Do you know what you need to know?
Are you getting what you want from your information systems or do all important decisions require their own ad hoc analyses and the combined efforts of a legion of employees (often disguised as, каже, a cross-functional team)?
If routine decisions require such analyses and compilations then it is likely that your computerized “information system” isn′t producing information; наместо, it might be a data processing system that keeps track of details for other purposes.
These other purposes may include legitimate and important functions like record-keeping and book-keeping, but systems designed to efficiently keep track of transactions and record events do not necessarily produce usable information for senior or even middle managers.
Во овој момент, you may be asking: “What is this guy talking about? This is nonsense! We spend $X on MIS! How could we not have the information that we need?"1
It is quite easy, всушност.
The specialized talents of system designers:
Many people involved in the design of information systems tend to focus on the systems and not the information—the desired output. Особено, system designers may not know what to know to make business decisions. Во оние случаи, and without the proper guidance, it should not be surprising that relevant facts are not readily available to decision makers.
Сега, before we go further, permit us the opportunity to define a few words for the way that we use them.
What is information?
A decision is the selection of a course of action between two or among many such alternatives. За нас, information consists of facts that could cause a decision to change, јас, relevant facts. If your information system was not designed with your decisions in mind, it is quite possible that those terabytes and terabytes of details in storage are not information; they don’t inform your decisions.
Значи, if the sole purpose of your information system is to inform decisions, then the first design question should be: what types of decisions do we make and what facts do we need to make them?2
The second question to ask should be: what is the best level of precision?
More precision allows finer or truer estimates of the costs and benefits of particular alternatives and usually permits the possibility of selecting a better—say, more profitable—alternative.3
Сепак, while more precise information leads to “better” decisions, more precision may be uneconomical because of the associated increased processing and system costs.4 5
Значи–for the purposes of this discussion–if we ignore incentive effects, then optimal information system design trades off the relatively certain and immediate additional cost associated with collecting and aggregrating more precise information with the, expected but uncertain future benefits of making “подобро” or more profitable decisions.6
Getting back to our problem, let’s say that you have already spent a bundle of money on information systems, but you still don’t have what you or your employees need to make routine decisions.
What can you do?
Several alternatives may be available, and they are substantially cheaper to implement than a new design. These alternatives include: (1) building permanent links to integrate multiple existing databases; (2) keeping track of new fields within existing databases or a creating a special-purpose database and integrating it with existing ones; или (3) something as simple as a few training sessions and a reorientation of your focus to what may already exist but may be hidden under boxes of useless reports.
We discuss these three possible solutions below and mention possible inefficiencies created by their absence.
Build permanent links to integrate existing databases:
We’ve know many highly-paid managers and analysts who spend a substantial amount of their time and effort combining and periodically recombining various databases because (substantially cheaper) programmers aren’t available to develop and automate permanent links once and for all.
If your firm has multiple information systems, especially if they were purchased from outside vendors, there is a good chance that a substantial number of your expensive employees spend a good portion of their time on this integration and report generation.
Create and Integrate New Add-on Databases:
We’ve also known a number of folks who manually create and update needed databases in spreadsheets. These databases would usually appear as additional fields if they were appended to official databases.
The innovative workers who create and maintain these files are likely to be conscientious and hard-working and may devote a substantial portion of their time working to overcome the shortcomings of the existing information system. They are doing their jobs but not very efficiently.
Because these employees often view this information that they personally gathered as their own private information (and job security), one needs to be careful when determining how such information should be integrated into official systems.
Provide Training and Reorientation (regarding relevant factors):
If managers consider irrelevant factors or ignore relevant ones when making decisions, it is more likely that sub-optimal decisions will be made.
We mention training because we have found it unusual for managers to recognize the need for such a solution. Всушност, we have faced several situations where firms have identified symptoms of poor decision-making and have wished to treat those symptoms rather than the underlying problem.
In these cases we have been ask to design new systems or evaluate potential vendor systems. Usually the relevant information already existed but was not easily found or was not available in a readily-understood format or guidance was needed to identify the relevant facts.
What can we do for you?
Here is an example. In one case, we were asked by a natural resources commodity producer to design a new activity-based costing (ABC) system.
Being curious, ние треба: why do you want a new cost system?
The firm’s management replied that they wanted to make better decisions about how to get, process, and sell the product.
Being pedantic, we made sure to distinguish between (1) cost reporting and (2) cost behavior. The ABC system would have provided different reported costs but necessarily additional relevant costs for the decisions of interest. To determine relevant costs, one needs to understand cost behavior and how it changes as alternatives change. 7
We explained to our client that despite claims to the contrary, ABC systems rarely identify additional marginal cost (relevant costs for them), especially for firms in their industry that faced high, Тврда (and sunk) acquisition costs and a high proportion of fixed-to-variable processing costs.
We proceeded to show how all the relevant facts were already available but needed to be reorganized, јас, aggregated, based upon the way tactical decisions could be made in the field. We were then able to advise the optimal way to exploit the resource at one site, including how to deal with variations in inherent quality.
Copyright © Spero Consulting, 2008.
Фусноти:
- Where X may be in the hundreds of millions or billions. ↩
- There are other valid uses of information systems, particularly cost systems, but we save that for another time. ↩
- The notion of “better” will depend upon your organization’s objective and decision criterion or criteria. ↩
- For you information economists out there, we are ignoring behavioral arguments. There are many social settings where more information—even if it is free—destroys collective wealth. See Kanodia, Синг и Spero (JAR, 2005) for an example and a brief survey of the literature. ↩
- Исто така, we often discuss the differences between more details and additional precision in terms of cost assignment as well as in the distinction between cost drivers and cost allocation bases, including how the choice of bases can affect subordinate behavior. We’ll try to remember to provide a link here when we post those topics. ↩
- We’ll save a more detailed discussion of those trade-offs for another future post. ↩
- We believe that one often-ignored reason for rising healthcare costs involves the fact that hospital managers often confuse reported costs with cost behavior. Всушност, we worked with one hospital to improve their managers’ understanding and their situation. ↩
