THE EFFECTIVENESS OF SPREADSHEETS IN DECISION MAKING

In the cut throat , highly rapid nature of the business world in the 1990's, middle level and top level managers find themselves under immense pressure to gather , manipulate , correlate and analyse data in the hunt for that correct and often times killer business decision. Firstly , with the aid of top management information systems , managers have found that summaries and reports were quickly analysed for making operational decisions but with the advent of Decision Support System (DSS) tools such as spreadsheets , this efficiency was further bolstered by their ability for solving tactical and strategic problems quickly.

Through spreadsheets, there is a removal of paperwork , files , calculations and number crunching and makes the selection of appropriate statistics and their interpretation more important and more effective. Spreadsheets became more evolved and more widespread , due to certain changes in the computer industry. With the costs of computer hardware taking a dive and end users/consumers becoming more sophisticated in general due to accessible user friendly software , the computer started coming into a sphere of its own .

Before this breakthrough software was mainly used for simple automated tasks. However , software was now facilitating intelligent activities and ran under graphical user interfaces making it easier for non programmers to create applications. This eventually led to a class of systems called Information Support Systems (ISS) of which there are two branches ;DSS and Executive Information Systems (EIS) .DSS is where spreadsheets are seen to be most commonly effective , especially with regard to decision making. So how does a basic spreadsheet work ?

Most spreadsheets have the same general qualities mainly because there are components called 'model builders' which behave in a similar fashion as a database which structures , creates , modifies and maintains models. Each model builder has a specified and structured framework to deal with the variables and interrelationships that will occur with the different aspects and problems of each firm . Every firm is unique and will have its own independent data and independent variables which can be fed into the rows and columns of the spreadsheet . From that position the manager can see the effects of changing one of the data values or variables , all of which will be analysed further in this paper . The 'model builder' adheres to a consistent policy with regard to definitions and the application of rules so that the model will give accurate data consistently.

As we have mentioned earlier every firm is unique and managers would like to the up to the minute technology on spreadsheets so each manager can have his/her own model spreadsheet that will be designed to suit the needs of that particular business . For managers in accounting , finances , management and sales especially , there are statistical models which provide quality and efficient information in the search for statistics such as variance , standards deviation , graphical analysis and variable analysis. These aids will help the manager come up with a speedy conclusion to many queries. There are other similar models for other types of industries which help managers in decision making .

For marketing managers there is a model that enables them to make accurate decisions on pricing , advertising , forecasting , strategies and very importantly , discounting. There are accounting and financial models which can set out profit and loss accounts , balance sheets , cost benefit analysis and other tests of measuring financial health. For most spreadsheets , especially ones like Microsoft Excel and Improv for Windows which is a Lotus 1-2-3 package there are specific characteristics and qualities that help speed up decision making. Firstly there is a "What-If" analysis which is a process whereby the computer package can devise for the manager certain scenarios that may occur if he makes changes to model variables or their interrelationships . If the manager cut selling price by 18% for the January sales, the "What-If" analysis would be able to foresee what impact this would have on this firm. Another feature of this is the "goal-seeking" function whereby the manager can ask the computer , "what do we have to do to our variables or input values to achieve our goals ?". It can ask, at what price can we put our products at, to achieve after tax profits of £12.5 million .The goal seeking feature takes everything into account and gives the manager several alternative courses of action that he can take to achieve his goal.

A third feature is the risk analysis function. This function speedily informs the manager on the risk factor regarding a decision through the use of probabilities and other statistical techniques such as the standard deviation and the expected confidence level of a decision. Fourthly , there is the presentation of facts and figures through the use of graphical analysis. Most managers will get bogged down with statistics, numbers , mathematical functions , percentages etc., but the quickest way of digesting this data is through simple but effective graphics . The statistics may not lie but they may conceal the truth. A mathematical derivation may be correct but the underlying assumption may not be realistic in business terms. Microsoft Excel can give the manager a huge variety of graphs , pi-charts , in many patterns and colours which will visually be a huge aid and will lead to a speedy resolution of a problem. In addition to these DSS , there are two functions of EIS which help in the decision making process.

"Derived Information" is a feature whereby the positioning of a problem is immediately noticed and located . Even though it doesn't give the manager the cause of the problem , it does however point the manager in the right direction of where the problem is coming from. Finally there is the "Drill-Down" function which speedily and accurately provides the manager with information regarding data at the touch of two or three buttons. In summary , spreadsheets are well integrated , user friendly computer baser tools that are internal and external data to solve semi-structured and unstructured problems , by identifying , analysing and selecting the best alternative.

THE EFFECTIVENESS OF SPREADSHEETS IN DECISION MAKING NAME:

DES MC AULEY.

STUDENT NO: 96328142.

LECTURER: JOE CUNNINGHAM. COURSE:

MANAGEMENT INFORMATION SYSTEMS.

DATE: 3 MARCH , 1998 .

SIGNED: