Unit II : Information Concept

Data and Information

Meaning and Importance : Data : we mean known facts that can be recorded and that have implicit meaning. Eg, consider the names, telephone numbers, and addresses of the people you know. Information : Information is the processed data on which decisions and actions are based. Information can also be defined as the organisation and classified data to provide the meaningful values to the receiver.

Characteristics of Information : Some of the important characteristics are : 1. Accuracy : Information, if it is to be of value, should be accurate and should truly reflect the situation or behaviour of an event as it really is. 2. Form : Information is of value if it is provided to the user in the form it is useful and best understood by him. 3. *Relevance : It refers to current utility of information in decision making or problem solving. Thus information gains in value if it is relevant. 4. Timelessness : It means that information should be made available when it is needed. For a particular purpose and not before and in any case, not after. 5. Competitiveness : Information is considered as complete if it tells its user all what he wishes to know about a particular situation/ problem. The more competitiveness of information, the higher is its value. 6. Purpose : Information must have purpose at the time it is transmitted to a person or machine, otherwise it is simply data. 7. Reliability : The information should be reliable and external force relied upon indicated. 8. Validity : It measure the closeness of information to the purpose.

*Hence data is like raw material while the information is equivalent to the finished goods, produced
after processing the raw material. Information has certain characteristics. These are : Information : Improves representation of an entity. Updates the levels of knowledge. Has a surprise value. Reduces uncertainty,. Aids in decision making.

Classification of the information :

Action versus no-action Information : The information which induces action is called an action information. The information which communicates only the status of a situation is a no-action information. No-stock report calling a purchase action, is an action information but the stock ledger showing the store transactions and the stock balance is No-action information. Recurring versus Non-recurring information : The information generated at regular intervals is recurring information. The monthly sales reports, the stock statements, the trial balances etc. are recurring information. The financial analysis or the reports on the market research study is a non-recurring information.

Internal versus External information : The information generated through the internal sources of the organisation is termed as an internal information, while the information generated through the government reports, the industry surveys etc. is termed as an external information, as the sources of the data are outside the organisation. The action information, the recurring information and the internal information are the prime areas for computerisation and they contribute qualitatively to the MIS. The timing and accuracy of the action information is usually important. The internal and the external information changes. Depending on the level of the management decision. At the top management level, the stress is more on the external information and at the operational level, and the middle management level, the stress is more on the internal information.

EXTERNAL

LOW

SOURCE OF INFORMATION

STRUCTURED INFORMATION

INTERNAL

JK

HIGH

FIGURE SHOWING THE ORGANISATIONAL STRUCTURE

The information can also be classified as under in terms of its application.

Planning information : In the planning of any activity, certain standards, norms and specifications are used. Hence such information, is called the planning information. The time standards, the design standards the operational standards, are the examples of the planning information. Control information : Reporting the status of an activity through a feedback mechanism is called the control information. when such information shows a deviation from the goal or the objective, it will induce a decision or an action leading to control. Knowledge and information : A collection of information through the library reports and the research studies to build up a knowledge base as an information source for decision making is known as knowledge information.

The information can also be classified on its usage. When the information is used by everybody in the organisation, it is called the organisation information.

(IMP)

Quality of Information

Information is a product of data processing. Even if we take care of the aspects, the manager will determine the quality of the information based on the degree of motivation it provides for action, and the contribution it provides for effective decision making. The quality of information is high if it creates managerial impact leading to attention, decision and action. The quality of information can be measured in the four dimensions viz-a-viz (like) Utility Satisfaction Error Bias

The utility dimension has four facets the form, the time, the access and the possession. If the information is presented in from the manager requires, then the utility increases. If the information is possessed by the manager who need it then its utility is the highest. Many of the organisations suffer from the possessive nature of the managers making an access difficult for the other users of the information. Improving the quality through increasing a utility means an increase in the cost. Therefore, the balance is to be maintained between the cost and the utility. The concept of utility of the information is subjective to the individual manager, at least in terms of the form, time and access. Since there are many users of the same information in an organisation the subjectiveness would vary. Therefore the one common key for measuring the quality could be the satisfaction of the decision maker. The degree of satisfaction would determine the quality of the information. An error is the third dimension of the quality of the information. The errors creep in an account for various reasons namely : 1. 2. 3. 4. 5. An incorrect data measurement. An incorrect collection method. Failure to follow the prescribed data. Loss of data or incomplete data. Poor application of data validation.

Because an erroneous information is a serious problem for decision makers, the decision maker cannot make adjustments as he is not aware of it in terms of the location and the quantum of error. To control the error, its necessary to follow the methods of systems analysis and design. Care should be taken that the information is processed after ensuring the correctness of the data in terms of the time and the number of documents.

If the information is processed out of a biased data it will have a bias. The procedure of communicating the information should be such that the system is able to detect the degree and the nature of the bias and correct the information accordingly.

(IMP) Value of the information :The decision theory suggests the methods of solving the problems of decision making under certainty, risk and uncertainty. A decision making situation is of certainty when the decision maker has full knowledge about the alternatives and its outcomes. This is possible when perfect information is available. Therefore, information has value in terms of decision making. The decision makers feel more secured when additional information is received in case of decision making under an uncertainty or a risk. The information is called a perfect information, if it wipes out uncertainty or risk completely. The decision theory stipulates that the value of the additional information is the value of the change in the decision behaviour, resulted by the information, less the cost of obtaining the information. If the additional information does not cause any change in the decision behaviour then the value of the additional information. The value of the additional information making the existing information perfect is (VPI) VPI = (v2 - v1) (c 2- c1) Where v is the value of information. and, c is the cost of the obtaining the information. If the VPI is very high, then it is beneficial to serve the additional information need. It maybe noted that the information has a value only to those who have the background knowledge to use it in a decision. The experienced manager generally uses the information most effectively but he may need less information as experience has already reduced uncertainty for him. When compared to a less experienced manager.

Decision Making
Definition :
Decision making is a conscious process involving both individual and social phenomena based upon factual and value premises which concludes with a choice of one behavioural activity from among one or more alternatives with the intention of moving towards some desired state of affairs. Decision making, thus is an act of projecting ones own mind upon an opinion or a course of action. In decision making, three aspects of human behaviour are involved : (1) Cognition Activities of mind associated with knowledge (through sense, thought or experience) (2) Conation the action of mind implied by such words as willing, desire, and aversion ; (a strong dislike) (3) Affection the act of mind associated with emotion, feeling, mood, and temperament.

Decision making concept :The word decision is derived from latin word/root decido meaning to cut off. The concept of decision therefore, is settlement, a fixed intention bringing to a conclusive result, a judgement and a resolution. A decision is a choice out of several options made by the decision maker to achieve some objective in a given situation. Business decisions are those, which are made in the process of conducting business to achieve its objective in a given environment. The decision maker is rational person who would decide, rational person who would decide, with due regard to the rationality in decision making. The major characteristics of the business decision making are : (a) (b) (c) (d) Sequential in nature. Exceedingly complex due to risks and trade off. Influenced by personal value. Made in institutional settings and business environment.]

The business decision making is sequential in nature. In business, decision are not isolated events, each of them has some relation to some other decision or situation. The decision making process is a complex process in the higher hierarchy of management. The complexity is the result of many factors, such as the inter-relationship among the expects or decision makers, a job responsibility, a question of feasibility, and a probable impact on business.

Decision methods, tools and procedures :

Decision making process : Decision making is a process, which the decision makers uses to arrive at a decision. The core of this process described by Herbert Simon in a model. This model is in three phases, as shown in figure : (a) Intelligence ; (b) Design ; (c) Choice. MIS follows this model in its development stage

INTELLIGENCE DESIGN CHOICE

FIGURE SHOWING THE HERBERT SIMON MODEL

Intelligence : Raw data collected, processed and examined, identifies a problem calling for a decision. Design : Inventing, developing and analysing the different decision alternatives and testing the feasibility of implementation. Assess the value of the decision outcome. Choice : Select one alternative as a decision, based on the selection criteria.

In the *intelligence phase , the MIS collects the data. The data is scanned, examined, checked and edited. Further the data is stored and merged with other data and computations are made, summarized and presented. Here the attention of the manager is drawn to all the problem situations

by highlighting the significant differences between the actual and the expected, the budgeted or the targeted. In the design phase, the manager develops the model of the problem situation, on which he can generate and test the different decisions to facilitate its implementation. If the model developed is useful in generating the decision alternatives, he then further mores into the phase of selection known as Choice. In the phase of choice, the manager evolves a selection criterion such as maximum profit, least cost, minimum waste, least time taken, and highest utility. The criterion is applied to the various decision alternatives and the one which stratifies the most is selected. In these three phases, if the manager fails to reach a decision, he starts the process all over again from the very first phase called the intelligence phase, where additional data and information is collected, the decision making model is refined, the selection criteria is changed and a decision is arrived at.

For our further analysis, three phases of decision making are proposed by simon, will be taken in which the 4th phase of decision implementation is added because mere choice of an alternative does not complete the decision making process unless managers as decision makers commit resources for implementing a decision.

Types of decisions :
(a) Structured or programmed decision (b) Unstructured or not programmed decision

Decision making is a complex situation. To resolve the complexity, the decisions are classified as programmed and non-programmed decisions.

Structured decisions : If a decision can be based on a rule, method or even guidelines, it is called the programmed decision. If the stock level of an item is 200 numbers, then the decision to raise a purchase requisition for 400 numbers, is a programmed decision making situation. The decision maker here is told to make a decision based on the instructions or on the rule of ordering a quantity of 400 items when its stock level reaches 200. If rules can be developed whenever possible, then the MIS itself can be designed to make a decision and even execute.

Unstructured decisions : A decision which cannot be made by using a rule, a model is the non-programmed or unstructured decision. Such decisions are infrequent but the stakes are usually larger. Therefore, they cannot be delegated to the lower level. The MIS in the non-programmed decision situation, can help to some extent, in identifying the problem, giving the relevant information to handle the specific decision making situation.

Decision tree analysis :

When a decision maker must make sequence of decisions, the decision tree analysis is useful in selecting the set of sequence decisions. The method of analysis can be explained by an example. The decision tree is drawn with the help of symbols.

Decision Point

Chance event

( ) Probability

Let us take an example of investment in production capacity for a planning period of five years.

Cash flow Collaboration 7.9 High demand (HD)

(Rs.)

0.7 0.3

10 3

7.9 B
large capacity No collaboration 7.5

Low demand (LD)

High demand (HD)

0.7 0.3

9 4

Low demand (LD)

A small capacity
Collaboration 9.2
Collaboration 9.2 H
G

HD

(.6)

12

LD
No collaboration 8.0 HD

(.4)
(.6) (.4) (.6) (.4) (.6) (.4)

5
10 5 11 4 9 5

E C
No collaboration 8.2

I O
Collaboration 8.2

LD HD

J
No collaboration 7.4 LD

HD LD

In this decision tree situation, there are two decision points and six path, as given below. The path which gives max cash flow is the right decision path.

Paths ABG- collaboration ABD no collaboration ACEH Collaboration (first phase) Collaboration (second phase) ACEI Collaboration (first phase) No collaboration (second phase) ACFJ No collaboration (first phase) No collaboration (second phase) ACFK no collaboration (first phase) No collaboration (second phase)

Expected cash flow 7.9 7.5 9.2 8.0 8.2 7.4

The problem is whether to expand now with the large capacity or to invest in small capacity and make a decision of expansion after one year with the help of a collaboration or without a collaboration under certain demand conditions. Since, the highest expected cash flow path is ACEH, the decision is to invest a small capacity in the first phase and invest in the remaining capacity in the second phase with the assistance of the collaboration. Hence the decision tree approach is useful when you visualise a series of decisions having alternative paths with the associated probabilities and the cash flow for more than one year.