How Can Information Reduce Risk When Making a Decision?

How Can Information Reduce Risk When Making a Decision?

Information is one of the four major resources (along with material, human, and financial resources) managers have to operate a business.

- it is information that helps managers reduce risk when making a decision.

1) Information and Risk

- Relevant Information -> Better Intelligence and Knowledge -> Better Decisions (important because they can provide a competitive edge over competitors and improve a firm's profits)
- when the amount of available information is high, there is less risk; when the amount of available information is low, there is more risk
- information, when understood properly, produces knowledge and empowers managers and employees to make better decisions

2) Information Rules

- if dealers lower their prices, they will sell more cars
- information rule emerges when research confirms the same results each time that it studies the same or a similar set of circumstances
- businesspeople try to accumulate information rules to shorten the time they spend analyzing choices
- "great simplifiers" for all decision makers (graphs do to analysis of data)
- necessary because business conditions rarely stay the same for very long

3) The Difference Between Data and Information

*Data = numerical or verbal descriptions that usually result from some sort of measurement
- data transforms into information
*Information = data presented in a form that is useful for a specific purpose
- ex: manager uses a computer to graph the average wages paid to men and to women in each of the five years

4) Knowledge Management

*Database = a single collection of data and information stored in one place that can be used by people throughout an organization to make decisions
*Knowledge Management (KM) = a firm's procedures for generating, using, and sharing the data and information
= all of these four vocab words become important parts of a firm's management information system