Chapter 6

Management and Decision-Making

So much of what we call management consists in making it difficult for people to work.
Peter Drucker
No sensible decision can be made any longer without taking into account not only the world as it is, but
the world as it will be. . ..
Isaac Asimov (1920 - 1992)

Objectives
Having read this chapter the reader will be able to:

Describe the activity of decision-making

Identify the relationship between rationality and decision-making

Distinguish between three levels of management

Recognise differences between management information systems and executive information

systems
Tactical
Operational
Management Management
Strategic
Management

Levels

Management
Data Limitations
Satisficing
Limited Time

Rationality

Decision-Making

Limited information
Processing
Stages

Implementation

Intelligence
Choice
Design

6.1 Introduction
Information supports human activity in the sense that it enables decisions to be made about appropriate
actions in particular circumstances. Decisions and decision-making therefore mediates between
information and action and is a critical aspect of the domain of informatics (figure 6.1). In this chapter we
consider the issue of decision-making as a process and compare a rational model of this process against
some of the practicalities of the human experience of decision-making.

Information

Decision
Making

Decision

Action

Figure 6.1: Decision-making and action

Management can be seen as a control process within organisations (figure 6.2). Management is a human
activity system that controls other human activity systems. The primary activity of management is
making decisions particularly those at the strategic and tactical level concerning organisational action

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(Chapter 20). Effective management decision-making is reliant on good information. It is for this reason
that we consider these three issues of management, decision-making and information in this chapter.
Organisation
Inputs

Outputs
Human Activity System

Control
Inputs

Management

Figure 6.2: Management as a control process

6.2 The Process of Decision-making
One of the primary activities of management is decision-making. Decision-making is the activity of
deciding on appropriate action in particular situations. Decision-making is reliant on information in the
sense that information is seen as reducing uncertainty in decision-making (chapter 2).
Information is data interpreted in some context by some particular person or group. Since information
relies on data, the general assumption is that good decision-making is reliant on good data. This begs the
question of what is good data? Some possible features of good data are:

Accuracy. Is the data expressed to a suitable level of accuracy?

Age. Is the data current?

Time Horizon. Is data suitably timely?

Level of Summarisation. Is the data summarised to an appropriate level of aggregation?

Completeness. How completely does the data cover the domain?

Accessibility. Is the data accessible?

Relevance. Is the data relevant to the decision to be made?

Clearly most of these properties depend upon the context within which a decision is made. But on what
basis does decision-making take place? Simon argues that there are four general stages in any
decision-making process as illustrated in figure 6.5 (Simon, 1960):

Intelligence. In this phase data in the decision-making area are examined. Examination of this data
may lead to the specification of a problem to be solved or some recognition of an opportunity for the
organisation

Design. The problem is formulated, solutions are developed and tested for feasibility

Choice. Selection is made amongst alternatives

Implementation. The chosen alternative is implemented and substantiated to stakeholders in the

organisation

Decision-Making
Information

Intelligence

Design

Choice

Implementation

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Decision

Figure 6.3: The decision-making process

The decision-making model illustrated in figure 6.3 has a number of explicit feedback loops. This
suggests that most decision-making is iterative. For instance, at the design phase additional questions
may arise that demand further intelligence gathering.
Example
Consider an academic school at a university making decisions as to which new modules to run. The
intelligence phase will involve gathering data about possible staff interests and skills, modules run by
other institutions and the requests made by commerce and industry. In the design phase a number of key
module descriptions may be written and assessed in terms of the feasibility of the school running them. A
choice will then be made amongst the alternative modules and the chosen modules will then be passed on
to other organisational processes such as validation.
6.3 Rationality
Classic models of decision-making assume it to be a rational process. Rational decision-making is
characterised by the following features:

Intelligence. In rational decision-making the decision-maker must gather all relevant data and
interpret it in an unbiased manner

Design. The decision-maker must identify all feasible alternatives and identify an explicit set of
criteria for selecting between them

Choice. The decision-maker should choose amongst alternatives based on a systematic assessment
using explicit weightings of the importance of key criteria

Close studies of actual human decision-making reveal that most such activity within organisations
diverges substantially from this rational ideal. This is not surprising when one realises that rational
decision-making requires unlimited time within which to make a decision, all the information relevant to
the problem and an information processor that is able to handle all of the information and alternatives.
Therefore most human decision-making appears to be satisficing rather than rational behaviour.
Satisficing decision-making describes how humans make decisions in a limited amount of time, based on
limited information and with limited ability to process information.

Limited Time. Most management decision-making has to be done in a finite amount of time

Limited Information. In most practicable situations it is impossible to gather all the possible data
relevant to the problem because of limited resources

Limited Information-Processing Capability. The decision-making process is constrained by the

limitations of human information processing. For instance, information is interpreted and human
interpretation is subject to non-rational emotive influences. Also human beings display limitations of
short-term memory. Most humans can handle on average only seven items of information at any one
time

6.4 Levels of Management

Decision-making is a key activity of management but decision-making is performed at a number of levels
within organisations. In terms of management decision-making we may identify three levels of
management: strategic management, tactical management and operational management (figure 6.4).
Large
Time Horizon

Strategic
Management

Summary
Data

Unstructured
Problems

Tactical
Management
Operational
Management

Small
Time Horizon

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Detailed
Data

Structured
Problems

Figure 6.4: Levels of management

These three levels of management can be distinguished on the dimensions of:

Decision-making characteristics. The higher we travel up the management hierarchy the less
structured problems and decisions become. Structured decisions are frequently called algorithmic
decisions in that an explicit procedure can be represented and implemented for making such
decisions. Unstructured decisions are frequently called heuristic decisions in that no set procedure
can be established but some rules-of-thumb can be suggested as to ways of approaching the
problem.

Data needs. The higher we travel up the management hierarchy the greater the need for summary
data and data concerned with the external environment. Operational management need detailed data
on the operational activities of the organisation. Strategic management needs data which summarises
aspects of organisational performance and compares this against competitors

Time horizon. The higher we travel up the management hierarchy the larger the time horizon of both
decisions and information. Operational managers need data to help them make decisions on an
hour-by-hour basis. Strategic managers are more likely to think in time-frames of months and years

6.5 MIS, DSS and EIS

The key interest in management and decision-making fostered particularly by the literature in the area of
organisational behaviour (chapter 16) led to the development of a number of specialised information
systems for management: MIS, DSS and EIS.
MIS generally are proposed for providing data in support of structured decision-making. A decision is
structured if the decision-making process can be described in detail before the decision is made. Tactical
decision-making is therefore likely to be of a structured form. Examples of structured decisions are
deciding on appropriate stock levels and pricing normal orders.
DSS and EIS generally are proposed for providing data in support of unstructured decision-making. A
decision is unstructured if the decision-making process cannot be described in detail. This may be
because the problem has not arisen before, is characterised by incomplete or uncertain knowledge, or
uses non-quantifiable data. Examples of unstructured decision-making are selecting personnel and
determining investment.
Example
In chapter 5 we identified four major data sets - employees, customers, finance and stock - important to
the information systems architecture of our model organisation. These four major data sets are likely to
form the key inputs into a management information system for some organisation (see figure 6.5). Using
such a system, operational managers can continually monitor the state of the organisation. This is
indicated in figure 6.5 as one large management information system. In practice it may form a number of
integrated MIS perhaps for particular business areas. One of the key outputs from the MIS will be
summarised data on major trends affecting the company such as labour costs, current levels of assets and
current levels of spending. This data may be written to a planning data store for use by an executive
information system. The EIS is likely to be used to formulate high-level strategic decisions affecting the
company.
Executive Information System

Planning

Management Information System

Employees

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Customers

Finance

Stock

Figure 6.5: EIS, MIS and Data stores

6.6 Summary

Decisions and decision-making mediates between information and action

Good decision-making is reliant on good information. Information reduces uncertainty in

decision-making

Characteristics of good data include accuracy, relevance, timeliness, accessibility and

completeness

We may identify three levels of management: strategic management, tactical management and
operational management. There are clear differences in information needs and forms of
decision-making appropriate to the three levels of management

Simon identifies the following stages in any decision-making: intelligence, design, choice and
implementation

Most human decision-making is satisficing rather than rational

MIS, EIS and DSS have all been developed with the aim of supporting management
decision-making in organisations

6.7 References
Simon, H. (1960). The New Science of Management Decisions. Harper and Row, New York.

6.8 Questions

Define the process of management in systems terms

List some of the features of good data

What are the features of rational decision-making?

Explain why human decision-making is satisficing rather than rational

Distinguish between the three levels of management

Distinguish between MIS, DSS and EIS

6.9 Exercises

Generate the information appropriate to some decision. What action results from the decision?

Dissect some decision-making in terms of the phases of Simons model of the decision-making
process

Provide three examples of accurate, timely and complete data

Give an example of human decision-making suffering from limited time and information

Consider some organisation known to you. Classify the managerial divisions in the chart of the
organisation in terms of the distinctions made between levels of management

Investigate some organisation to determine whether they have any management information
systems and what precisely are they used for

6.10 Projects

Investigate the applicability of the three layered management model to some organisation

Investigate the utility of Simon's model of decision-making by gathering detailed observational

material on decision-making within project management

Determine the level of use of MIS, DSS and EIS in some industrial sector

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