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Chapter 4

Chapter 4 Notes

Financial Accounting
Course Code
Tim Richardson

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Chapter 4 Notes
in business, decision making has 4 distinct phases, which are:
1) Intelligence (find what to fix): Find or recognize a problem, need, or opportunity (also called the diagnostic phase of
decision making). The intelligence phase involves detecting and interpreting signs that indicate a situation needs your
attention. These “signs” come in many forms: consistent customer requests for new product features, the threat of new
competition, declining sales, rising costs, an offer from a company to handle your distribution needs, and so on.
2) Design (find fixes): Consider possible ways of solving the problem, filling the need, or taking advantage of the opportunity.
In this phase, you develop all the possible solutions you can.
3) Choice (pick a fix): Examine and weigh the merits of each solution, estimate the consequences of each, and choose the best
one (which may be to do nothing at all). The “best” solution may depend on such factors as cost, ease of implementation,
staffing requirements, and timing. This is the prescriptive phase of decision making—it’s the stage at which a course of
action is prescribed.
4) Implementation (apply the fix): Carry out the chosen solution, monitor the results, and make adjustments as necessary.
Simply implementing a solution is seldom enough. Your chosen solution will always need fine-tuning, especially for
complex problems or changing environments.
there are 4 main types of decisions: unstructured; recurring, structured, and nonrecurring
structured decisions involve processing a certain kind of information in a specified way so that you will always get right answer
a non-structured decision is one for which there may be several “right” answers, and there is no precise way to get a right answer
a recurring decision is one that happens repeatedly, and often periodically, whether weekly, monthly, quarterly, or yearly
lastly, a nonrecurring, or ad hoc, decision is one that is made infrequently (perhaps only once), and there may be different criteria
for determining the best solution each time
Decision Support Systems (DSS)
a DSS is a highly flexible and interactive IT system that is designed to support decision making when problem is not structured
a DSS is an alliance between the decision maker and specialized support provided by IT
IT brings speed, vast amounts of info, and sophisticated processing capabilities to help create info useful in making a decision
the decision maker brings know-how in the form of experience, intuition, judgment, and knowledge of the relevant factors
advantages of a DSS are—increased productivity, understanding, speed, flexibility; and reduced problem complexity, cost
Components of a Decision Support System
a typical DSS has 3 components: model management, data management, and user interface management
the model management component consists of both the DSS models and the DSS model management system
a model is a representation of some event, fact, or situation, which businesses use to represent variables and their relationships
the data management component performs the function of storing and maintaining the information that DSS should use
the data management component, therefore, consists of both the DSS information and the DSS database management system
the information that is used in the DSS comes from one or more of three sources:
1) Organizational information—The decision maker can use virtually any information available in the organization for DSS.
The DSS can be designed to access this information directly from the company’s databases and data warehouses.
2) External information—Some decisions require input from external sources, such as TSX, of information.
3) Personal information—The decision maker can incorporate their own insights and experience into the DSS.
the user interface management component allows the decision maker to communicate with the DSS
it consists of the user interface and the user interface management system
this is component that allows decision maker to combine know-how with storage and processing capabilities of computer
Geographic Information Systems
a geographic information system (GIS) is a decision support system designed specifically to analyze spatial information
spatial information is any information that can be shown in map form, such as roads or the path of a hurricane
businesses use GIS software to analyze information, generate business intelligence, and make decisions
DSSs and GISs are IT systems that augment business brainpower
IT can further expand business brainpower by means of artificial intelligence (AI)
the AI systems that businesses use most can be classified into the following major categories—(1) expert systems; (2) neural
networks (and fuzzy logic); (3) genetic algorithms; and (4) intelligent agents (or agent-based technologies)
Expert Systems
an expert system, also called a knowledge-based system, is an AI system that applies reasoning capabilities to reach a conclusion
expert systems are excellent for diagnostic and prescriptive problems
an expert system is usually built for a specific application area called a domain, such as accounting or medicine
a DSS sometimes incorporates expert systems, but an expert system is fundamentally different from a DSS
What Expert Systems Can and Can’t Do
an expert system uses IT to capture and apply human expertise
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