nThe trading model has moved from ‘normal business opening hours’ to a 24 hours a day, seven days a week trading model.

nThe interconnections throughout the supply chain are being reconﬁgured. Conducting business over the Internet can be a very different experience to commer-cial activities that take place in more traditional environments. This chapter focuses on the implications of e-commerce for business.

Review questions

521 After the formal review (at which a secretary may take notes on the major points raised), it is the responsibility of the analyst to rework areas that have been found to be lacking and to satisfy the review leader that this has been done. In the event of seri-ous shortcomings, another review will be required.

Formal reviews may occur at a number of points during the development of a pro-ject. Major reviews will probably occur at the following:

1. Systems design: To consider alternative designs.

2. Detailed design: To consider the systems speciﬁcation consisting of:

(a)hardware speciﬁcations

(b)database or ﬁle speciﬁcations

(c)program speciﬁcations

(d)input/output speciﬁcations

(e)identiﬁcation of procedures surrounding the system

(f)implementation schedules.

3. Implementation: To consider the results of a formal systems test. Reviews are one of the important controls that may be exercised over the development of the project.

Summary

The purpose of systems design is to present alternative solutions to the problem situ-ation. High-level logical models have been developed for the system, involving no prior physical design considerations, so it is easy to illustrate and communicate different approaches in outline for new systems.

The logical model of the system needs to be amended to incorporate any new require-ments. At this stage, inefficiencies in the model and any physical aspects are removed. Both of these are legacies of having used an existing physical system as the basis for analysis and design. Alternative designs are illustrated using automation boundaries on the data flow diagrams. In deriving these designs the analyst must pay attention to physical design features. The most important of these concern decisions over cent-ralized and distributed processing, file-based and database systems, online and batch processing, packages and programs, input methods and hardware. The analyst will restrict the number of suggested designs to two or three. For each, a cost estimate and implementation schedule will be given. The presentation of these suggestions will be made during a formal review. Management will decide on which, if any, of the pre-sented systems is to be undertaken. The analyst will carry out a detailed design of the chosen system. This work is covered in Chapter 15.

Review questions

1.What are the objectives of systems design?

2.How is systems analysis distinguished from systems design?

3.In providing alternative systems designs, what considerations should a systems analyst employ?

Chapter 14 · Systems design

522

4.How do automation boundaries help in the design process?

5.How is the difference between online and batch processing shown with the use of data flow diagrams and automation boundaries?

6.What is the difference in purpose between a walkthrough and a formal review?

7.What roles do the participants in a formal review play?

Exercises

1.What are the specific advantages and disadvantages for Kismet in adopting a batch sys-tem as distinct from an online syssys-tem for order approval as shown in Figure 14.8?

2.What are the specific advantages and disadvantages for Kismet in adopting a more highly automated system as indicated in Figure 14.7(a) as compared to that shown in Figure 14.7(b)?

3.‘A proposed system was given in the feasibility study along with its associated costs and benefits. It is a waste of time and money to present alternatives at this stage when a sys-tem has already been agreed.’ How would you answer this criticism?

CASE STUDY 14

Kemswell Theatre

Go over your answers to the data flow diagram produced for Case Study 12 (the introduction to the Kemswell Theatre booking system):

1.Eliminate reference to any physical aspects that have entered the model.

2.Suggest additional processes/functions that would be useful to a theatre booking system and incorporate them into the data flow diagrams.

3.Derive two alternative designs and illustrate them by automation boundaries in the data flow diagrams.

Guided Tour of the Website

Learning outcomes

Multiple choice questions

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Learning outcomes

Chapter 1 Information systems

On completion of this chapter, you should be able to:

n Define information, systems and information systems

n Assess the information required to aid business decision making n Distinguish between formal and informal information

n Contrast models of decision making

n Distinguish the managerial levels at which decisions are made n Assess the cost and value of information

n Identify the characteristics of systems

n Employ the framework of a systems approach to evaluate the information

requirements of more complex systems

n Explain what is meant by a management information system.

Introduction

This chapter covers three interrelated areas – information, systems and information systems. Information is considered in its role of aiding business decisions. By studying the nature of decisions, important characteristics of information can be identiﬁed. Models of decision making, the cognitive background of decision makers and the levels of managerial activity associated with management decisions are all considered. Properties of business information are developed in terms of the kinds of decision taken and the types of decision taker involved. The provision of information within an organization has an associated cost. To justify this expenditure the information must be of value. The idea of information value, both qualitative and quantitative, is covered.

The framework of a systems approach is used in understanding the information require-ments of a complex organization. Characteristics of systems and a systems approach are explained in the second part of the chapter. The ideas of information and a sys-tem are put together in developing the concept of a management information syssys-tem (MIS). This is viewed as a collection of information subsystems interacting with a cor-porate database. Difﬁculties in the design of these information systems are considered by outlining ﬁve distinct approaches towards MIS design. Finally, the importance of informal information for decision taking within organizations is stressed.

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1.1 Introduction

The pattern of employment has altered radically in the UK over the last two centuries (see Figure 1.1). There has been a decline in the importance of agriculture as a source of employment brought on by industrialization during the early and middle parts of the nineteenth century. This was followed by a steady increase in the percentage of the workforce employed in manufacturing, which reached a peak in the early decades of the twentieth century. Since the nineteenth century, the decline in manufacturing employment has been taken up by two sectors – the service sector and the informa-tion sector. By far the faster growing of these is the informainforma-tion sector.

Many occupations are now almost exclusively concerned with the handling, processing, provision or transmission of information. Included in these would be jobs in insurance, banking, accountancy, and central and local government. Anyone employed in the postal or telecommunications industries is directly or indirectly involved in the transmis-sion of information. Other areas such as travel, retailing, the police and the armed forces all rely on a greater provision of information than at any time in the past. In manufacturing, a declining percentage of the workforce is involved in the production process, and an increasing percentage is employed in the processing of information. The increasing ownership of computers and the phenomenal growth in the use of the Internet and the World Wide Web have accompanied a much greater participation of businesses in the processing of information.

What has led to this burgeoning of the information sector? On the supply side, the development of faster, cheaper and more ﬂexible technology for information process-ing (computers) and information transmission (telecommunications) has enabled the information sector to grow. More information can now be provided more quickly and cheaply than before. Access to information and to information systems has, particu-larly with the development of the Internet, become far easier. On the demand side, the complexity and volatility of market forces mean that businesses require more targeted

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and more current information to gain a competitive advantage and survive. Externally, they need to be up to date with market preferences, competitors’ prices, and the supply and cost of finance. Internally, pressures to maintain profitability or efficiency require instant information to monitor and control the continuing functioning of the organization.

This book is about information systems for business. The purpose of this chapter is to provide a general understanding of the idea of information, the concept of a system and, putting the two together, to provide an understanding of the nature of an informa-tion system for a business.

1.1.1 Data and information

Before we can understand the idea of a business information system, it is necessary to look at both the concept of information and the concept of a system. In this section and the subsequent two sections, the topic of information and its general character-istics as applied to business are covered.

Many deﬁnitions have been proposed for the term information. The one that will be used here is that:

Information is data processed for a purpose.

A business deals with a wide variety of data. Some of this concerns ﬁnancial transac-tions. An example of an item of transaction data is the record of the sale of a product to a customer by the business. This fact might be recorded on a piece of paper, such as in a sales day book, or as a series of laser-burned impressions on a compact disk. However, it is not information until it undergoes some sort of processing and the results of the processing are communicated for a particular purpose. For instance:

1. The record of the amount of the sale may be aggregated with other sales amounts and the result transferred to a debtors’ control account. This in turn will form part of a trial balance sheet and a ﬁnal balance sheet to be presented to shareholders. The purpose of this processing is to provide a summarized snapshot picture of the state of the assets and liabilities of the business.

2. The sales data may also be classiﬁed by customer, aggregated with the current bal-ance of the customer and the result compared with a credit limit assigned to the customer. The purpose is to alert the credit control manager that action may be necessary if the credit limit is exceeded.

Data, as given in the example, is the record of an event or a fact. The information derived from this data is used for making decisions, of which planning decisions and control decisions are the most important.

Mini case 1.1

Census data

The 2001 Census has several signiﬁcant innovations, including new questions and classiﬁcations, postal geography and the use of the web to disseminate data. However, the most radical change is the decision to distribute the statistics free of charge. This will have profound consequences for users and suppliers of value-added services.

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In past censuses, commercial companies could only get data from census agencies, which were licensed to supply data on the payment of royalties to the government’s census ofﬁces. In addition, there were restrictive licensing conditions, limiting use of the data to a speciﬁed number of computers within a company.

Several consequences will ﬂow from the decision to make data freely available. Store location and customer insight teams in large companies, such as Marks & Spencer, Nationwide, Sainsbury and Whitbread, will exploit the full richness of the geograph-ical and subject detail.

Even more significantly, use will be broadened and new markets created. Start-up businesses and many members of the public will discover census data for the first time on the census offices’ websites.

Free data will provide the fuel for the supply of many more software and consult-ancy services.

This is already providing small area datasets for topics such as crime, education and health, which can be related to census counts of population for small areas. Many new datasets, such as estimates of incomes and access to local services, are planned; these will enable better understanding of local communities and markets.

The new policy of making the census freely available is a bold experiment. The like-lihood is that it will illustrate that the beneﬁts to society and the economy of increased use of data will greatly outweigh the costs.

Adapted from: Free data will transform and create markets: Facts and ﬁgures at a keystroke By Keith Dugmore

FT.com site: 7 October 2003

Questions

1. List some examples of the data which is collected in Census surveys.

2. Describe how the data might provide useful information for interested parties.

1.1.2 Data processes

Data that is formally handled in a business may undergo complex processing prior to presentation and use as information. However complex, though, the total processing can be broken down into simple steps. The types of basic process are:

n classiﬁcation of data; n rearranging/sorting data;

n summarizing/aggregating data;

n performing calculations on data; n selection of data.

Examples of each are shown in Table 1.1. In as far as these basic processes are governed by rules, they are therefore suitable for a computerized system.

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Table 1.1 Examples of types of data process

Type of data process Example

Classification of data Transaction data may be classified as invoice data, payment data, order data

Rearranging/sorting data Data on employees may be ordered according to ascending employee number

Summarizing/aggregating data Data on the performance of various departments may be aggregated to arrive at a summary of performance Performing calculations on data Data on the total hours worked by an employee may

be multiplied by the hourly wage rates to arrive at a gross wage

Selection of data Total yearly turnover data on customers may be used to select high-spending customers for special treatment by sales personnel

1.2 Decisions

Information is data that has been processed for a purpose. That purpose might be to offer the information for sale or could be a statutory requirement, but invariably it is to aid some kind of decision. In order to understand more about the different types of information that are provided in business, it is necessary to look at the area of deci-sion taking and decideci-sion takers and the way that information is used in decideci-sions.

No decision is taken in isolation. Decisions are taken by decision takers who have certain organizational objectives in mind, a certain background, and a certain mental way of processing and appreciating information. Moreover, these individuals have per-sonal interests that may affect the decision-taking process. From the corporate point of view, information needs to be supplied to these decision takers in order that the decision taken will be the most effective in the light of the organizational objectives.

1.2.1 Cognitive style and background

‘Cognitive style’ is a term used in psychology that broadly describes the way that indi-viduals absorb information, process it and relate it to their existing knowledge, and use it to make decisions. Cognitive style and personal background act as ﬁlters to the information provided to a decision taker. In outline, one approach to cognitive style (Kilmann and Mitroff, 1976) regards individuals as falling into one of two categories in the way that they absorb information. At one extreme, some people take in informa-tion best if it is highly detailed and speciﬁc, often quantitatively based. The various elements of information need not be linked as a whole. The other group absorbs information in a holistic way; that is, in a less concrete way, preferring general facts, suppositions and ‘soft data’ linked as a whole.

After obtaining information the decision must be taken. Once again there appear to be two distinctive styles. One group will involve itself in a high degree of analytic thought in reaching a decision. This group will be capable of providing detailed justiﬁcations

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often involving quantitative reasons in support of final decisions. The other group will rely more on intuition, experience, rules of thumb and judgement. There will be a con-centration on looking at the situation as a whole rather than parts of it independently. This group will often find it difficult to provide justification for recommended decisions. The combination of these information-absorption and decision-taking styles is shown in Figure 1.2.

It is not claimed here that one or other of these styles of assimilating information or making decisions is superior. The point is that if information is presented in a way that is not conducive to the cognitive style of the recipient then it will not be fully utilized in a decision. When information systems are designed the designer, if at all possible, should take into account the range of cognitive styles of those for whom the informa-tion is provided. This important though obvious point is often overlooked or ignored when information systems are designed for business.

The background of a decision taker is also a powerful inﬂuence on the way that information is perceived. Differing subject specializations will lead individuals to judge different aspects of information as being more/less relevant or more/less important for making decisions. For instance, accountants will tend to concentrate on numerical information, with which they are familiar. They will require the numerical information to be compiled and presented in a standard manner compatible with their expectations and training. They may ignore details of organizational structure and management styles. It is quite possible that they may even fail to perceive the information when it is presented. In contrast, the organizational specialist may not understand the import-ance of the numerical, ﬁnancial and cost aspects of the business organization. This is quite understandable as the specialisms of each only give them a limited model through which to perceive and organize information in a way that is relevant to making decisions. Personal backgrounds and cognitive styles are not wholly independent of one another. The ability to work best with detailed quantitative information, for example, will not be unconnected with the occupation of an accountant or engineer.

1.2.2 A model of decision making

The process of taking a decision can be described as falling into several stages (Simon, 1965). These stages provide a framework within which decisions can be viewed. To be executed successfully, each of the stages will require different types of information. The stages, shown in Figure 1.3, are:

1. Intelligence:The decision maker needs to be made aware of the existence of a problem that requires some sort of decision. Information needs to be presented in a manner conducive to this recognition.

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2. Design:Alternative solutions to the problem must be considered. This involves the recognition of the range of acceptable decisions and the implications of each. At this stage, information needs to be supplied to aid the decision maker in predicting and evaluating these implications.

3. Choice:This involves the choice between the various alternatives investigated in the previous stage. If there has been a full analysis of the options this should be a straight-forward stage. Otherwise, the decision maker may have to choose between incom-plete and perhaps incomparable alternatives.

4. Implementation:The chosen decision is carried out.

The stages are illustrated in the following case. A manufacturing company produces a range of modular kitchen units to supply various retail outlets. These outlets sell and fit the final kitchens for their own customers. The problem is that one of the major retail clients of the kitchen unit manufacturer is becoming dissatisfied with the quality of the delivered kitchen units. There is a problem, which may become a larger problem if nothing is done.

1. Intelligence:The decision maker in the kitchen units manufacturing company needs to be aware that a problem exists. This must be a person of sufﬁcient rank to make an effective decision. One way is to wait until a customer complains before taking any decision. Then there is always the danger that notiﬁcation of the problem will not reach the right level of management before it is too late. A more active form of intelligence gathering is to formally request information from customers on their view of the service that they are getting.

2. Design:Once aware of the problem, the decision maker can consider a range of possible options. One is to increase the quality of the product by buying in more expensive ﬁtments. Another is to reschedule production and divert more labour resources to quality control and ﬁnishing of the units. Yet another is to do both of these things. The option of deciding to do nothing must always be considered. Each

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of these will have implications for costs, profits, the timing of production, what action competitors might or might not take, the order book with the client company, and a range of other areas. The decision maker needs to be able to evaluate each of these. Some implications can be assessed quite easily with the aid of computer support, especially if they rely on internally held quantitative information. For example, the use of a spreadsheet model will yield a fast, accurate and effective picture of the internal cost implications of buying more expensive fitments. Other options are more difficult to assess. This is particularly true where external and qualitative informa-tion is needed. The response of competitors may require an analysis of the market and the past history of the firms involved.

3. Choice:Once the implications of each of the options have been evaluated, the time will come to make a choice as to what to do. This might not be simple if the design stage is incomplete or has not yielded definite results. Rules of thumb and past experi-ence may be used as a guide for choice. In the case of the kitchen manufacturer, two of the options considered were ‘do nothing’ and ‘buy in fitments of higher quality’. The problems involved with choice can be seen by further investigation of the kitchen unit manufacturing organization. The ‘do nothing’ option has implications. There will be the possibility that the retail outlet may take its business elsewhere. On balance, this seems unlikely given the long-established trading relationship and the lack of mature competitors for the specific types of unit favoured by this outlet. But then again the retail outlet is advertising for a new purchasing manager. In contrast, the latter decision to purchase high-quality fitments has definite implications for profit and cost, which are to be balanced against the high probability that this will satisfy the customer complaints. Here the decision maker is required to choose between altern-atives that have implications in different areas with different degrees of certainty. In this organization, the power and responsibility to take the required decision rested with middle to upper management. Other types of decision would have been taken at a lower level in the management hierarchy. The levels of managerial decision are explained in the next section.

The classic model of decision making described above deﬁnes a strictly linear sequence of stages. Although these stages are clearly essential in arriving at a decision, a more iterative model may be appropriate, particularly where the business environ-ment is changing rapidly. To respond to, or to anticipate, these changes a decision maker might return to an earlier stage and reﬁne or revise his or her view.

1.2.3 Levels of managerial decision taking

Three levels of managerial activity are important in understanding the way organiza-tions take decisions (Anthony, 1965). These are strategic planning, tactical planning and control, and operational planning and control.

Strategic planning

This is carried out by the most senior management and will deal with broad issues concerning an organization’s development over the long term. The planning may involve, for example, decisions on what markets to move into, whether to diversify production, how resources should be allocated to major functions or departments within the organization, how to structure the company’s ﬁnances, or whether to undertake particular major investment projects or accept major contracts with long-term

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implications. The determination of organizational objectives is also within the scope of strategic planning.

In order to make strategic decisions senior management needs information. Because strategic planning has a long-term time horizon, much of this information will relate to the future rather than the present. The nature of many of the decisions requires information on the development of market forces, patterns of expenditure and the economy as a whole. This requires information to be supplied on matters external to the company from sources such as market surveys, trade publications, demographic studies, government reports and commissioned research from specialist suppliers. The fact that the information refers to external areas outside the control of the organiza-tion and that it applies to the future means that it is likely to be highly uncertain and will tend to be of a summarized or general nature rather than highly detailed.

Tactical planning and control

This is a managerial activity normally associated with the middle echelons of management. Tactical planning may involve the allocation of resources within departmental budgets, decisions on medium-term work scheduling and forecasting, and planning medium-term cash ﬂows. Examples of control at this middle managerial level are the monitoring of actual production and expenditure against budgets, the analysis of variances and actions taken in response.

Information for decisions at the tactical level will refer to the medium term, between now and the next few months or a year. It will be mainly generated internally within the organization, although some external information may be necessary. As an example of the latter, it is difﬁcult to set budgets if external raw material prices are the subject of uncertainty or wage rates are set in response to national union negotiations – in both cases external information may be of help. The information will generally be required in an aggregate form – for example, total production for the month of a certain product – though not as consolidated as that for a strategic decision. The internal nature of the information and its time horizon means that it is likely to be subject to less uncertainty than information supplied for strategic decisions.

Operational planning and control

This is concerned with the decisions made in the normal day-to-day operations within a business. Decisions in this area are designed to ensure the effective and efﬁcient use of existing resources to realize budget objectives. These decisions may involve the treat-ment of personnel (for example, hiring and ﬁring), the control of inventory and pro-duction levels, pricing decisions, aspects of credit control over customers and other forms of accounting and cash controls.

Information for operational planning and control is generated almost exclusively within the organization, and it is highly detailed, certain and immediately relevant. For instance, the operational decision as to whether to purchase more of an item that has fallen below its reorder stock level will be based on at least some of the following information:

n the number of requisition orders already placed for the item, the quantities ordered

and the expected delivery dates;

n the expected future use of the item, including any outstanding customer commitments; n the storage and handling facilities available; and

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Mini case 1.2

Financial information

The London Stock Exchange (LSE) has expanded its Data-X information services platform by adding new data services for its customers to buy.

The offerings will help strengthen the Exchange’s position as a direct provider of ﬁnan-cial information, putting pressure on others in the market.

Chief information ofﬁcer David Lester says the drive to add data services is part of the Exchange’s desire to create products and increase revenues, while taking costs out of the industry.

‘Information services are helping to expand the revenue base of the LSE,’ he said. The Exchange generates masses of information every day, from data on individual trades and share price movements to company announcements, which it provides directly to the market.

Level 1 Plus, a new market data service, gives customers a range of additional source data, such as buy and sell percentages, money ﬂow per security and time-weighted aver-age spread.

The new information services platform went live this April, adding more data to the real-time price messages the Exchange sends out every day at a rate of up to 300 per second.

Adapted from: LSE takes data supply to the next level Computing – United Kingdom; 24 July 2003

Question

Provide examples of strategic, tactical and operational decisions that might be supported by the information services of the London Stock Exchange.

Figure 1.4 Information characteristics for managerial decisions

All this information will be held within the organization, and once it is recognized as relevant for the decision it can be retrieved and used. Figure 1.4 shows the charac-teristics of information supplied for the various levels of managerial activities. These activities need not necessarily be carried out by different people. Indeed, in a very small company decisions at these levels may all be carried out by the same person.

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1.2.4 The structure of decisions

Simon (1965, 1977) makes a simple yet important distinction between structured (pro-grammable) and unstructured (non-pro(pro-grammable) decisions. Structured decisions are those governed by clear rules. The decision procedure can be expressed as a set of steps to be followed, can be incorporated in a decision table or revealed by a procedural logic ﬂowchart. The information that is needed before a structured decision can be made is clearly speciﬁable and unambiguous, and once it is obtained, the process of arriving at the decision action is straightforward.

An example of a structured decision would be the granting of credit to a customer where this is done on a points basis. The customer obtains points for having a job, the salary associated with it, the time the job has been held, whether they are married, have children, and whether they have other credit cards, loans or a mortgage. The points are assigned mechanically and totalled. If the total is above a certain threshold the customer is granted credit, otherwise not. Because structured decisions are governed by clear rules, they can often be left to low-grade personnel or even be fully automated in some cases.

With unstructured decisions, it is often unclear what information is needed and how it should be assessed in relation to the decision objectives. These objectives may themselves be unclear or the subject of disagreement. Unlike structured decisions, there will be no set procedure or rules for arriving at the decision. The use of rules of thumb (heuristics) and ‘experience’ is characteristic of unstructured decisions.

An example of an unstructured decision is the hiring of supervisory or senior staff. Here information such as qualiﬁcations and experience is obviously relevant, but what is not clear is how good qualiﬁcations in one candidate are to be measured against experience in a second, and how this is to be offset against the intelligence and adapt-ability revealed by a third candidate.

Gorry and Scott-Morton (1971) have developed the ideas of Anthony (1965) and Simon (1965, 1977) to provide a useful way of categorizing decisions by comparing managerial activities against the degree of structure in a decision. This is shown in Table 1.2. The degree of structure corresponds to the extent to which each of the decision-making stages is structured or unstructured. A decision that is highly tured at the stages of intelligence, design and choice would count as a highly struc-tured decision. A lack of structure during each of these three stages would mean that

Table 1.2 Structure and managerial activity in decision making

Strategic Management Operational

planning control control

Unstructured Company Personnel Dealing with

reorganization management customer enquiries

Semi-structured Introduction of Analysis of Short-term

new product performance production scheduling

Structured Financial structure Allocating budgets Stock reorder