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Management Decision Making

19 January, 2016 - 12:35

Review Question

What factors distinguish the types of information required by strategic level managers, by tactical level managers, and by operational level managers?


The nature of the information required by managers varies by management level. 1 Strategiclevel managers require information that allows them to assess the environment and to project future events and conditions. Much of the information comes from outside the organization and is used infrequently. Tactical management requires information that is focused on relevant operational units. Some external information is required, as well as information that is more detailed and accurate than is the information used at the strategic level. Operational management needs information that is narrower in scope, more detailed, more accurate, and that comes largely from within the organization.

The kind of information required to make a decision is also heavily influenced by the decision’s structure or lack thereof. Structure is the degree of repetition and routine in the decision. Structure implies that we have seen this very decision before and have developed procedures for making the decision. We can use the degree of structure inherent in each decision-making step to categorize the decisions as structured or unstructured. We define structured decisions as those for which all three decision phases (intelligence, design, and choice) are relatively routine or repetitive. In fact, many decisions are so routine that a computer can be programmed to make them. For example, many organizations have automated the decision of when and how much credit to grant a customer when an order is received. At the time the customer’s order is entered, the computer compares the amount of the order to the customer’s credit limit, credit history, and outstanding balances. Using this information, the computer may grant credit, deny credit, or suggest a review by the credit department. We cover this procedure in more detail in Chapter 10.

Review Question

In your own words, explain structure as it relates to decisions.


Technology Insight 5.1

Lessons About Information Effectiveness from Technical Communication Experts

To be successful providers and consumers of information, to support management decision making, and to add value to their organizations, business professionals must understand specific needs for information so that they can determine the information that best meets those needs. Experts in technical communication (TC) provide some terminology and ideas that we can use to enhance the effectiveness of information. This technology insight reinforces the discussion in this chapter as well as provides background for the systems development discussions in Chapters 6 and 7.

First, let’s define some terms:

  • At the heart of a business situation is a problem that needs to be solved, creating a need for information, services, products, or decisions. For example, the situation might be an insufficient quantity of raw materials to continue production of widgets. Our problem is to decide what to do about it.
  • An activity is a solution to the situational problem and can vary by management level. For example, a lower-level manager’s activity might be to place an emergency order for raw materials; a middle manager could temporarily shift production to another product; and an upper-level manager might choose to stop making widgets altogether.
  • The scenario defines the actions that enable the information, services, or products to be transferred or the decision to be made. In choosing the appropriate scenario, we answer such questions as: Who will be involved? When? In what way? What roles will people play? What are the types of documents, meetings, or presentations that are part of the situation? What are the values, preferences, rules of etiquette, technological considerations, and criteria that are pertinent to this interaction? For example, when we go to a restaurant we expect certain things to happen: A waiter or waitress will take our order and bring our food. And, we typically won’t receive the check until after we get our food. We do not expect to give our order to another patron, or to cook our own food, or to get the check before we order! That is, there is a scenario appropriate for a restaurant.

To provide effective communication, we must pick the scenario that is appropriate for the situation. We must be able to say, “This is one of these situations where . . .” and know what actions this situation requires. For example, when we have run out of raw material for making widgets, the scenario for the lower-level manager might include: data about raw materials on order and due in from vendors, names of vendors who can provide the raw materials, cost of an emergency order, whether this decision may be made by a lower-level manager, etc.

  • The communication includes documents, presentations, meetings, and electronic interaction that initiate, conduct, or interpret the activity or decision. Communication assists in solving the problem by:
  1. Defining the problem by analyzing the need for communication and the audience that must be addressed. This parallels the intelligence step in decision making.
  2. Generating alternative courses of action by summarizing and analyzing information. This parallels the design step in decision making.
  3. Making choices, negotiating the evaluation of these alternatives, and developing support for any solution. This parallels the choice step in decision making.

Let’s summarize what we can learn from these technical communication ideas:

  1. The context for problem solving (or decision making) is important. As we said when we described relevance, information, to be useful, must reduce uncertainty for this decision maker for this decision.
  2. A communication’s effectiveness (or information’s effectiveness) is situational and rule-governed. For our information to be understood by the recipient, and for the communication to have its intended effect, we must have knowledge of the attitudes and expectations of the audience of the communication.
  3. Information’s relevance, usability, and understandability, indeed its value, depend on the audience of the communication, not on the subject being communicated.
  4. The relationship of communication and problem solving is not: “(1) I have a problem, (2) I solve the problem, and (3) I communicate the results.” Rather, the required communication—the required output—determines your problem-solving activities. In Technical Communications terms, we would say, “We have a business situation (a problem) that requires a solution (an activity), and the communication (the output) determines the scenario (the problem-solving actions to be taken).”

Consider, on the other hand, the decision-making process that managers undertake in choosing what research and development projects to pursue in the next year. This is only one example of what we classify as an unstructured decision, one for which none of the decision phases (intelligence, design, or choice) are routine or repetitive.

Figure 5.2 summarizes several concepts introduced in this section and also helps us to understand the nature of the characteristics associated with information used by the three levels of management for decision making. Further, this figure indicates the proportion of structured and unstructured decisions handled by the three management levels.

Information Qualities and Decision-Making Level

The level of the decision maker and the type of decision to be made determines the preeminence of certain information qualities. For example, strategic management may require information high in predictive value. Information used for strategic planning should help managers “see” the future and assist them in formulating long-term plans. The strategic level manager may not be as concerned with timeliness or accuracy and would therefore prefer a quarterly sales report to a daily report containing several quarters of information so that trends could be detected more easily. Operations management must make frequent decisions, with shorter lead times, and may therefore require a daily sales report to be able to react in a timely manner to recent changes in sales patterns. Operations management may require more timely and accurate information and may not be concerned about the predictive value of the information. Without a certain level of accuracy, however, even the largest data warehouse will not be useful for forecasting or analysis of historical data. Technology Application 5.1 gives examples of the importance of high-quality data.

Figure 5.2 Management Problem Structures and Information Requirements 

Conclusions About Management Decision Making

From Figure 5.1 and Figure 5.2 and their related discussions, we can reach the following conclusions. Information needed for decision making can differ in degree of aggregation and detail, in source, and in fundamental character. We have also seen that the required qualities of information differ by decision type and level of management.


Within the organization, managers can secure inputs to their decisions directly: from the environment or from direct observation of operations. Managers can also receive information indirectly through the IS, which retrieves and presents operational and environmental information. Environmental information is now widely available, given the ease of searching for and sharing information over the Internet. As we understand more about the decisions to be made and can better anticipate the data needed to make those decisions, the IS can be designed to provide more of the required information.


Because data requirements for structured decisions are well defined, we strive to improve our understanding of decisions so that we can make more decisions more structured, anticipate the data needed for those decisions, and regularly provide those data through the IS.

Technology Application 5.1

Data Quality

Case 1

The information systems of the state of Montana’s Department of Corrections were relying on very poor-quality data as the basis of state and federal reports. Poor data quality caused the state to lose a $1 million grant because they couldn’t predict how many of a certain type of offender would be jailed over the next few years. As a result, a major overhaul of the database coupled with the hiring of a data validity officer was undertaken. By 2000, anyone responsible for entering data—from attorneys to guards—was held responsible for the quality of the data entered, and the problem has been reversed.


The Prudential Insurance Company of America started a data warehouse project in 1996 to consolidate data from its eight separate lines of business. The goal of the project was to enable data mining to improve customer relationships. In the process, Prudential discovered that different parts of the company collected different data on each customer who might hold several types of policies. Each line of business had its own standards for encoding policy numbers, customer names, and other critical items of data. All told, the company had to define and equate 3,000 different terms describing its customer data. The result of this long data-scrubbing process is a six terabyte data warehouse with common data definitions across the eight lines of business.

Source: Beth Stackpole, “Wash Me,” CIO Magazine, Vol. 14, Issue 9, February 15, 2001, pp. 100–114.