IFSM 300 ASSN 2

1/13/22, 2:53 PM How Information Supports Decision Making

https://learn.umgc.edu/d2l/le/content/622997/viewContent/25150601/View 1/6

How Information Supports Decision Making

Now that you have been introduced to the basics of data, how it can be stored, and the

importance of data quality, let’s look at how data transformed into information supports

organizational decision making. In their simplest form, information systems are all about

getting the right information in the most usable format to the right people, at the right

time and place. Advances in integrated software applications, the internet, and better data

management practices provide businesses with better tools to support that goal.

A key competitive advantage of an organization is the ability to react to changes quickly.

Being able to make the right decision to address a potential threat or seize an opportunity

could make the difference in whether or not the company stays in business or continues

to increase profits. The key to making good decisions is having the relevant information

readily available in the form that is needed. There are three basic levels of decision making

in an organization: operational, managerial, and strategic as illustrated below.

Let's look at the process of creating an invoice. An invoice contains several pieces of data,

such as customer name, number, address, shipping method, items ordered, and quantities.

This data is required at an operational level to update inventories, handle logistics, add to

Learning Resource

1/13/22, 2:53 PM How Information Supports Decision Making

https://learn.umgc.edu/d2l/le/content/622997/viewContent/25150601/View 2/6

accounts receivable, and so forth. At the mid-level of our pyramid, the management level,

the data from each individual invoice are not as important as the cumulative information

that many invoices can provide. For example, sales have increased 25% on product A,

orders for product B are shipping consistently behind schedule, and shipping costs with

shipper X are increasing more than with other shippers. With this information on trends or

patterns, management can investigate further and make decisions on production

schedules, supplier relationships, or preferred shipping vendors.

At the senior or executive level of an organization, the company leadership is less

concerned than middle management about the trends or patterns—their concerns are

strategic. Senior management looks at information, both from within the organization and

external. For example, suppose a key component needed in the manufacturing process is

petroleum-based. Rising oil prices, coupled with industry forecasts that prices will

continue to rise, call for addressing this situation at a strategic level. Senior management

might consider whether a price increase can be justified, how much of an increase the

market can bear, or whether there are alternatives that would not degrade the product.

A primary advantage of an information system is its ability to support and improve

decision making throughout the organization by turning data into useful information.

However, the system is just a tool and does not replace the human factor; people are still

required to make the choices involved in the decisions. Individuals at all levels of the

organization can use the information provided by the system as they make their decisions.

In the invoice example above, the creation and use of the invoice data could all be done

by hand, using paper invoices. However, the use of a system to capture, store, and share

that information throughout the organization significantly increases the efficiency and

effectiveness of the process and makes the information immediately and readily available

to those who need it to make their decisions.

We can see that information moves through the organization and is viewed for different

purposes by different levels within the organization. However, the data are captured at

the operational level (transaction-processing systems) and made available in appropriate

forms (summary of product, customer, geographic distribution differences, and so on) at

the various managerial levels.

It is important to note that information can flow both up and down the levels within an

organization. Information that is useful for monitoring ("How are we doing?") typically

flows from the operational level upward. Control information ("Is business going as

planned?") typically flows from the top level downward. For example, a senior manager

notes that sales figures are declining. She queries down through the organization to find

more information to control the declining sales. From mid-level management, she may

1/13/22, 2:53 PM How Information Supports Decision Making

https://learn.umgc.edu/d2l/le/content/622997/viewContent/25150601/View 3/6

learn that only the Midwest region is experiencing a decline. From the operational level,

she may learn that the sales force in that region has had significant turnover and that 40

percent of its sales representatives have fewer than six months of experience.

More specifically, let’s look at some examples of possible types of information and

decisions different levels of the organization based on information from an invoice

processing system based on the graphic above.

Level

Types of

Information

Area of

Focus or

Concern

Decision

Example

Supporting

Information

from the IT

System

Strategic Overall sales

figures

Amount of

increase in

market share.

Monitor sales volume vs.

projected

sales.

Decide to

discontinue

under-

performing products.

The system

could

produce a

report of products

where the

sales volume

is not

meeting the

projected volume.

Strategic Overall Sales

Figures

Determine

manufacturin

g capacity

requirements and resource

utilization.

Identify

increasing

costs of raw

materials due to increased

oil prices.

Decide

whether to

reduce

production of products that

use

significant

petroleum-

based

ingredients.

The system

could provide

a report on

products that include more

than 10%

petroleum-

based

ingredients.

1/13/22, 2:53 PM How Information Supports Decision Making

https://learn.umgc.edu/d2l/le/content/622997/viewContent/25150601/View 4/6

Level

Types of

Information

Area of

Focus or

Concern

Decision

Example

Supporting

Information

from the IT

System

Managerial Monthly

Invoices

Plan monthly

production

schedule.

Schedule employees.

Plan

maintenance

schedules.

Manage

inventory.

Decide to

increase

production

schedule to meet

increased

demands on

certain

products.

The system

would

provide

product sales volume

information

to indicate

high-demand

products.

Managerial Monthly

Invoices

Impact on

monthly

payroll;

overtime hours

worked.

Decide to

increase

number of

employees in certain

departments

to reduce

excessive

overtime.

The system

could provide

a report

indicating where sales

exceeded

projected

demand by

15%.

1/13/22, 2:53 PM How Information Supports Decision Making

https://learn.umgc.edu/d2l/le/content/622997/viewContent/25150601/View 5/6

Level

Types of

Information

Area of

Focus or

Concern

Decision

Example

Supporting

Information

from the IT

System

Operational Invoice Data Update

inventory,

schedule

production. Coordinate

shipping.

Decide to

negotiate

shipping

rates with most-used

shippers.

The system

could

produce a

report of the volume of

shipping

done with

each

shipping

vendor and their

shipping

rates.

To provide a more personal example, think about the information you can gain from your

online bank account system. The system can show your current balance, total of deposits,

total of withdrawals, pending payments (if you use online bill paying), etc. Then based on

information the system provides, you can make more informed decisions about your

budgeting and spending. If the system showed information that last month your total

withdrawals at ATM machines had increased significantly, on average you were hitting the

ATM machine 3 or 4 times each week, and the withdrawals averaged $50 per withdrawal,

you could decide to limit yourself to once-a-week ATM withdrawals of no more than

$100. Further analysis of your spending habits could show a significant amount of money

being spent daily on eating lunch out. You could then decide to pack your lunch two days

a week. This shows how you could make fact-based decisions supported by information

from the banking information system.

Keep in mind that information technology is simply a tool. Knowing how to use the tool

correctly is instrumental to overall effectiveness. The key to using IT successfully is

knowing what data an information system contains and how the data can be converted

1/13/22, 2:53 PM How Information Supports Decision Making

https://learn.umgc.edu/d2l/le/content/622997/viewContent/25150601/View 6/6

into useful information to support decision making at each level in the organization. This

helps organizations achieve their business strategy and maintain or increase its

competitive advantage.

© 2022 University of Maryland Global Campus

All links to external sites were verified at the time of publication. UMGC is not responsible for the validity or integrity

of information located at external sites.