Using Data Intensively

Pages14-17
DOIhttps://doi.org/10.1108/eb057454
Publication Date01 September 1986
AuthorIan Law
SubjectEconomics,Information & knowledge management,Management science & operations
Using Data
Intensively
by Ian Law
Faculty of Business, Department of
Economics, Coventry (Lanchester)
Polytechnic
Introduction
The first stage of the IT revolution is now well established;
most commercial organisations have the hardware and soft-
ware to gather and process as much, if not more, informa-
tion than they can use. The dramatic reduction in costs of
mini and microcomputers has opened up new fields for
computer applications, and the software writers have been
quick to seize the opportunity to make this power available
to all departments of an enterprise.
A recently published report of analysis by Ashton-Tate[1]
reveals that 59 per cent of marketing departments in the
UK have their own micro and a further 23 per cent have
access to one elsewhere in their organisation. In some of
these firms, the second phase of this revolution has begun.
There is a move towards supplementing the data-handling
capabilities, with extra systems and increasing the
sophistication of the processing methods. AshtonTate also
reveal the spread of software amongst marketing depart-
ments, with nearly half using databases and over half us-
ing spread-sheets.
This increasing use of computers in marketing departments
is paralleled in some other departments, like finance, though
less so perhaps in departments like personnel (see, for ex-
ample,
the work of Torrington and Hall[2]) and can, if not
controlled,
lead to increases in the cost of information.
It is the purpose of this article to consider the nature of the
costs of information, and to identify a way in which costly
information may be utilised to greatest effect.
Information Costs
I would prefer to think that it is a reflection of my training
as an economist, rather than any innate meanness, that has
led to a concern with the lack of attention paid to costs in
the literature on management information and decision sup-
port systems. In some books, passing reference may be
found to the use of a cost-benefit approach to the acquisi-
tion of extra data, but rarely does it receive more than a cur-
sory treatment. A recent article[3], which was devoted to
the costs of management information, did address the prob-
lem,
but offered little guidance as to how economies may
be effected.
All costs have two dimensions, "actual" and "opportuni-
ty" costs. The actual cost of data acquisition is the expen-
diture on those resources used up in the process,the
hardware, software and personnel costs; all very important
costs for an organisation striving to attain target rates of
return on turnover, but not necessarily the only costs that
they should be focusing on.
Opportunity cost is an economic concept which emphasises
the problem of choice, by measuring the costs of one course
of action, for example, buying an information system with
an alternative, or not buying an information system. The ac-
tual cost of the system is the £x paid for the system; the
opportunity cost is the "cost" of not buying the system
which may be positive, zero or negative. If the system
prevents bad decisions being made, its purchase can have
a negative opportunity cost (if the costs of the bad
deci-
sions exceed the cost of the system), and the organisation
can be made better off. Should the system lead to worse
decisions, the opportunity cost would exceed actual costs
by the magnitude of the induced losses.
Resource Costs Keep Falling
A combination of technical development and competition
has produced a situation in which the hardware cost of
undertaking data processing is declining and seems set to
decline for the foreseeable future. On the software side,
whilst prices may be high for the better packages, the high
prices are themselves attracting new entrants to the market,
which,
in
turn,
is producing forces that will tend to reduce
prices. Further, in order to establish themselves in the
market, newcomers are forced to provide software that
represents an improvement over existing products, either
by being more "user friendly", of greater usefulness or of-
fering better output quality. All of these developments repre-
sent lower resource costs of producing the same results
by reducing the time spent obtaining the information
(through more user friendliness), by reducing the amount
of time spent in converting the output from one piece of
software to input into another, by integrating software, or
simply by introducing computers into a new area.
Developments in databases, "number-crunching" software
and graphics are guaranteed to continue this process of cost
reduction for some time.
14 IMDS SEPTEMBER/OCTOBER 1986

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